Solar Issues Paper-0.1 - Microsoft · 4 BARRIERS TO A MARKET FOR SOLAR ... The terms of reference asks us to ... creates STCs, which most PV owners assign to their installer for a

ISSUES PAPER SOLAR FEED-IN PRICING IN QUEENSLAND

October 2015

© Queensland Productivity Commission 2015 The Queensland Productivity Commission supports and encourages the dissemination and exchange of information. However, copyright protects this document.

The Queensland Productivity Commission has no objection to this material being reproduced, made available online or electronically but only if it is recognised as the owner of the copyright and this material remains unaltered.

Table of Contents

Queensland Productivity Commission Solar Feed‐in Pricing in Queensland iii

SUBMISSIONS

CLOSING DATE FOR SUBMISSIONS: 23 NOVEMBER 2015

Public consultation is an important element of the Queensland Productivity Commission’s (QPC) inquiry

process. Submissions are invited from interested parties on solar export pricing for small customers in

Queensland. The QPC will take account of all submissions received by the due date.

Submissions, comments or inquiries regarding this paper should be directed to:

Queensland Productivity Commission PO Box 12112 George St QLD 4003

Tel (07) 3015 0111 Fax (07) 3015 5199 www.qpc.qld.gov.au/get‐involved/how‐to‐make‐a‐submission

CONFIDENTIALITY

In the interests of transparency and to promote informed discussion, the QPC would prefer submissions to

be made publicly available wherever this is reasonable. However, if a submission contains genuinely

confidential material, the person making a submission should claim confidentiality in respect of the

document (or any part of the document). Claims for confidentiality should be clearly noted on the front page

of the submission and the relevant sections of the submission should be marked as confidential, so that the

remainder of the document can be made publicly available. It would also be appreciated if two copies of the

submission (i.e. the complete version and another excising confidential information) could be provided.

Where it is unclear why a submission has been marked confidential, the status of the submission will be

discussed with the person making the submission.

While the QPC will endeavour to identify and protect material claimed as confidential as well as exempt

information and information disclosure which would be contrary to the public interest (within the meaning

of the Right to Information Act 2009 (RTI Act)), it cannot guarantee that submissions will not be made publicly

available.

Table of Contents

Queensland Productivity Commission Solar Feed‐in Pricing in Queensland iv

Table of Contents

SUBMISSIONS III

Closing date for submissions: 23 November 2015 iii

Confidentiality iii

THE ROLE OF THE QPC V

ABOUT THE SOLAR INQUIRY VI

Scope vi

Key dates vi

CONTACTS vi

1 BACKGROUND 1

1.1 Feed‐in tariffs in Queensland 3

2 A FRAMEWORK FOR ASSESSING SOLAR EXPORT PRICING 8

2.1 When should solar export prices be regulated? 8

2.2 What are the objectives of a solar exports pricing policy? 9

2.3 Policy and pricing principles 9

3 FEED‐IN TARIFFS: WHAT SHOULD BE REGULATED AND HOW 14

3.1 Factors that can be considered in estimating a price for solar exports 14

3.2 Structure and payment of feed‐in tariffs 17

3.3 Other approaches to valuing solar or solar exports 18

3.4 Review mechanisms and timeframes 19

4 BARRIERS TO A MARKET FOR SOLAR EXPORTS 21

4.1 Barriers to deployment 21

4.2 Barriers to determining value 21

4.3 Barriers to monetising and transferring value 22

4.4 Options to address barriers 22

GLOSSARY 24

APPENDIX A : TERMS OF REFERENCE 26

BIBLIOGRAPHY 29

Queensland Productivity Commission Solar Feed‐in Pricing in Queensland v

THE ROLE OF THE QPC

Our role is to provide independent advice on complex economic and regulatory issues, and propose policy

reforms, with the objective of driving economic growth, lifting productivity, and improving living standards

across Queensland. A wide level of open and transparent public consultation will underpin these functions.

The QPC has initially been set up as a government entity under the Public Service Act 2008, and is part of

Queensland Treasury.

The Government has announced its intention for the QPC to be converted to a separate legal entity as a

statutory body under its own legislation. The Queensland Productivity Commission Bill 2015 was introduced

into the Queensland Parliament on 15 September 2015.

Our work encompasses three key streams:

• economic reform and policy

• regulatory advice and guidance to departments

• economic research into private and public sector productivity

The philosophy and principles under which we operate will be based

on independence, rigour, responsiveness, openness, transparency,

equity, efficiency and effectiveness.

Our operation and reporting is independent, with tasks referred to the

QPC by the Government.

The Government has said that the final report for each inquiry will be

publicly released. The final reports will first be submitted to

Government to allow a government response at the same time as the

public release where appropriate.

WE ARE COMMITTED TO PROVIDING A TRANSPARENT AND CONSULTATIVE PROCESS TO ALLOW ALL INTERESTED STAKEHOLDERS TO PARTICIPATE IN INQUIRY PROCESSES.

Queensland Productivity Commission Solar Feed‐in Pricing in Queensland vi

ABOUT THE SOLAR INQUIRY

The Queensland Government has asked the QPC to determine a fair price (or fair prices) for solar power produced at the home or business premises of a ‘small customer’ and exported into the electricity grid.

SCOPE

The terms of reference asks the QPC to investigate and report on:

A methodology for determining a fair price for solar energy

generated by a ‘small customer’ and exported to a Queensland

electricity grid that:

is based on the public and consumer benefits of exported solar

energy

does not impose unreasonable network costs on electricity

customers; particularly vulnerable customers

can be realised in the current electricity system.

The price(s) for solar energy determined under the methodology.

Any barriers or constraints (technical, market, regulatory or

otherwise) to monetising the value of exported solar energy in

Queensland in the current electricity system, and options to

address those barriers.

How the fair price (or fair prices) may be designed and paid

(structure, unit measure, gross or net payment, payment

mechanism).

The mechanisms by which a fair price could be implemented in

Queensland (mandatory or other).

Appropriate review mechanisms and timeframes.

The full terms of reference are provided at Appendix A.

KEY DATES

Terms of Reference

20 August 2015

Issues Paper released

October 2015

Due date for submissions

23 November 2015

Release of Draft Report

mid February 2016

Due date for submissions

end March 2016

Final Report submitted to

government

31 May 2016

CONTACTS

Enquiries regarding this

project should be directed

to:

Kristy Bogaards

Tel (07) 3015 5106

REGISTRATION OF INTEREST - www.qpc.qld.gov.au/contact‐us If you wish to participate in the QPC’s inquiry process, please register your interest to ensure you receive our email alerts on key developments including release of reports, call for submissions and details of public inquiries.

Background

Queensland Productivity Commission Solar Feed‐in Pricing in Queensland 1

1 BACKGROUND

Since 2008, when the Queensland Government introduced the Solar Bonus Scheme, there has

been an exponential uptake of solar photovoltaic (PV) panels in Queensland. Prior to 2008, there

were less than 1000 solar PV customers in Queensland — by 30 June 2015 this number had grown

to almost 400 000 customers. Now:

almost one in four Queensland homes have solar PV

total installed solar PV capacity is 1328 megawatts, equivalent to the fourth largest generator

in Queensland; and

Queensland has one of the highest levels of residential solar PV in the world.

