Do solar rebates result in the poor subsidising the rich?
If you spend a significant amount of time on the internet, which I can’t recommend as it is a silly place, then you may have come across people who claim rooftop solar is an enormous scam that depends on government subsidies unfairly taken from those who can’t install it, or choose not to.
This is not true.
What is true is there are two modest schemes. One that is active, and one that is closed to new entrants. Together they slightly increase the cost of grid electricity for all Australians and so disadvantage people who either cannot or have not installed rooftop solar.
What is also true is rooftop solar provides several advantages to people who don’t have it.
Another fact is, depending on the values on placed on the benefits of rooftop solar, the current costs to non-solar households can exceed their benefits.
But this does not make rooftop solar a scam.
The costs of rooftop solar to those without it are declining and will continue to do so until they disappear, but the benefits will remain and outweigh the costs. Making a sacrifice now to prevent our shortsightedness from gravely destabilizing the earth’s climate is not a scam. It’s how we build a better future.
I am not going to go into who should pay the costs or if it would have been better to do things differently. What I am going to do is describe how rooftop solar disadvantages non-solar households and estimate of how much it costs them. Then I am going to describe the benefits of rooftop solar to non-solar households and give estimates of their value. I am doing this so that when people engage in stupid arguments about it on the internet, they can have better informed stupid arguments.
Two Ways Rooftop Solar Harms Those Without It
There are only two ways in which rooftop solar harms people without it and they both involve small increases to the cost of grid electricity:
- STCs lower the cost of rooftop solar and slightly increase grid electricity prices.
- Old, high, feed-in tariffs are still paid to some households, especially in Queensland.
STCs Add To The Cost Of Grid Electricity
STCs are part of Australia’s Renewable Energy Target and lower the cost of installing rooftop solar. They are often called the “solar rebate1“. The cost of STCs are recovered through increases in the cost of grid electricity.
By working backwards from the amount of rooftop solar installed over the past year it is possible to estimate how much STCs have increased electricity prices. Roughly 700 megawatts of rooftop and other small scale solar were installed in that time, which would create around 13.3 million STCs. The STC price has averaged around $35.20 for a total value of roughly $468 million. In that time around 225 terawatt-hours of grid electricity were sold in Australia.
This means the cost of STCs for rooftop solar added about 0.2 cents per kilowatt-hour to the cost of electricity.
As the total cost of electricity paid by typical Australian households comes to 29.4 cents a kilowatt-hour, this means STCs raise the cost of electricity for the typical household by around 0.7%.
STCs are being gradually phased out. At the start of this year the number received decreased by 7%. The amount will continue to decrease at the start of each year until the scheme finally finishes at the end of December 2030. So the 0.2 cent increase in the cost of grid electricity per kilowatt-hour will diminish and eventually disappear.
Old, High Feed-in Tariffs Add To Electricity Bills
Current solar feed-in tariffs generally only represent the wholesale price of electricity during the day. In the past it was possible to get a high feed-in tariff locked in, but outside of the Northern Territory2, these have been unavailable to new entrants for at least 5 years now. The high feed-in tariff in NSW ended at the start of this year, so there are no generous tariffs to add to the cost of electricity in the most populous state, but their effect still lingers elsewhere. Queensland is the state with the largest overhang of high feed-in tariffs that must still be paid because theirs remained available longer than in other states. Also, it’s the sunshine state.
In Queensland there are now around 530 megawatts of rooftop solar receiving the premium tariff of 44 cents. That amount of rooftop solar would generate about 685 million kilowatt-hours in a year for a total of around $300 million worth of premium tariff. Roughly 54 terawatt-hours of grid electricity are sold each year in Queensland, so old feed-in tariffs would raise the cost of each kilowatt-hour of electricity by around 0.6 cents. That’s enough to increase the electricity bill of a typical Queensland household by about 2%.
This amount will slowly decrease as a small portion of households lose their high feed-in tariff each year and will end entirely on the 1st of July 2028. In all other states, old feed-in tariffs have a much smaller effect on electricity prices and will end within a few years3, as they have in NSW. While it varies from state to state the current average increase in grid electricity resulting from old feed-in tariffs is probably similar to that of STCs at around 0.2 cents.
