Home' Future Building Australian Infrastructure Review : Volume 5 Number 1 Contents futurebuilding 73
Volume 5 Number 1
occur. Without this investment, it is only a matter of
time before reliability comes into sharp focus.
Furthermore, if wholesale prices remain low,
new renewable investment will be increasingly
reliant upon government subsidies under the RET.
It is clear to me that the status quo is unsustainable.
Energy throughput is paid for, but reliability is
not. Reliable capacity is now more important as
we move towards a market with more intermittent
renewables. It is important that this reliable capacity
has a price signal to ensure that it continues to be
available when required.
Policymakers must consider how the RET
becomes a 'transitional' rather than 'additional'
policy. For each unit of renewable capacity added
through the RET, the policy should incentivise a high-
emitting unit of capacity to be withdrawn -- perhaps
using a similar but reverse RET-style obligation on
liable entities to contract with generators to facilitate
Public policy rationale for SRES
Moving to the second issue I outlined, it is important
that policymakers question the public policy rationale
for continuing to subsidise small-scale solar PV. There
is little doubt that solar PV has been generously
subsidised -- with around $6 billion in capital
subsidies provided by the Federal Government, and
a further $6 billion to run via historic and future
Premium Feed-in Tariff payments.
All Premium Feed-in Tariffs have since been
closed to new households, but the schemes remain
on foot until their termination date -- some spanning
until the year 2028. Explicit subsidies, funded by
electricity consumers through feed-in tariffs, have
resulted in some customers with PV signi cantly
pro ting at the expense of those customers without it.
AGL's economists highlighted the social inequity
with these policies, nding that the 'implied tax rate'
of the lowest-income households was around three
times higher than the 'implied tax rate' of the highest
income households. But there are still two ways in
which solar PV is being provided with an unnecessary
cross-subsidy -- rstly, poor tariff design, and secondly,
the continued operation of the Small-scale Renewable
Energy Scheme (SRES) policy. The way tariffs are
currently set allows those with solar PV to 'free-ride'.
We know, looking at Figure 3, that household
peak demand occurs between 4 pm and 8 pm.
Network costs directly relate to meeting this peak
demand, and that is why distribution networks de ne
the 'peak period' as 4 pm to 8 pm.
Now, let us consider what happens when a
customer installs a solar panel (Figure 4). The pro le
of solar production is highlighted by the black line.
At the time of peak electricity consumption, the solar
PV unit is producing little energy. In other words, the
cost of the network is broadly the same, irrespective
of whether a household has solar, because networks
are built to meet peak demand. Now, if we throw into
the mix the fact that network tariffs are currently based
upon 'average cost' energy throughput pricing, we can
begin to see the signi cant cross-subsidy that occurs.
If you look at the 'net consumption' of the
household and how they are charged under existing
tariffs, it's clear that network operators see signi cantly
reduced energy throughput due to the solar PV unit
'hollowing out' electricity demand in the middle
of the day. But peak demand is almost unaffected.
It is reduced by ve per cent, yet the average PV
household is avoiding, to our calculations, 32 per
Figure 3: Household demand and solar PV output
Figure 4: Net household demand and solar PV output
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