Small Customer Solar PV in Queensland

Background


Future market changes and technological advances, including cost effective battery storage, may

have further significant impacts on solar and electricity markets.

Rapid solar PV expansion has raised opportunities, but also challenges for the electricity sector,

consumers and governments. Many of these challenges primarily relate to the fact that rooftop

solar PV can impose costs and accrue benefits to parties inside and outside the solar export market.

As a result, there has been considerable policy debate on:

whether solar PV owners are receiving a fair price for the electricity they export

whether non‐solar customers are paying more than they should for electricity due to solar PV;

and

who should bear any costs associated with feed‐in tariff arrangements.

In this context, the Queensland Government has asked us to investigate and report on a fair price

(or prices) for solar exports for small customers.1

The terms of reference asks us to consider a number of factors including:

the public and consumer benefits from exported solar PV generation, including social,

economic and environmental benefits

whether households and business are already fairly compensated for public and consumer

benefits (such as through renewable energy programs, rebates and market contracts)

the costs and benefits across the electricity supply chain due to the exported solar PV energy,

taking into account temporal and locational factors

the perception of electricity customers about whether any cost to them resulting from the

fair value is ‘unreasonable’

mechanisms in the electricity system which may prevent the true value of exported solar

energy being realised/monetised; and

the Government’s 1 million rooftops target by 2020 (or 3000 megawatts of solar PV).

In considering these factors and making assessments, we will undertake a community wide

assessment that extends beyond the interests of particular individuals or groups to consider the

overall costs and benefits of feed‐in tariff options.

This issues paper has been prepared to assist stakeholders to prepare submissions and highlights

a number of key matters we are seeking feedback on. In preparing submissions, stakeholders do

not need to address all of the matters raised, or be constrained to respond only to the published

questions. Submissions may cover any matters relevant to the terms of reference.

The coverage of this Inquiry is confined to issues related to solar feed‐in tariffs in Queensland.

Other policy matters related to renewable energy and environmental programs in Queensland are

covered by the concurrent QPC inquiry into electricity pricing.

1 A small customer in Queensland is defined as a customer (residential or business) with consumption of less than 100MWh per year. References to solar PV in this paper refer to small customer solar PV unless otherwise specified.

Background


1.1 Feed-in tariffs in Queensland

A feed‐in tariff is the price paid for electricity generated by embedded generation (for example,

rooftop solar PV) and exported (‘fed‐in’) to the grid. Feed‐in tariffs are only one factor affecting

solar PV investment (Box 1.1).

Box 1.1 Factors affecting the return on a solar PV investment

The return a household or small business receives from installing solar PV depends on system

installation costs, the value of small‐scale technology certificates (STCs), solar export revenues

and any savings from reduced imports from the electricity grid:

System installation costs: include the up‐front capital costs of installing the system — the

price of the panels, inverter and other equipment costs, as well as labour installation costs.

Value of STCs: the Small‐Scale Renewable Energy Scheme (SRES) under the national

Renewable Energy Target provides a financial incentive to individuals and small businesses

who install small‐scale renewable energy systems. Installation of approved systems

creates STCs, which most PV owners assign to their installer for a discount on their system.

Export revenue: the revenue generated by exports to the grid depends on the volume of

exports multiplied by the rate at which the electricity retailer pays the household or small

business for each kilowatt hour exported (the feed‐in tariff).

Import savings: under a net metering arrangement, solar generation reduces the monies

paid to electricity retailers when household or small business energy demand is met by

solar generation rather than imported. The size of the benefit is the reduction in imports

multiplied by the variable charge component of the retail tariff.

The Queensland Government introduced the Solar Bonus Scheme (SBS) as part of the Clean Energy

Act 2008. The SBS was established with the aim to:

make solar power more affordable for Queenslanders

stimulate the solar power industry

encourage energy efficiency.

The SBS was made available to small customers who consume less than 100MWh per year. The

initial feed‐in tariff was set at 44c/kWh for net2 eligible electricity supplied to the network. At the

end of each billing period, the customer's meter is read to determine the total amounts of surplus

electricity exported to and imported from the network. The solar bonus payment for the exported

amount is then reflected as a credit on the retail bill.

The 44c/kWh SBS is funded by the distribution network service providers, Energex and Ergon

Energy. They are required to pay the amount of the feed‐in tariff, which is then credited to the

solar PV customer by the retailer. As network charges are regulated, these costs are recovered

through higher network charges for all customers.3

The SBS was closed to new applications from 9 July 2012 and replaced with an interim scheme

until 30 June 2014. The interim scheme reduced the feed‐in tariff from 44c/kWh to 8c/kWh.

2 A net feed in tariff pays the PV system owner only for surplus energy they produce; whereas a gross feed in tariff pays for each kilowatt hour produced by a grid connected system. 3 QCA (2013a).

Background


Participants on the 44c/kWh feed‐in tariff will continue to receive this amount for the duration of

the scheme (to 2028) provided they maintain their eligibility.4

Growth of rooftop solar PV during the life of the SBS was exponential — driven by federal and state

government incentives, rapidly falling costs for solar PV and rising electricity prices. Figure 1.1

shows that solar rooftop PV connected to the Energex and Ergon network rose from 5926 in 2008–

09 to 396 036 in 2014–15. As at 30 June 2015, 67 percent of the customers with solar PV are on

the premium 44c/kWh scheme. This number will decline slowly over time as the account holders'

move off the premises and thus terminate eligibility for participation in the scheme.

Solar PV installations have continued to grow following the closure of the SBS, albeit at a slower

rate. In 2014‐15, 40 107 additional solar PVs were connected in Queensland.

Figure 1.1: Solar rooftop PV installations in Queensland 2008‐09 to 2014‐15

Source: Energex and Ergon Data.

As a result of this expansion, Queensland has one of the highest levels of solar PV penetration in

the world. Although Germany and California lead the world in terms of total installed capacity of

solar PV, Australia; and in particular Queensland and South Australia, have the highest penetration

of solar PV as a percentage of households (Figure 1.2).

4 QCA (2013a). To maintain eligibility, a customer must remain the electricity account holder for the premises where the solar PV system is connected. Changing the name on the electricity account (for example, if the property is sold or rented out) will render the premises no longer eligible for the 44 cent rate.

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

2008‐09 2009‐10 2010‐11 2011‐12 2012‐13 2013‐14 2014‐15

No of PV Installations

Premium 44 c scheme Interim scheme and retailer funded

Background


Figure 1.2: Proportion of households with solar PV by country/state

Source: ESAA https://www.esaa.com.au/members/solar_pv_penetration_australia_first_daylight_second_1

The Queensland Competition Authority (QCA) estimates that the SBS adds around $89 to the

average Queenslander's annual electricity bill for a residential customer on tariff 11 in 2015–16.5

The cost to electricity customers over the life of the scheme (until 2028) is estimated at $4.28

billion.6

Following the 2013 QCA review of solar feed‐in tariffs (Box 1.2), the Queensland Government

announced that a regulated feed‐in tariff would apply for regional customers only — customers in

south east Queensland could access market offers from competing retailers. Seven retailers in

south east Queensland currently offer feed‐in tariffs ranging from 6 to 11c/kWh.

