Australian Solar Subsidies under fire in 2018.

Australian solar subsidies are expected to cost $1.3b in 2018 as the Clean Energy Regulator estimate that 22 million small-scale technology certificates will be created. This will add approximately $100 to the average Australian solar bill. At what point, if at all, do we look at reining these subsidies in? 

Australian solar subsidies

Australian solar subsidies - Clean Energy Regulator
Australian solar subsidies – Clean Energy Regulator (source:

The small-scale technology certificates (STCs) are given to people installing solar panels, and electricity retailers are required to buy them. So although this expected $1.3b will ostensibly be paid by the energy retailers, naturally the cost is passed on to the end user – resulting in even higher electricity bills.

Jeff Bye from Demand Manager in Sydney, a company that trades STCs, was quoted in the Australian as saying this years cost increase means an average electricity bill will raise by around $100:  

“The cost increase (this year) is about $800m and there are 8 million households … so there’ll be a cost impact of around $100 per household. The electricity impact might be $40 or $50 per household but businesses will pass through the additional cost too … That subsidy of $500m last year, or $1.2bn to $1.3bn this year, is added on to everyone’s bills.”

Is it time to abolish the solar subsidies?

Is this fair for renters or apartment dwellers (a rapidly increasing segment of the population)? At what point do we start to reconsider these subsidies?

With the price of solar + storage driving down as the technology gets better and better, there’s certainly going to be a ‘tipping point’ where the market can stand on its own two feet. But with Australian solar growing at an astronomical pace it’ll be difficult to find the right time/method to adjust these subsidies.

According to Energy Minister Josh Frydenberg, the Australian Energy Market Commission found the average cost to households over the past five years was about $29 a year.

“The AEMC forecasts residential electricity prices will fall over the next two years as renewable energy, including small-scale solar supported by the Renewable Energy Target, enters the system,” Mr Frydenberg said. So potentially some of that $100 will be offset by lower prices from the energy retailers. 

His political opponents were a little less hopeful – as backbencher and former PM Tony Abbott fired back after hearing the statistics, saying:

“Australians are paying far too much for our emissions obsession. Government must end subsidies for new renewables,”

Liberal MP Craig Kelly, Chair of the Coalition’s Backbench Energy and Environment Committee, told Chris Smith on 4BC his thoughts on the scheme:

“All these schemes have done is make electricity prices dearer for every single Australian.”

Whilst those quotes can certainly be taken with more than a grain of salt given the abysmal state of Australian politics, it’s definitely worth having a look at these subsidies against the cost of solar, its level of technological maturity, and schemes to help low income earners, renters, and apartment dwellers benefit from renewable energy as well. 


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Solar Tax scrapped by the AEMC

Earlier this year the Australian Energy Market Commission (AEMC) released a draft report on the Distribution Market Model, which made a number of dubious recommendations – not least among them the concept of introducing what would effectively be a “solar tax”. The AEMC didn’t like the idea of solar producing households using the grid ‘for free’ and there is no other way for networks to recoup the costs of grid connection/supply. The AEMC, who create the ‘rules’ for Australian electricity and gas markets, also provide market development advice to governments (such as this report).

AEMC - Solar Tax
AEMC put brakes on Solar Tax (source:

The proposed solar tax was fought tooth and nail by the Solar Citizens and it appears that the AEMC have now backed down from their idea and the solar tax won’t go ahead.

Here is the relevant section from the draft report:

Currently, clause 6.1.4 of the NER prohibits a DNSP from charging a distribution network user (such as an owner of a distributed energy resource) distribution use of system charges for the export of electricity by that user to the distribution network.

There may be cause to revisit this clause if DNSPs incur costs (and benefits) due to the export of energy from distributed energy resources (or passive solar PV systems) that are not appropriately reflected in connection charges and where these costs (and benefits) increase (albeit not necessarily proportionately) with the volume of injections.

The Commission therefore considers that there may be benefits in exploring the deletion of clause 6.1.4 of the NER, and what possible alternatives there are.

On Tuesday the AEMC produced its final report on the Distribution Market Model and it said that “Further work is needed to understand whether distributed energy resources create benefits, or impose costs on the distribution network.” The report also made a note that large renewable energy generators are not billed for accessing the grid “beyond a shallow connection charge” so it would be a bit rich to charge residential solar systems for it.

So the tax has been thrown on the backburner for the time being – but we’ll have to see what the future holds.

How the Solar Tax war was won

Shina Tager, from Solar Citizens, was quoted by RenewEconomy as saying “Any moves to tax the sun in the way that’s being proposed by the AEMC report will be met with very strong community resistance by the 5 million solar voters around the country.” Tager also said “Over 1.6 million Australian households have stumped up their own money to put solar on their roof and take back control of their power bills and this is another move to make solar owners the fall guy.”

What would have happened if something like this goes ahead? Would we see a larger amount of people going off-grid and eschewing the national network altogether? The 2016 Australian Energy Statistics note a ‘continued expansion in off-grid generation’ – and presumably any efforts to monetise (read:tax) those producing their own energy will results in a greater exodus from the grid. We’ll have to wait and see what happens, but a great victory from the Solar Citizens for the time being!

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Renewable Roadblock: The ‘Settlement Rule’ Power Companies Won’t Budge On

It’s probably not overly surprising that the transition to renewable energy involves myriad complex challenges (such as investigation of the ‘settlement rule’) – especially in the energy marketplace itself. Australia’s thermal power generators wield a lot of clout and their lobbyists have been working overtime to keep storage at bay for as long as possible, given the potential for lost profit it represents.

One of the core factors of the electricity market is a ‘settlement period’ – power generators bid to supply electricity in five minute blocks but their actual invoiced price is averaged out over 6 x blocks (30 minutes). This is set up to benefit coal and gas generators (they get a larger return over a longer period) – but batteries, which can be turned on and off at will without long/expensive startup times, are disadvantaged. Since the power companies have invested hundreds of millions on ‘gas peakers‘ (power plants that run ‘on demand’ i.e. in peak hours so they can command a premium price – as opposed to base load plants) they are, unsurprisingly, strongly motivated to get as much of a return on these as possible. Would changing the settlement rule move the goalposts and unfairly discriminate against these companies and the contracts they have already signed?

AEMO Investigate the Settlement Rule

Dr Tony Marxsen of the AEMO (Australian Energy Market Commission)  said earlier this week that the main challenge in changing the settlement rule is that it will “affect adversely the business model of investors in gas peaking plants” who have entered into contracts based on the current system. The AEMO have just extended a review into the situation (for the second time).

Dr Tony Marxsen of the AEMO (source: LinkedIn)
Dr Tony Marxsen of the AEMO (source: LinkedIn)


Zen Energy’s Richard Turner gave the example of 22.03.17 in Adelaide which had four 30 minute periods when, in the first five minutes (of the 30minute averaged period), the bid for wholesale electricity hit $14,000 / mWh – he noted that, ‘when those events happen, the big generators power up to meet that demand. Even if the price is negative in the final few minutes of that 30-minute window, the generators receive the average price for that 30 -minute period of, say, $2500.’

Turner said if there were ‘true’ five minute blocks (i.e. no 30 minute averages) ‘the battery would just come in, grab that demand and eliminate that pricing event’, rather than waiting for generators to ‘fire up and get going’.  With that said, there needs to be alternatives to the current crop of renewables for when there’s no sun or wind – how would changing these rules affect the marketplace and feasibility of running plants?  It’ll be interesting to see what the AEMO review finds and recommends as current technology dictates that we do need to find a common ground while renewable technology improves over the short-mid term.

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