5 Ways Rooftop Solar Benefits Those Without It
There are 5 main ways rooftop solar benefits those who don’t have it:
- It lowers wholesale electricity prices
- It reduces the rate of climate change.
- It decreases the incidence of illness and death from fossil fuel pollution.
- It decreases transmission and distribution costs.
- It provides free ancillary services to the grid.
Rooftop Solar Lowers The Cost Of Grid Electricity
Rooftop solar reduces the cost of electricity by always producing power during the day. While it is affected by weather, unlike fossil fuels, its output is completely unaffected by the price paid on the wholesale electricity market. When it comes to market prices, rooftop solar doesn’t give a damn.
Because its power production is independent of prices, it helps keep wholesale electricity prices down. By reducing demand for grid electricity during the day it reduces the ability of fossil fuel and hydroelectric generators to bid up the price of electricity. It is especially effective because it provides electricity on summer afternoons during heatwaves when wholesale electricity prices would otherwise be at their highest.
One estimate is that rooftop solar saved consumers in NSW $888 million during the February heatwave. If that’s correct, it is a massive amount. But I don’t want to put too high a figure on the amount of money rooftop solar saves through lowering wholesale prices because if there was no rooftop solar there would be other generating capacity in its place and it would be keeping prices down. There wouldn’t be just a big rooftop solar shaped hole in our generating capacity. So until I get better information, I will estimate that rooftop solar has lowered the average cost of electricity by 0.1 cents per kilowatt-hour4. Since rooftop solar provides around 2.7% of Australia’s electricity that means each kilowatt-hour of rooftop solar generation provides an average of 3.7 cents of benefit by lowering electricity prices.
Rooftop Solar Reduces The Rate Of Climate Change
This is the big one. Climate change doesn’t just threaten us, it threatens unborn generations, dugongs, and puppies. If we don’t drastically reduce our fossil fuel use it will force us to change our name from Homo sapiens to Homo asinus5.
There are a variety of methods used to put a dollar value on greenhouse gas emissions displaced by rooftop solar. But the most optimistic I can accept is 7 cents a kilowatt-hour. I think 10 cents is much more realistic, but I am willing to use 7 cents as a minimum6.
Rooftop Solar Reduces Pollution
Pollution from burning coal kills people. One estimate puts the health cost of burning coal in Victoria at 0.8 cents per kilowatt-hour. Electricity from rooftop solar mostly displaces coal generation, giving it a significant health benefit. Allowing for the fact that it also replaces some low polluting natural gas generation and other states have less filthy coal generation than Victoria, as an estimate rooftop solar may provide 0.4 cents worth of reduced health costs per kilowatt-hour.
Rooftop Solar Reduces Transmission And Distribution Costs
High voltage power lines carry fossil fuel generated electricity long distances and then electrical substations do the low voltage, local distribution. This all costs money. Also, around 7% of grid electricity is lost in the process. But electricity from rooftop solar is normally consumed locally which saves on these costs and limits transmission losses. Once rooftop solar capacity in an area is high enough, distribution infrastructure might need upgrading which is an expense, but the overall savings of solar are greater.
In Victoria from the 1st of July, their feed in tariff will include 0.6 cents per kilowatt-hour to account for the value of avoided transmission and distribution losses. This is much lower than what Solar Citizens estimate, but I will use 0.6 cents as a minimum figure.
Rooftop Solar Provides Free Ancillary Services To The Grid
Ancillary services are functions generators give that help support the operation of the grid. They include regulating voltage, frequency, and waveform. When grid generators give these services they are paid to do so, but all modern solar inverters provide ancillary services to the grid for free and help improve the quality of electricity for all.
It’s not easy to put a value on the ancillary services solar provides, but in Victoria from the first of July feed-in tariffs will contain a 0.1 cent component to cover, “avoided market fees and ancillary service charges”.
In The Long Run Everyone Comes Out Ahead With Rooftop Solar
Listing my minimum estimates for the monetary value provided by rooftop solar for all households per kilowatt-hour gives:
- Lowering the wholesale cost of electricity 3.7 cents.
- Avoided greenhouse gas emissions 7 cents.
- Avoided heath costs from reduced pollution 0.4 cents.
- Reduced transmission and distribution costs 0.6 cents.
- Value of ancillary services provided to grid 0.1 cents.