5 QCA (2015a). 6 QCA (2015b).

0%

5%

10%

15%

20%

25%

30%

Domestic Solar PV Penetration

Background


Box 1.2 Queensland Competition Authority 2013 Inquiry into Solar Feed‐In Tariffs

In August 2012, the QCA was asked to estimate a fair and reasonable feed‐in tariff for PV exports

in Queensland and investigate options to minimise or more equitably share the costs of the SBS.

In March 2013, the QCA handed down its final report, Estimating a Fair and Reasonable Feed‐In

Tariff for Queensland, finding that:

Future feed‐in tariff schemes should be funded by electricity retailers, rather than

regulated network businesses, to avoid cross‐subsidies and the inequitable recovery of

costs from those customers least able to afford them.

The fair and reasonable value of PV exports should be the direct financial benefit that

electricity retailers receive when they on‐sell exported energy from their PV customers.

There is no compelling evidence to support a regulated, mandatory minimum feed‐in tariff

for customers in the south east Queensland retail electricity market.

Regulated minimum retailer funded feed‐in tariffs should be established for regional

customers depending on customer location.

The cost of the SBS could be controlled by introducing a mandatory contribution from

retailers set at the estimated direct benefit to the retailer resulting from PV exports.

Government could move PV customers to a time‐of‐use tariff to expose them to a more

cost‐reflective fixed charge than they face under flat residential tariffs. This would reduce

the problem of PV customers avoiding some of the true cost of their network access due to

their net consumption profile, which leads to higher average variable network charges.

Source: QCA (2013a).

The QCA is required to set a regional feed‐in tariff annually under the Electricity Act 1994

(Table 1.1). The QCA's estimate of a fair and reasonable, cost‐reflective value of exported PV energy

for regional Queensland in 2015–16 is 6.348c/kWh.7 This is based on the direct financial benefit

that a retailer would receive if it on‐sold a kilowatt hour of exported PV electricity at a cost‐

reflective price.

Table 1.1: Regional Feed‐in tariffs in Queensland 2013–14 to 2015–16

Cost component c/kWh

2013‐14 2014‐15 2015‐16

Wholesale cost of energy 6.858 5.575 5.570

NEM and ancillary services fees 0.070 0.095 0.083

Value of network losses 0.624 0.864 0.695

Feed‐in tariff 7.553 6.534 6.348

7 QCA (2015c).

Background


During the 2015 election, the new Queensland Government committed to a range of policies to

encourage solar PV, including:

an investigation into how Queensland can achieve a target of 50 per cent renewable energy

by 2030

a target of one million rooftops having solar panels by 2020

a QPC inquiry to identify a fair price for solar power produced by small customers and

exported to the electricity grid; and

a trial 40‐megawatt renewable energy auction to support private investment and jobs in the

renewable energy industry.8

8 The Queensland Government announced on 9 September 2015 that it would exceed the original target, expecting to achieve a 60 megawatt target via the renewable energy auction.

A framework for assessing solar export pricing


2 A FRAMEWORK FOR ASSESSING SOLAR EXPORT PRICING

A central task for this Inquiry is to investigate and report on a fair price for solar exports. Good

policy outcomes depend on a well‐designed policy framework. A robust framework that has clear

objectives, and requires policymakers and regulators to consider potential costs and benefits (under

existing and future market conditions), increases the probability that a policy will provide net

benefit to the Queensland community. This section outlines a framework for assessing solar feed‐

in pricing.

2.1 When should solar export prices be regulated?

The starting point to develop any policy framework is to identify and assess the size and scope of

the policy problem the government is trying to address. Understanding the nature of the problem

is fundamental to determine an appropriate response and has a greater chance of better targeting

the problem in the most effective and efficient way.

Prices for goods and services are generally determined in the market. In a well‐functioning market,

prices coordinate buyers and sellers and allocate resources to their highest valued use. The adverse

impacts of inefficient prices on producers and consumers mean that price regulation is generally

confined to areas that exhibit substantial and enduring market failures, where there is no

alternative policy and non‐policy options to deal with those market failures.

A number of market failures may be relevant to solar exports in Queensland. These may include:

Lack of effective competition: where there is a natural monopoly or when the market has a

small number of firms that can use their market power to materially reduce community

welfare. For example, in regional Queensland, Ergon Energy is typically the sole retailer of

electricity to small customers and the sole purchaser of exported solar energy.

Environmental externalities: where the actions of an individual or business create

environmental benefits or costs on others and these effects are not reflected in market

prices. For example, where solar PV displaces fossil fuel generation and this provides an

environmental benefit, and the benefit is not compensated.

Imperfect or asymmetric information: where one party has more information about a

transaction than the other, or where barriers prevent parties to a transaction from obtaining

relevant information about the characteristics of a transaction and/or each other. For

example, suppliers, electricity market participants and consumers may face informational

constraints concerning the impacts of solar PV.

The presence of these market failures provides an in‐principle case for government intervention.

However, intervention must be designed in a way that the benefits exceed the costs. Governments

have a range of policy tools to address these market failures — providing information (for example,



energy efficiency information programs), establishing markets, setting regulatory targets and price

regulation (such as feed‐in tariffs).

Questions 2.1 Is there evidence of significant and enduring market failures in the solar export market in

Queensland?

2.2 Where market failures are present, how are they best addressed?

2.3 Do solar PV exports produce positive environmental and social impacts that are currently not paid for through existing programs and rebates?

2.4 If so, is the investment in solar PV suboptimal (from a societal point of view)?

2.5 Would a regulated solar feed‐in tariff be an effective and efficient tool to address environmental externalities?

2.2 What are the objectives of a solar exports pricing policy?

Establishing clear objectives supports policy and regulatory decisions that target the identified

problem and minimise unintended side effects. Clear and well defined objectives also provide all

stakeholders and the community with a transparent understanding of the aim of the policy and a

reference point to measure its appropriateness and effectiveness over time.

Policy documents and this Inquiry's terms of reference imply a range of possible objectives for

solar export pricing, including:

encouraging solar PV investment

solar industry development and job creation

lowering electricity prices

improving environmental outcomes.

Correctly specifying policy objectives is not always straightforward. It is not unusual for

government policies to be underpinned by a range of objectives, and invariably there may be some

tension between competing objectives. For example, if supporting solar power job creation

increases employment in the solar energy sector, but this is achieved by shifting employment from

other sectors and leaves aggregate employment unchanged, the Queensland community is no

better off.

Ideally, the objectives of a solar pricing policy should be tied directly to the problem it attempts to

resolve (Section 2.1). Policies without clearly targeted problems and objectives are more likely to

result in the direction of resources from higher value uses to lower value uses, in addition to the

resources consumed by the policy process itself.

Questions 2.6 What are the objectives of a solar export pricing policy?

2.7 Where objectives are in conflict, which objectives take priority and why?

2.3 Policy and pricing principles

The objectives of a policy or regulatory framework are often underpinned by a set of principles to

provide guidance to policymakers and regulators in interpreting and implementing the objectives.



Such principles are particularly important where prices are regulated, and regulators are asked to

determine mandated prices and balance competing objectives or interests.

