Low Impact

A feed-in tariff can reduce the pay-off time for solar cells.

Recently the ACT (the Australian Capital Territory) passed legislation for a “Feed-in tariff” for renewable energy.  This is a concept that has been very successful in Europe, particularly Germany, in boosting domestic uptake of solar panels.  The ACT legislation is due to take effect by June in 2009 (to allow the underlying regulations to be drafted and for retailers to implement the necessary systems).

The idea is simple.  Basically, Electricity Retailers are obliged to pay over and above the normal wholesale rate for electricity sourced from a domestic renewable energy system (typically wind turbines or photo-voltaic solar cells).  This means that the pay-off period (how long it takes the system to pay for itself) is reduced.

Of course, nothing is free!  The Electricity Retailers need to get the money to pay this extra tariff from somewhere - typically this is done by raising the price of electricity they charge everyone else.  The amount of the increase will vary based on the amount of the tariff.  However, it’s important to remember that this is spread over all the customers of the retailer, which will number in the hundreds of thousands, or even millions.  Consequently, the cost increase per user would typically be quite low.

So simple idea, but in reality there are countless variations.  Do you pay the tariff on all electricity generated, or just the excess?  Do you set a ceiling on the extra payments?  Are the extra payments some flat rate, or are they tied to some other index?  The scheme that has been chosen by the ACT has been widely commended, so its worth looking at some of the details.

The ACT scheme is a “Gross” scheme, rather than a “Net” scheme.  This means that the retailer must pay the tariff on every kilowatt-hour generated from the solar panels or wind turbine, etc, not just the excess power that is not used by the house itself.  This simplifies the scheme, and makes it relevant to owners of even small systems.

The tariff for the ACT scheme is based on a multiple of a particular rate.  One approach is to make the tariff a multiple of the Electricity Retailer’s standard electricity price.  But the issue arises of different prices.  Different retailers charge different prices, and often a single retailer may charge different prices for electricity for each of their different consumer plans.  Which price to use?  The final scheme uses what’s called the transition franchise tariff retail price - a price set by the Independent Competition and Regulatory Commission.  This removes the slight distortions that might be introduced by one retailer’s differing price structures over another.

The final point worthy of note is the ongoing review of the scheme.  When the feed-in tariff commences in the ACT, if you enter into an agreement with a retailer for your solar-generated electricity, you are entitled to 3.88 times the Tariff Retail Price for 20 years.  The review process allows legislators to refine these numbers to take changing circumstances into account.  Imagine that 10 years down the track, the price of solar cells has plummeted and everyone is installing them.  Your neighbour, having just installed some PV panels might only be entitled to 1.5 times the Tariff Retail Price.  You, however are still on your higher rate!

A Feed-In tariff scheme has proven to be a great way to kickstart the domestic solar cell industry.  Germany, which has been running a feed-in tariff scheme since 1991 had 1500 MW of solar powered electricity connected to the grid in 2005, compared to only 7 MW in Australia…and Australian cities typically get a lot more sun than Germany!  In a few years time, it will be interesting to see what effect the new ACT legislation has had on solar cell installations in Canberra.

Final Note:

Reading through the ACT legislation, there are a variety of caps so that small domestic installations get the maximum benefit from the tariff.  As the capacity of the renewable energy system gets larger, the rate that gets paid starts to fall off - on the flip side, the larger systems already benefit from economies of scale.

The legislation refers to the capacity of the “renewable energy system” in terms of kilowatt hours.  The full rate is payable to panels that generate 10 kilowatt hours or less, whereas a system that is between 10 to 30 kilowatt hours gets 80% of the normal rate.

Now, kilowatt hours are generated over a period of time, whereas a solar cell or wind turbine is typically rated in kilowatts only.  A small solar cell installation might be rated at 1 kilowatt.  In a single hour, it will generate (at best) 1 kilowatt hour.  If its cloudy, it might generate a tenth of that.  Over a day, it may end up generating a total of 5 kilowatt hours.

So my question is what is the time period that the legislation refers to with these caps?  Is it the amount of power that the solar cells generate in a day?  Or a single hour?  Or is it meant to refer to kilowatts, and refer to the system’s peak maximum?  I’d love to hear the answer in the comments.

Categories: community, energy, environment, green, rebate, solar

Tags: canberra, economy, PV, renewable, solar, tariff