These add up to a total of 11.8 cents. If we compare that to the perhaps 0.4 cent increase caused by STCs and old feed-in tariffs it makes for a pretty impressive comparison.
The only trouble is the comparison is bullshit.
I’m comparing 11.8 cents of benefit per kilowatt-hour of rooftop solar generated electricity to a half a cent increase in all electricity sold on the grid when only about 2.7% of Australia’s electricity is from rooftop solar. That means the benefit spread across all kilowatt-hours is about 0.32 cents. So non-solar households are paying about 0.1 cents a kilowatt-hour more after the value of current benefits are accounted for. Using the values I listed above, non-solar households are subsidizing solar households at their expense. As a result, I would like to say, thank you.
Thank you to the non-solar households of Australia for helping to make it possible for Australia to lead the world in reducing the cost of rooftop solar. With your help, Australia has been able to develop the most cost-effective rooftop solar industry in the world.
As I said, I am not going to go into whether or not non-solar households should have contributed. You have contributed and I can guarantee you that what you are contributing is decreasing and it will not be long before the benefits outweigh the costs, if they don’t already.
Whether it was willing or not, you have made an investment and it will be repaid in full, and then some.
Footnotes
- The “solar rebate” is technically not a rebate even though it seems like one. ↩
- In the Top End the feed-in tariff is the same as the cost of grid electricity. ↩
- But in the ACT they will linger on until 2031. ↩
- That is pure guesswork. Solar reduces the wholesale price, but I don’t know how much and couldn’t find anything giving a reasonable explanation, so I picked a small number. ↩
- Homo sapiens is Latin for “wise man” while Homo asinus is Latin for “foolish man”. Perhaps this should actually be Homo stultum , but I think we are definitely a bunch of asinuses. And if I’ve gotten my Latin wrong, I’m willing to take my punishment. ↩
- How I determined 7 cents is the absolute minimum and 10 cents more realistic is a whole other llllooooooonnnnnng article. ↩
About Ronald Brakels
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I have applied commercial principals to my 5 year old solar system and it does not pay with a Gross meter and a 6cent rebate.This does not cover replacement costs let alone reducing electricity costs.
For me to be able to use my own power I have to have to change my meter a second time and replace my Gross meter with a Net meter. I suspect the ulterior motive is to finally force us onto time of use tariff which will cost more.
And I wonder why the word scam and solar are used.
John, if you like, you can provide your calculations and I’ll look over them.
Ronald, thank you for the offer they are all in a previous post.
Thanks
Ronald
Assume you are correct in saying that roof-top solar will provide five benefits:
– It lowers wholesale electricity prices
– It reduces the rate of climate change.
– It decreases the incidence of illness and death from fossil fuel pollution.
– It decreases transmission and distribution costs.
– It provides free ancillary services to the grid
Surely, by their nature, those benefits will also accrue to the people who _have_ solar, as well as the have-nots.
The have-nots: – the renters and the poor – miss out on the electricity cost savings that the have’s gain.
People who don’t own something generally do miss out on the benefits of owning it. I can tell you, my palace would be getting a lot more use if I happened to own one. Fortunately, when it comes to rooftop solar, and probably not palaces, there are positive externalities that can help people who don’t own rooftop solar themselves. Really, very few things we buy have a similar level of positive effects for others.
Renters normally miss out and the poorest people in our society generally do as well. But I will mention the lower income half of Australians install rooftop solar at a greater rate than the higher income half. This is because they are more strongly motivated to save money. Well, at least I assume it is. Some people suggest rooftop solar is for the rich, which really is not true.
I originally installed 12 panels under the original 60 cents scheme in the Blue Mountains west of Sydney. Another 13 panels plus batteries were added on 09/05/2016. The software connected to my system on my computer with the new installation, as well as showing me the amount of power going into my batteries until they are full and then into the grid, also tells me that 3.6 t of CO2 has been avoided in 8 days short of a year. This is guess work, but the old panels over their 6 years may have avoided something like 1.5 t X 6 years, say 9 t.
Putting aside the financial arguments, this seems to me to be a worthwhile environmental project !