Regulators attempting to estimate prices face substantial information barriers. For a regulator to

be able to determine efficient prices, it essentially needs to know everything that buyers and sellers

know — an even greater challenge in complex markets with changing conditions. Well‐designed

regulatory frameworks (Box 2.1) supported by appropriate regulatory guidance increase the

probability of getting regulatory outcomes ‘right’.

Box 2.1 OECD principles for regulatory quality

The Organisation for Economic Co‐operation and Development (OECD) principles of good

regulation require regulation to:

serve clearly identified policy goals, and be effective in achieving those goals

have a sound legal and empirical basis

produce benefits that justify costs, considering the distribution of effects across society

and taking economic, environmental and social effects into account

minimise costs and market distortions

promote innovation through market incentives and goal‐based approaches

be clear, simple, and practical for users

be consistent with other regulations and policies

be compatible as far as possible with competition, trade and investment‐facilitating

principles at domestic and international levels.

Source: OECD (2005).

Some common policy/pricing principles and how they may apply to solar export pricing are

discussed below.

2.3.1 Fairness

The terms of reference asks us to investigate 'A methodology for determining a fair price for solar

energy generated by a small customer and exported to a Queensland electricity grid'. The Council

of Australian Governments (COAG) National Principles for Feed‐in Tariffs states that micro

renewable generation should receive fair and reasonable value for exported energy. Governments

agreed that payment for solar exports should be:

…at least equal to the value of that energy in the relevant electricity market and the relevant

electricity network it feeds in to, taking into account the time of day during which energy is exported.

9

Both solar PV owners and electricity customers have expressed concerns with the fairness of solar

pricing arrangements. Solar PV owners may hold the view that the price they receive for solar

exports is too low, while others perceive that solar PV owners are subsidised (particularly through

the premium SBS) and do not make a fair contribution towards network costs — meaning that

their own costs are higher than they should be.

9 COAG (2008).



In a market, the value of a good or service is not determined by either any inherent property of a

good or service or the cost of its production. Rather, the value of a product is determined — or

revealed — through the process of buyers and sellers seeking to exchange (trade) to improve their

own welfare, each having their own valuation that they place on the good or service.10 Buyers

would prefer to pay less for a good or service so that more income was available for other things.

Sellers would prefer to obtain a higher price for the same reasons. Consequently, when fairness is

used in policymaking, it is best defined by some objective measure.

Efficiency

In several ways, efficient prices can be described as fair prices:

… prices that reflect the cost to society of producing a good or service is fair in the sense that lower

prices would imply that the beneficiary is not paying a fair share. Prices above [efficient] cost imply

that the producer is receiving a benefit at the expense of the consumer.11

Economically efficient solar export pricing would send price signals to both consumers and

suppliers of electricity to support efficient outcomes (Box 2.2). The price would signal to consumers

the costs of providing energy so that consumption occurs when consumers value the energy more

than or equal to its cost of supply. Suppliers receive information which informs their production

and investment decisions so that investment occurs when, where and in the firms and technologies

that can more efficiently meet consumer demands, compared to alternatives. An efficient price

would also support the efficient operation and use of existing assets.

Box 2.2 Economic Efficiency

Many policy and regulatory pricing regimes have efficiency as the guiding objective or primary

principle. Economic efficiency is about maximising the aggregate or collective wellbeing of the

members of the community. An economically efficient outcome is attained when individuals in

society maximise their utility, given the resources available in the economy. There are three

aspects of economic efficiency:

Productive efficiency is achieved where individual firms produced the goods and services

that they offer to consumers at least cost.

Allocative efficiency is achieved where resources used to produce a set of goods and

services are allocated to their highest valued uses

Dynamic efficiency reflects the need for industries to make timely changes to technology

and products in response to changes in consumer tastes and in productive opportunities.12

Efficiency also embodies a ‘user pays’ approach, where individuals or businesses that use a good

or service pay the cost of that good or service. Moving away from efficient pricing results in

subsidies or cross‐subsidies. The COAG National Principles for Feed‐in Tariffs states that

governments should:

avoid policies resulting in cross‐subsidies between customer groups. Where governments wish to

subsidise a particular group, subsidies should be provided directly through government

expenditures.13

10 See Menger (1871). 11 QCA (2013, p. 21). 12 Hilmer Committee (1993, p. 4). 13 COAG (2008).



Cross‐subsidies mean that some businesses or consumers are paying for benefits enjoyed by other

businesses or consumers (that is, a cross‐subsidy cannot assist one person without harming

another).

Equity considerations

Assessing fairness generally involves a consideration of the equity impacts of a policy. The terms

of reference for this inquiry require a fair price that is based on the benefits of exported solar

energy but ‘does not impose unreasonable network costs on electricity customers; particularly

vulnerable customers’.

Equity is difficult to define, but for policy assessments it is often characterised as treating

individuals in similar circumstances equally and treating individuals in different circumstances in

proportion to their differences. It can be framed in terms of vertical and horizontal equity:

vertical equity implies that policy should take account of different individual circumstances

(for example, in general individuals that have a higher income should contribute and pay

more tax than those who have a lower income)

horizontal equity requires that individuals in similar circumstances should be treated equally

(for example, individuals with similar income and assets should pay the same amount in

taxes).

Subsidies can raise equity issues, for example, if they are funded by taking a dollar from a non‐

solar, low income household and transferring it to a high income, solar household. Even if subsidies

are paid from government revenues it also involves both winners and losers because government

revenues are taken from households.

Other fairness considerations

There are influences on perceptions of fairness other than the specific level of the price paid for a

good or service. Where prices are regulated, some aspects of how prices are determined and

changed can influence perceptions of fairness. For example, whether regulatory governance is

transparent, accountable and the minimum required to achieve the desired outcome.

Similarly, where households and businesses make capital investment decisions, the conditions

under which investments are made can influence perceptions of fairness when subsequent

changes occur (for example, changes to policy or regulatory settings which alter the returns to an

investment). Conversely, where policies are retained to support ‘investor certainty’, but have

adverse impacts on other groups of Queenslanders, this also has fairness implications.

2.3.2 Neutrality

Policy frameworks typically include a principle that policies should be technologically neutral. The

idea is that what is important is the quality and price of the service, not the specific platform,

technology or approach to delivering the service. The focus is on the long‐term interests of

consumers and not the industry or the development of a specific technology. This is consistent

with the observation that welfare is maximised through functioning markets where customers

determine which supply option best meets their needs and budget, thereby determining which

technologies contribute the most to welfare improvement. Policy or regulatory attempts to 'pick

technological winners' risks damaging industry development, resulting in lower quality or higher

priced services being offered to consumers.

A number of objects of the Electricity Act 1994 are consistent with the idea that regulations should

not distort competition between alternative solutions to supplying a service. In the context of solar

exports, a technological neutrality principle would require that regulated feed‐in prices do not



either advantage or disadvantage any particular suppliers based on the technologies used to

generate energy.

2.3.3 Simplicity and robustness

Where feed‐in tariffs are regulated, the method for calculating the prices should be as simple as

possible. This will improve transparency and consumer and industry understanding of how the

prices are determined. This can assist in reducing the scope for misunderstandings and perceptions

of unfairness.

