Why Are Feed-in Tariffs So Low?

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Many Australians are puzzled by the current low solar feed-in tariffs, especially recalling higher rates a decade ago. From 2009-2013, Australian state governments heavily subsidised solar energy through "premium Feed-in Tariffs", even surpassing electricity supplier rates. These tariffs were incentives to promote solar adoption.

However, as solar technology became more affordable and prevalent, these tariffs began decreasing. Today, the Australian Independent Pricing and Regulatory Tribunal (IPART) sets the feed-in tariffs based on the wholesale electricity price.

Consequently, the current solar feed-in tariffs closely mirror these wholesale energy prices.

Why are my solar feed-in tariffs lower?

Have you noticed your solar power feed-in tariff payments are lower now than it was ten years ago?

This has become a frequently asked question, particularly in Australia. Understanding the answer requires a deeper look into the evolving landscape of solar energy, governmental policies, energy retailers and electricity costs in general.

Historical context of solar feed-in tariffs in Australia

Between 2009 and 2013, many Australian State Governments rolled out what is termed “premium feed-in tariffs” (FiT). The design of this initiative aimed to promote the adoption of solar energy among businesses and residents. These tariffs, in many cases, were higher than the rate consumers paid for electricity from suppliers.

The high rates paid for solar power fed back into the grid did not accurately reflect its true value. The rates were not a true representation of the value of solar power. The amount paid per kWh was not in line with the actual worth of the energy. Instead, they were an incentivised offering, heavily subsidised by State Governments.

The role of the Australian Independent Pricing and Regulatory Tribunal (IPART)

Today, the Australian Independent Pricing and Regulatory Tribunal (IPART) plays a crucial role in determining the Feed-in-Tariffs (FIT). Annually, IPART releases an updated report detailing the recommended minimum charge for exported solar. The primary basis for their recommendations is the prevailing wholesale price of electricity across the nation.

The electricity rate your energy retailer offers as a solar feed-in tariff closely mirrors this wholesale electricity price. This is the same rate energy retailers pay when purchasing power to supply their customers. This refers to when your solar panels don’t generate as much electricity at night or on cloudy days.

solar panels and energy grid affecting feed-in tariffs

Deconstructing your electricity bill

Typically, a residential home with solar comprises an electricity bill including:

1) The supply charge – usually charged per day.

2) The price you pay per kWh (consumption charge) for the used (imported) electricity from the grid, measured in kWh. If you are on a standard tariff, this charge can be a flat rate, or if you are on a “time-of-use” tariff, it can be charged at three different price points.

3) The price of solar panel power you get paid when you export is then credited to you and again measured in kWh and offset against the other 2 charges (including feed-in tariff).

Your electricity usage charge, denoted in kWh, encompasses four key elements. They are:

  1. Wholesale electricity cost is the price your retailer pays for the electricity you use from power stations or solar/wind farms.
  2. Transmission and distribution costs –  This chunk of your energy bill covers the expenses of transporting electricity from its generation point (like power stations and solar farms or large-scale batteries) to your premises. These include charges for the use of both distribution and transmission networks.
  3. Rebate schemes – this is the cost for the solar rebate and other support for the solar and renewable industry to encourage uptake. The recovery of the solar rebate occurs through the general electricity tariff.
  4. Retailer’s operating margin – A significant portion of your bill goes towards the retailer’s operational costs and profit margins.

A sample breakdown of the numbers

So in real numbers let’s say the price per kWh you pay is 36 cents ex GST.

  • 11 cents will go towards the purchase of the electricity from the power station (wholesale price).
  • 16 cents will go towards the upkeep and rebuilding of the grid infrastructure.
  • 3 cents will go towards financing the solar rebate scheme, and
  • 6 cents being around 20% of your cost is the retailer’s operating and profit margin.

The low solar feed-in tariff and the economic logic

When you feed your solar-generated electricity back to the grid, the energy company must cover the grid infrastructure maintenance costs. If they were to compensate you at the full retail rate, they’d invariably operate at a loss.

Why? Because the value of the electricity you provide through solar isn’t considered superior to what they can buy from the wholesale electricity market.

Electricity generation occurs through either fossil fuel power stations or renewable energy power stations. Rates charged in this market can go as low as 3 to 4c per kWh. Overall the dynamic nature of the National Energy Market means these figures are subject to fluctuation and usually hover around between 6 and 15 cents per kWh.

electricity poll being worked on

The takeaway from all this?

Solar feed-in tariffs in Australia have evolved since 2007. They began as a high payment to encourage solar adoption. Over time feed-in tariffs aligned with the wholesale price of electricity.

Current tariffs are much lower than what early solar system owners enjoyed.

Therefore the benefits of solar energy, especially quality solar energy systems, continue. They include a solid long-term financial return for system owners.

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