In Queensland, we paid $7,500 and the govt. paid the solar supplier $6,000. for 4.5kW. Now one can buy the same for about $4000. Not sure about the feed-in tarriff rate
There’s a lot of ideological fluff in this piece. Firstly, add the cost of restructuring our public distribution grid, which was never designed for millions of rooftop solar cells introducing volatile current fluctuation into the network from the user’s end. Secondly, add the cost of additional hot-standby gas generators to cover for the periods when the sun won’t shine. Thirdly, if you are indeed concerned about the environment, include the environmental damage done by the production, distribution and eventual decommissioning of all these toxic wafers people put on their roofs.
Fact is, today many low income tenants and pensioners can no longer afford to heat and cool their abode. It is utterly insane that in an energy-rich country the poorest are now forced to pay around 30 cents per kW/h when the wholesale price ex coal fired generator is 6 to 8 cents.
The price of power from a gas or coal fired power station will increase year on year simply based on inflation and/or the cost of production. The tipping point is when the cost of generating power using non renewable energy sources is more expensive that any other method of production. It should therefore come as no surprise that the renewable energy source comes at no cost and therefore is not affected by the vagaries of the gas and or coal market. The next step in the energy revolution is turning renewable energy production into storage. This concept appears to be beyond the comprehension of some commentators who suffer from that terrible Australian affliction ‘if its not broke you don’t have to fix it’. Currently my PV Solar system is producing energy at no cost for production and for out of sunlight hours the the billing credit for feed in reduces my import cost to 0.05c kWh at a ROI of 11.22% PA Tax Free. If you want to do something about your energy cost it has to happen on your side of the meter.
Article doesnt seem to adequately address the cost that non solar residents will be charged by energy companies to maintain the infrastructure. Surely with less customers contrbuting to these overheads those without solar will be hit with more rapid rises in retail prices.
The huge tariff increases experienced in recent years happen to coincide with huge costs borne by consumers of firstly subsidising solar and meeting the rising costs of maintaining the grid. The appears to be no end in sight to these annual increases.
Billing is now usually based on kWh consumption and fixed costs. Domestic Solar is not exempt from having to pay the fixed costs when the system is grid connected. Fixed charges relate to the cost of the poles and wires and in some cases the recovery of capital related to the digital meter including reading and the maintenance. Small scale solar generators that export to the grid are paid the average wholesale spot price charged by a commercial generator. These prices are usually fixed for 12 months and may not reflect the actual wholesale price in the moment on any one day. The price of base load power is determined when generator capacity exceeds demand. The cost of energy can vary between $109 based load to $5,000 dispatchable per megawatt. Cheaper power is dependant upon a greater percentage of renewables coupled with storage available commercially. Power is currently throttled up and down to match demand. When demand exceeds base load lower the best sources of dispatchable power required in that exact moment is pumped hydro, thermal solar and batteries. In Dubai a sun blessed country like Australia Solar Power is down to 0.06c per kWh. What is currently having the greatest impact on power prices is the cost of the energy source that is converted into power. Put simply it is the cost of the coal and gas energy source now, next hour, next day, next week, next month, next year up to 50 years. The cost of the energy source for Solar, Wind, Thermal Solar, and Wind is Zero now right though to 50 years and beyond. The Federal Government has already identified that the price villian is the cost of Gas. Your argument is based on the proposition that because some people with or without Solar use less energy it forces up your price that is a bit like saying that a small engined car that uses less fuel is pushing up the price of petrol. And finally your post is based on an assumption not supported with any evidence.
Unfortunately solar doesnt deliver energy all the time. Hence the need for reliable system power and duplication of costs to be borne by everyone. We pay for the system as well as for our own solar – to which everyone contributes via subsidies.
I am sure tariff pricing and fixed charges on bills all are determined by the need for companies to make a profit. We would be a little naive to assume pricing is so perfectly transparent as you suggest.
Do we really believe the subsidies for renewables do not add to energy costs.
I got 40% of my install cost paid for by someone else. In the end we all pay for these subsidies – $ 2-3 billion a year. Sure some part of cost increases come from gas price increases but renewables susidies must share the blame. $ 2-3 b can’t be absorbed without someone paying.
Finally, just imagine where we might have been if the susbsidies money had been applied to an well planned national energy solution that delivered reliable energy and used our all our abundant natural resources. Perhaps better than the random, costly and uncertain results we are now experiencing.