Solar PV owners, industry participants and electricity consumers need to have a high degree of

confidence in the robustness of the feed‐in tariff estimates determined by a regulator. This implies

limitations on the matters that can realistically be taken into account in determining prices. Where

there are highly uncertain impacts of policy relevance, or where impacts cannot be reliably

quantified, it may be best to address these impacts through alternative policy instruments rather

than impact the development of electricity markets.

Confidence in cost and price estimates is improved when estimates can be externally replicated.

This suggests that the models and data used to produce the estimates should be made publically

available as part of normal consultation processes.

Questions 2.8 What principles should be used to guide solar export pricing policy and any regulation of

feed‐in tariffs?

2.9 How should fairness be defined?

Feed‐in tariffs: what should be regulated and how


3 FEED-IN TARIFFS: WHAT SHOULD BE REGULATED AND HOW

The terms of reference asks us to report on a fair price for solar exports, including the design,

methodology and structure for feed‐in tariffs. This section outlines some methodological and

regulatory issues that can be considered in estimating the costs and benefits, and any implications

for export tariffs, from solar PV.

3.1 Factors that can be considered in estimating a price for solar exports

Deciding what should be regulated and by what form of regulation depends on the nature of the

problem and the objectives of regulation (Sections 2.1 and 2.2). Some regulatory options will be

more effective at addressing particular objectives, such as environmental goals. Identifying the

most effective regulatory approach will require an assessment of the costs and benefits of each

option. Any approach also needs to recognise that the solar export market forms only one part of

the broader electricity market, which has a number of distinct characteristics and is affected by a

range of state and federal policies and regulations.

Embedded solar PV and the electricity market



Where feed‐in tariffs are regulated, most jurisdictions in Australia have adopted an ‘avoided costs’

approach in determining the value of electricity generated by solar PV (Table 3.1). This approach

identifies what costs can and will be avoided by retailers in sourcing the energy from solar

customers instead of from the wholesale market.

Table 3.1: Feed‐in tariffs (FiT) in Australia

State Closed Subsidy Scheme(s) Current FiT ‐ Policy / Regulation

QLD 44 c/kWh net scheme until 2028

Available to customers consuming less than 100 MWh per annum

No regulation in south east Queensland. Market offers.

Mandatory FiT in regional Queensland based on retailers’ avoided cost. FiT of 6.348c/kWh in 2015–16 for customers consuming less than 100MWh pa with max. inverter capacity of 5kW

NSW 20 c/kWh or 60 c/kWh until 31 Dec 2016

Gross scheme grandfathered, but option available to convert to net scheme

Available to customers consuming less than 160 MWh per annum

Voluntary benchmark solar FiT set at 4.7 to 6.1c/kWh

Mandatory retailer contribution towards the closed SBS of 5.2c/kWh

Victoria Three closed net schemes

‐ 60 c/kWh to 31 Dec 2024

‐ 25 c/kWh until 31 Dec 2016

‐ 1‐for‐1 until 31 Dec 2016

Mandatory FiT paid by retailers

Minimum FiTs for 2015 and 2016 are 6.2c/kWh and 5.0c/kWh respectively

WA Net scheme available for 10 years

Pre 1 July 2011 – 40c/kWh

Post 1 July 2011 – 20 c/kWh

Retailers, Synergy and Horizon Power must offer customers a buyback scheme at rates subject to regulatory approval

Synergy customers receive 7.135c/kWh

Horizon Power (regional) rates are 10 – 50c/kWh depending on location

SA 44 c/kWh to 30 June 2028 and 16c/kWh to 30 September 2016

Maximum export of 45kWh per day applies in some circumstances

R‐Fit of 5.3c/kWh to apply for 2 years from 1 January 2015.

Available to customers consuming less than 160MWh pa system up to 10kVA (single phase) or 30kVA (three phase)

Tas Net 1‐for‐1 FiT until 1 January 2019 Mandatory FiT of 5.5c/kWh for 2015–16

ACT Five premium FiT rates (30.16c/kWh–50.05c/kWh) gross scheme for 20 years

ActewAGL’s 1‐for‐1 gross FiT until 2020

No regulation. Market offers are 6.0–7.5c/kWh based on net metering

NT For new connections, the Northern Territory feed in tariff is 1‐for‐1 (based on the customer’s consumption tariff). Customers under the Alice Springs Solar City initiative receive 51.28 c/kWh, capped at $5/day.

The ‘avoided cost’ approach is based on estimating the direct financial benefit that a retailer

receives if it on‐sells exported PV electricity at a cost‐reflective price. Costs of electricity include

wholesale energy, network costs, line losses, retailing costs and other market related costs such as

system operations and metering. Exported energy from embedded generation may avoid some of

these costs such as wholesale energy, network losses and market fees.

Solar PV may also impact retailing, network and hedging costs as well as the wholesale market

merit order. Besides the financial benefits and costs of solar PV, there may be other environmental

or social benefits from solar PV generation, such as a reduction in pollution. This inquiry is seeking

evidence on the full range of costs and benefits from exported PV generation, and the implications

for feed‐in pricing.



Some of the main factors influencing the value of exported solar PV are briefly discussed below.

Wholesale electricity

The cost of electricity generation is a key determinant of the value of solar exports. It is usually

measured in terms of the forecast wholesale market cost of energy (cents per kWh) which varies

on a half‐hourly basis. In Queensland, settlements for customers without interval data are based

on profiling using an aggregate average net consumption profile of all consumers over each half‐

hour of each day.

Network losses

Traditionally, electricity is transported from central generation to load centres over long

transmission and distribution lines. Along the way, some electricity is lost. One of the key benefits

of embedded generation, such as solar PV, is avoiding the transport of energy over long

transmission lines. Some losses in the distribution network could also be avoided, but it will depend

on the characteristics of the network, times of day and the level of penetration of embedded

generation on a particular feeder.

Market costs (NEM Fees)

There are two market costs incurred by retailers operating in the National Electricity Market

(NEM); NEM participation fees and ancillary services charges. Both the NEM participation fees and

ancillary services fees are paid based on net energy purchased from the wholesale pool. As

exported solar PV displaces purchases from the wholesale market, retailers will avoid NEM and

ancillary services fees.

Transmission network costs

Electricity exported from solar PV does not generally need to be transported through the

transmission network. So, in principle, embedded solar PV avoids transmission network costs.

However, given the largely fixed costs associated with the transmission network, a significant part

of network costs will be the same if a small or large amount of electricity is transmitted. As such,

transmission cost impacts, at least in the short term, may be low.

Distribution network costs

The value of solar exports depends on the availability of the distribution network to transport the

energy to another user. There may be benefits from solar PV in particular locations where it defers

network investment. However, there may also cases where solar PV generation causes increased

network expenditure to manage power quality issues, particularly in areas of high solar PV

penetration.

Retail services

Retailer service costs include costs associated with billing, marketing and customer services. It is

unlikely that these costs will be avoided when a customer exports electricity into the distribution

network. The cost of managing solar customer accounts may be relatively higher than non‐solar

customers.

Hedging

Solar PV exports may reduce or increase retailer costs associated with risk mitigation through

hedging contracts. For example, if the time‐profile of embedded generation exports is correlated

with demand it may provide a 'natural hedge', and reduce hedging requirements, but if the effect

of embedded generation is to make the overall patterns of net demand more peaky and volatile,

then the opposite could be the case.



Merit order effect

The ‘merit order effect’ refers to the impact of reduced demand on the wholesale market. PV

generation (or any demand management measures) will reduce the amount of electricity that

retailers need to purchase from the wholesale market. This may lead to a lower supply

requirement resulting in a lower bid in the merit order despatch and thereby lowering wholesale

spot prices.

Externalities

Embedded solar PV generation may produce positive externalities such as environmental benefits

(from reduced carbon and non‐carbon pollution) from generating power using solar PV systems

rather than coal or gas generators.

3.2 Structure and payment of feed-in tariffs

The terms of reference asks us to determine how a fair price (or fair prices) may be designed and

paid (including the structure, unit measure, gross or net payment and the payment mechanism).

The most appropriate structure and payment mechanism for a feed‐in tariff will, in part, depend

on the regulatory approach adopted and the costs and benefits of different structures within the

constraints of system.

3.2.1 Gross or Net Scheme

Feed‐in tariffs can be applied on either a gross or net basis. Table 3.2 provides a summary of the

two approaches.

Table 3.2 Gross versus net metering

Gross Scheme Net Scheme

Measure total electricity generation and in‐home consumption independently

Customer paid for all generation

Customer charged for all consumption

Entire solar PV generation valued

Total consumption metered

Solar PV generation is first used on the premises

Excess generation exported to the grid

Import and Export metered separately

Export = generation minus consumption

Import = Consumption minus instant generation

Customer paid for exports

Customer charged for imports

Each metering arrangement has different impacts which will vary in size depending on the

efficiency of network, retail and feed‐in tariff prices. For example, under the solar bonus scheme

where the feed‐in tariff was higher than retail prices, a net metering arrangement distorted

incentives for efficient consumption by discouraging use during the day and shifting use to the

evening peak.

Similarly, under the current volume based network charge, a net metered customer can avoid

paying the full share of network costs. Gross metering can overcome some of these issues as solar

PV customers will be charged for all of the energy used and therefore pay a network charge for all

of their consumption (fixed and variable components) the same as other non‐PV customers.

A gross feed‐in tariff also allows investment decisions to be made with more certainty. Customers

are able to more accurately estimate the payments they are likely to receive under a gross scheme

as payments can be estimated without needing to know consumption patterns. As net metering

depends on the behaviour of the householders, such certainty is not possible.



That said, as net metering is the current approach in Queensland, any benefits of alternative

metering options would need to offset any change costs.

3.2.2 Unit Measure

Feed‐in tariffs have traditionally been paid on a cents per kilowatt hour basis due to the simplicity

and ability of metering devices to capture the data accurately. Further, most customers have a

good understanding of the kWh unit of measure and have generally accepted the measure as a

good proxy for the valuing solar energy.

A gross metering approach may allow alternative measures to value solar. Under a gross metering

arrangement, feed‐in tariffs should not distort efficient in‐home consumption. As gross energy

generated is largely dependent on the size of the inverter and panels, a payment by size of the

inverter and panels could be considered in lieu of a kWh measure.

3.2.3 Single or Multiple Feed-in Tariffs

Due to size, geographic and network topology differences in Queensland, solar PV generation can

have different cost and benefit implications for networks and retailers.

Generally, customers in high cost of supply areas will provide the most savings when it comes to

solar PV generation. This provides a rationale for varying feed‐in tariffs depending on location.

However, there are considerable challenges in accurately estimating a locational value, particularly

where other prices are not cost reflective. Moreover, as the Uniform Tariff Policy ensures that

regional customers can access the same tariffs as south east Queensland customers despite their

higher cost of supply, locational variation may raise equity issues.

Another factor to consider is a time‐based value of solar. The wholesale electricity market is

measured and settled on a half‐hourly basis which varies throughout the day depending on supply

and demand. Time varying solar feed‐in tariffs may contribute to more efficient outcomes, but

where feed‐in tariffs are regulated, it depends on being able to determine accurate time‐based

prices in a cost effective way.

3.3 Other approaches to valuing solar or solar exports

Various studies have been conducted locally and overseas on the appropriate methodology to

value solar energy. In addition to the avoided costs identified above, other costs and benefits

considered include solar integration costs, financial risks, system security, environmental benefits

and social benefits.

In 2015, the Clean Energy Council (CEC) commissioned a study into calculating the value of small‐

scale generation to networks.14 The study identified value categories that may be included in the

assessment of costs and benefits impacting networks. Each value category could either impose a

cost or benefit to the network depending on various factors including the level of penetration of

solar PV generation.

Internationally, the Maine Public Utilities Commission conducted a project into the valuation of

solar.15 The methodology quantifies the cost and benefits of gross energy produced by solar PV

systems based on identified components such as avoided energy costs, avoided generation

14 Clean Energy Council (2015). 15 Maine Public Utilities Commission (2015).



capacity, solar integration costs, avoided transmission and distribution capacity, voltage regulation

and social costs.

Questions 3.1 What are the costs and benefits of exported solar electricity?

3.2 Who incurs the costs and accrues the benefits from exported solar electricity? How will future market developments impact on costs and benefits?

3.3 Where there is a case to regulate feed‐in tariffs, is the existing approach to pricing solar exports appropriate? If not, what alternative approach would be the most effective and efficient way to price solar exports?

3.4 How should the price be structured and paid? Should feed‐in tariffs account for variations in value due to location and time?

3.5 Would market, regulatory or policy changes be required to implement feed‐in tariffs? If so, what changes would be required?

3.4 Review mechanisms and timeframes

Any regulated feed‐in tariffs will need to be reviewed and re‐determined over time to ensure they

remain appropriate.

Under the existing arrangements in Queensland, the QCA conducts an annual review. Most other

Australian jurisdictions have their independent regulators review solar feed‐in‐tariffs, but the

timeframe and scope of reviews do vary:

In New South Wales and Victoria, IPART and ESC respectively, conduct annual reviews of the

solar feed‐in tariff.

In South Australia, the ESCOSA conducts biennial reviews of the solar feed‐in tariff with a mid‐

period update where adjustments are made if certain parameters are met.

In Tasmania, the OTTER conducts annual reviews by recalculating the FiT based on its

established methodology.

An appropriate review mechanism should seek a balance between:

certainty for PV customers, retailers and other market participants

flexibility to ensure the feed‐in tariff remains appropriate

costs of the various review options, including the regulatory costs, for all stakeholders; and

timing the review to align with the retail price review on notified prices, if necessary.

Some possible approaches include:

an annual review of the value(s), to apply for the following 12‐month period

a multi‐year review which establishes a fixed value or values for two or more years; or

a multi‐year review which establishes a variable value or values for two or more years,

updated at defined intervals, or as necessary.

In general, shorter review periods allow for greater flexibility to adjust or modify settings in

response to changing market circumstances. The drawback, however, is that reviews impose costs

on all stakeholders that participate in the review process (including direct review costs).



In contrast, longer review periods allow more time for the collection of evidence and to assess the

effectiveness of its regulatory settings in the market. More evidence and the opportunity to

consider this evidence would assist in the deliberation of any future determinations. A longer

review timeframe would provide more certainty for stakeholders.

However, it does impose the risk on customers and industry of unforeseen changes to

determinants of the value not being reflected in the price. If the value is inflexible to respond to

significant changes, customers and industry may find themselves locked into an inappropriate

feed‐in tariff rate potentially for a number of years.

One possible means of mitigating this risk would be to allow for updates to the estimate, either at

defined intervals or in response to certain changes. Under this approach, it may also be necessary

to develop criteria or materiality thresholds for deciding whether the value should be updated.

Questions 3.6 When should the feed‐in tariff be reviewed or updated?

3.7 How should the feed‐in tariff be reviewed or updated?

Barriers to a market for solar exports


4 BARRIERS TO A MARKET FOR SOLAR EXPORTS

The terms of reference asks us to investigate and report on:

… any barriers or constraints (technical, market, regulatory or otherwise) to monetising the value of

exported solar energy in Queensland in the current electricity system, and options to address those

barriers.

Some barriers may be direct impediments to pricing solar exports, but there may be other indirect

barriers to a well‐functioning solar export market.

4.1 Barriers to deployment

Some small customers cannot install solar PV systems, and thus cannot participate in the

embedded generation 'market'. This occurs for several reasons. Obvious barriers include:

housing tenure (renters, on‐supply receivers)

housing type (mobile homes, unit blocks, townhouses, asbestos roofs)

search costs; and

metering arrangements (for example, pre‐pay meters in the isolated networks, or embedded

networks without individual meters).

Beyond the obvious barriers, there are processes and regulations that may act as barriers or

restraints to participation. The Clean Energy Regulator regulates solar PV installation designs and

componentry under the Renewable Energy (Electricity) Act 2000 to ensure that components are of

a high quality and installations are safe, and both network providers in Queensland apply

connection guidelines to ensure that distributed generation does not impact on the safety or

reliability of the network. Although these and other regulation aim to ensure public safety, they

may increase costs and act as a barrier to new entrants or new designs.

4.2 Barriers to determining value

As discussed in Section 3.1, there are a number of issues to be addressed in determining a value

for solar exports, but there are also barriers that can prevent the regular determination of accurate

or reasonable values. These may include difficulties in:

isolating the benefits from an individual system when network impacts are the result of

aggregate impacts

separating the impacts of embedded generation from demand management and energy

efficiency when determining the merit order and foregone investment benefits



identifying and valuing environmental benefits, and where they exist, determining who

should pay for them

accounting for the impacts of other regulations and government policies, such as the Small‐

Scale Renewable Energy Scheme; and

determining and distributing the network cost impacts of the augmentation required to

support and integrate widespread embedded generation.

4.3 Barriers to monetising and transferring value

Even where a value can be determined, there are barriers that may prevent the monetisation of

value, or the transfer of that value to the party which creates it. These barriers may include a lack

of market interfaces (for example, to facilitate direct interactions between embedded generators

and small consumers).

Some of these issues are being considered through the ‘New products and Services’ work being

conducted by the COAG Energy Council and the Clean Energy Council (CEC) (Section 3.3).16 Other

issues may include:

The limited ability of the network businesses to monetise the value of demand and peak load

reductions and delays, and the lack of financial pathways to provide any benefit back to the

embedded generators that create the value.

Tariff and feed‐in‐tariff structures that do not reflect the time‐value costs and benefits of

embedded generation.

Challenges of identifying and quantifying the value of environmental benefits, particularly

when there is no market for those benefits (e.g. how to value reductions in non‐carbon

pollution) and, where present, challenges to determining who should pay for those benefits.

How to transparently present and implement an export rate to both embedded generators

and consumers when the rate is determined through regulation.

4.4 Options to address barriers

Not all barriers to solar PV and solar export pricing are policy relevant — some barriers may simply

represent market characteristics that exist in many other markets. Even where barriers are caused

by market failures, they may not be amenable to correction by government action or may not be

able to be addressed in a cost effective way.

Even so, there may be a range of technical, market or regulatory barriers that could feasibly be

addressed in a cost effective way to remove impediments to solar exports. The QPC is interested

in identifying such impediments and efficient and effective ways to address them.

16 Clean Energy Council (2015).



Questions 4.1 What are the main barriers to pricing solar exports? How significant are these barriers?

4.2 How may broader market changes (e.g. metering) impact barriers?

4.3 Can these barriers be overcome in an effective and efficient way?

4.4 Are there other barriers to a well‐functioning solar export market?

4.5 Are there examples where efficient investments in solar did not proceed because of technical, market or regulatory barriers?

4.6 Are there cost‐effective ways to remove or address those barriers?

Glossary


GLOSSARY

A

ACT Australian Capital Territory

ActewAGL Joint venture between Australian Gas Light Company (AGL) and Icon Water Limited (formerly ACTEW Corporation), an ACT Government owned corporation

C

c/kWh Cents per kilowatt‐hour

CEC Clean Energy Council

COAG Council of Australian Governments

D

D‐FiT (South Australia) Distributor‐paid feed‐in tariff

E

Electricity Act Electricity Act 1994 (Qld)

Embedded generation A generating unit that is connected within a distribution network rather than connected to the high‐voltage transmission network, also known as distributed generation

Energex Energex Limited

Ergon Energy Ergon Energy Corporation Limited (electricity distribution arm and parent company)

ESC Essential Services Commission ‐ VIC

ESCOSA Essential Services Commission of South Australia ‐ SA

F

FiT Feed‐in Tariff

G

Gross feed‐in tariff A gross feed in tariff pays for each kilowatt hour produced by a grid connected system

I

IPART Independent Pricing and Regulatory Tribunal ‐ NSW

K

kW Kilowatt – 1000 watts (a watt is a unit of electrical power or the rate of doing work)

kWh Kilowatt‐hour – The standard unit of energy representing consumption of electrical energy at the rate of one kilowatt over a period of one hour

M

MW Megawatt – 1000 kilowatts

MWh Megawatt hour – The standard unit of energy representing consumption of electrical energy at the rate of one megawatt over a period of one hour

N

NEM National Electricity Market

Glossary


Net feed‐in tariff A net feed in tariff pays the PV system owner only for surplus energy they produce

NSW New South Wales

NT Northern Territory

O

OECD Organisation for Economic Co‐operation and Development

OTTER Office of the Tasmanian Economic Regulator

P

PV Photovoltaic

Q

QCA Queensland Competition Authority

QLD Queensland

QPC Queensland Productivity Commission

R

R‐FiT (South Australia) Retailer‐paid feed‐in tariff

RTI Act Right to Information Act 2009

S

SA South Australia

SBS Solar Bonus Scheme

SEQ South East Queensland

Small customer A customer that consumes less than 100 MWh of electricity per year

SRES Small‐scale Renewable Energy Scheme

T

Tas Tasmania

V

VIC Victoria

W

WA Western Australia

Appendix A: Terms of Reference


APPENDIX A: TERMS OF REFERENCE

Queensland Productivity Commission ‐ Public Inquiry into a Fair Price for Solar Exports Terms of Reference

Objective

The aim of the inquiry is to determine a fair price (or fair prices) for solar power that is produced at the

home or business premises of a ‘small customer’ and exported into the electricity grid (both National

Energy Market (NEM) connected and isolated grids). A fair price for exported solar energy:

is to be determined based on an assessment of public and consumer benefits from solar generated

electricity; and

must not have an unreasonable impact on network costs for non‐solar users.

Context

Solar power installations on small customers’ premises can at certain times generate more electricity than

is required by the customer resulting in the surplus electricity being exported into the local electricity grid.

Payments to the customers for their exported solar energy are known as Feed‐in tariffs (FiTs).

FiTs are currently available in different forms for small electricity customers (those consuming less than 100

megawatt‐hours (MWhs) of electricity per year) across Queensland. In south‐east Queensland (SEQ), FiTs

are offered by participants in the competitive retail market, with no minimum amount mandated. There

are currently six retailers in SEQ offering FiTs which range from 6 – 12 cents per kilowatt‐hour (c/kWh).

The Electricity Act 1994 mandates a FiT for regional Queensland customers as there are no market FiTs

available. The mandated FiT is determined annually by the Queensland Competition Authority, and is paid

by Ergon Energy’s retail business, and by Origin Energy in the case of Queensland customers connected to

the New South Wales electricity network operated by Essential Energy (around the Goondiwindi/Inglewood

region).

The regional FiT is based on the financial value to the electricity retailers from their receipt of exported

solar energy. The FiT is calculated by summing the avoided generation costs, avoided NEM and ancillary

service fees, and avoided costs of network losses. The regional FiT in 2015‐16 is 6.3486 c/kWh.

In addition, a large number of existing customers are in receipt of the now‐closed 44c/kWh FiT under the

Solar Bonus Scheme, for which the electricity distributors are responsible. Under the National Electricity

Rules the distributors can recover the costs of paying the 44 c/kWh FiT from all distribution network

customers through the distributors’ network tariffs.

The Queensland Government is also considering opportunities to grow the renewable energy sector in

particular, the uptake of solar PV installation for both households and businesses. The Government has set

a target for one million rooftops or 3000MW of solar panels by 2020.

In addition, new emerging technologies such as battery storage at the household level, may over time,

increase distributed energy generation. Battery storage together with smart metering also has the

potential to reduce peak demand. A fair price for solar may also encourage households to use and see

value in the network.



Scope

The Queensland Productivity Commission is to investigate and report to Government on:

1. A methodology for determining a fair price for solar energy generated by a ‘small customer’ and

exported to a Queensland electricity grid that:

a. is based on the public and consumer benefits of exported solar energy;

b. does not impose unreasonable network costs on electricity customers; particularly vulnerable

customers and

c. can be realised in the current electricity system.

2. The price(s) for solar energy determined under the methodology.

3. Any barriers or constraints (technical, market, regulatory or otherwise) to monetising the value of

exported solar energy in Queensland in the current electricity system, and options to address those

barriers.

4. How the fair price (or fair prices) may be designed and paid (structure, unit measure, gross or net

payment, payment mechanism).

5. The mechanisms by which a fair price could be implemented in Queensland (mandatory or other).

6. Appropriate review mechanisms and timeframes.

The scope does not include consideration of the 44 c/kWh FiT rate under the Solar Bonus Scheme. This

matter will be considered by the Commission’s broad public inquiry into electricity prices.

In its investigations, the Commission should have regard to the following factors:

The public and consumer benefits from exported solar PV generation, including social, economic and

environmental benefits.

Whether households and business are already fairly compensated for public and consumer benefits

(such as through existing government renewable energy programs and rebates and market contracts).

The existing tariff structures and the impact these are having on the market.

The value / avoided costs and any cost imposed or benefits across the electricity supply chain due to the

exported solar PV energy, taking into account temporal and geographical / locational factors. One

example may be the value being recovered from consumers for use of the transmission network when

exported energy is on‐sold, where distributed solar energy does not utilise the transmission network.

Whether the fair value for exported solar PV energy is sufficiently different between local areas or

regions to justify the administrative costs to government or market participants of administering

separate values for those areas/regions. This should include how different values could be implemented

in conjunction with the Government’s commitment to the Uniform Tariff Policy.

Any additional cost that may be incurred by electricity customers from implementation of the fair

prices/s recommended by the Commission.

The perception of electricity customers about whether any cost to them resulting from the fair value is

‘unreasonable’.

Wherever possible that the entity receiving the benefit of exported solar energy should be the entity to

pay for that benefit.

Impacts on competition in the retail electricity market.



Existing mechanisms in the electricity system which may prevent the true value of exported solar

energy being realised/monetised (e.g. metering constraints preventing the premium value of daytime

generation from solar PV being realised by retailers; the use of Net System Load Profile in NEM market

settlement processes, etc.).

The Government’s 1 million rooftops target by 2020, noting that the Government is not intending to

return to a premium tariff, and any FiT will be at significant discount to the retail cost of electricity.

Any other matters the Commission considers relevant.

Resourcing

It is expected that the Commission will engage expert advice from external sources where necessary,

including the support and expertise of the Queensland Competition Authority.

Timeframes Issues Paper

The Commission must publish an issues paper outlining the issues associated with its investigation.

Draft Report

The Commission must publish a draft report on its investigation into a fair price for solar.

The Commission must publish a written notice inviting submissions about the draft report. The notice must

state a period (the consultation period) during which anyone can make written submissions to the

Commission about issues relevant to the draft report. The Commission must consider any submissions

received within the consultation period and make them available to the public, subject to normal

confidentiality considerations.

Final Report

The Commission must publish a final report on its investigation into a fair price for solar within 10 months

of the start of the work.

Stakeholder engagement

The Commission should consult with stakeholders, and consider submissions, within the specified

timeframes.

Bibliography


BIBLIOGRAPHY

Clean Energy Council (CEC) 2015, Future proofing in Australia’s electricity distribution industry project, http://www.cleanenergycouncil.org.au/fpdi/, accessed 17 September 2009.

Council of Australian Governments 2008, National principles for feed‐in tariff schemes, Canberra, November.

Hilmer Committee (Independent Committee of Inquiry into Competition Policy in Australia) 1993, National Competition Policy, Australian Government Publishing Service, Canberra.

Maine Public Utilities Commission 2015, Maine Distributed Solar Valuation Study, Report to the Joint Standing Committee on Energy, Utilities and Technology, 127th Maine Legislature, 1 March.

Menger, C. 1871, Principles of Economics, Reprinted in 2007, Ludwig von Mises Institute, https://www.mises.org/sites/default/files/Principles%20of%20Economics_5.pdf, accessed 9 September 2015.

Organisation for Economic Co‐operation and Development (OECD) 2005, OECD Guiding principles for regulatory quality and performance, OECD, Paris.

Queensland Competition Authority 2013a, Estimating a fair and reasonable solar feed‐in tariff for Queensland, Final Report, Brisbane, March.

Queensland Competition Authority 2013b, Statement of regulatory pricing principles, Brisbane, August.

Queensland Competition Authority 2015a, Regulated retail electricity prices for 2015–16: Final determination, Brisbane, June.

Queensland Competition Authority 2015b, Industry Assistance in Queensland, Final Report, Volume I, Brisbane, July.

Queensland Competition Authority 2015c, Solar feed‐in tariff for regional Queensland for 2015‐16: Final determination, June.

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