Australia’s Feed-in-Tariff debate

To Feed-in or not to Feed-in: Encouraging renewable energy electricity production

The concept of a feed-in-tariff (FiT) has been around since the 70’s but it was only in the last decade we saw Germany pioneer its usage to dramatically increase electricity generation from solar PV.

Now over 30 countries, including Australia have adopted feed-in-tariffs to encourage the production of electricity from renewable energy sources. Those of you with PV solar systems most likely purchased your system due to the existence of a feed-in-tariff in your state and are just kicking back to wait for their returns. Unfortunately economists, the electricity wholesalers, and large-scale renewable developers are not always in favor of these generous premiums that are driving the solar PV market and drastically reducing your energy bill.

Now over 30 countries, including Australia have adopted feed-in-tariffs to encourage the production of electricity from renewable energy sources. Those of you with PV solar systems most likely purchased your system due to the existence of a feed-in-tariff in your state and are now kicking back to wait for their economic returns. The ugly truth however is that economists, the electricity network and large-scale renewable developers are not always in favour of these generous premiums that are driving the solar PV market and drastically reducing your energy bills.

Some Background on Australia’s incentives

Small-scale renewable energy projects in Australia are currently supported financially through RECs (Renewable Energy Certificates) and FiTs (Feed-in-Tariffs). Most countries either have one or the other, which is why some economists believe the federal Renewable Energy Target and its REC trading scheme should operate by itself, without the assistance of various state-based FITs, favouring the most efficient renewable energy technology at least cost. And so the question on policy makers’ lips is whether we are spending too much money on integrating renewable energy into Australia’s energy mix with our feed-in-tariffs.

The clear answer and reality of the situation is that a feed-in-tariff is the quickest method to reaching a certain capacity of renewable energy generation:

1. It provides security to clad your everyday electricity warrior (the single mum, the struggling farmer, you and I)  with ammunition against rising energy bills which are becoming more expensive because of network upgrades, completely unrelated to the generous Feed-in-Tariffs!

2.  It ensures that the REC Market doesn’t pick winners of large scale Wind or Hydro projects and encourages investments into smaller-scale technologies, which stimulates demand and R&D, making them more affordable.

3. It creates more jobs than a big development and reaches a target of renewable energy capacity far quicker than any other mechanism – the quicker we install renewables, the less dependent we become on dirty coal for our base load requirements.

Feed-in-tariff Solar Tree

How You make your money

There is no doubt about it, that both renewable energy policies: RECs and FiTs, have improved the economic viability and payback time for your average household PV installation. RECs bring down the upfront cost of the solar installation for small businesses and residences and the FiT, normally capped at 10kw for most states, earns you a fixed return based on the nature and duration of the scheme (i.e. 7 years Gross, or 20 years Net). NSW homeowners for instance, can purchase a 1.5kw system for as low as $2-3000 (after RECs) and earn over $1400 per annum for the next seven years.

The most attractive scenario would be a national gross feed-in-tariff (similar to Germany’s and now the UK’s) as the quickest way to reach a certain capacity of electricity generation from renewable energy in Australia.

The Concerns vs Benefits of Feed-in-Tariffs for Small renewable technologies

Large-scale developers are not overly excited with the surge of the domestic market and lament the lack of incentives that are available to them which has now been resolved with the fixed REC price for small renewables at $40. From previous customer experiences it does seem as if electricity wholesalers, the bodies that maintain the electricity network, will begrudgingly have to update the network to incorporate solar PV customers wanting to export onto the grid. If there is a large supply in a particular community then there may be too much for the grid to handle in some areas and this is a possible solution in the future. However until then there are a large number of benefits that outweigh the current gripes out there about Feed-in-Tariffs.

Below is a table that displays how such concerns are outweighed by the multiple, realistic benefits that FITs and small-scale renewable policies have to offer:

Concern

Proposed Benefit

Large-scale developments can better supply the grid with renewable electricity at least cost European renewable energy policies, especially German and Spanish ones, consider FiTs to be the most efficient means of spurring a new renewable energy industry. Anyway the $40 fixed REC price introduced next year will ensure small-scale PV/Wind doesn’t interfere with the large-scale REC market.
Feed-in-Tariffs and Renewable Energy Target obligations are inflating electricity prices This is wrong. The real reason why electricity prices are rising across the country is because of new network infrastructure being upgraded. Muriel Watt from the Centre of Photovoltaic & RE Engineering at the University of NSW also asserts that feed-in-tariffs are extremely minimal to the electricity price rise in NSW, which is mainly from bad political decisions on delaying inevitable upgrades. For NSW residents the 60% rise in electricity costs for NSW comprises important network upgrades (40%) and a proposed Emissions Trading Scheme (20% of the rise). Thus it would have been much cheaper to initiate a carbon trading platform if we had an efficient grid, and electricity network platform to work off.
The 5 times REC – 5-times-multiplier will dilute our Renewable Energy Target
Every REC has the date and size of its origin and will easily be calculated at 2020 to determine the true amount of electricity produced from renewable sources.
Domestic photovoltaic installation has purely symbolic appeal to politicians and consumers Your PV installation earning a FiT significantly reduces your rising energy bills (a Gross FiT more being beneficial than a Net FiT). Encouraging growth subsidies for small-scale technologies will prevent R&D opportunities going to only one type of renewable, i.e. large scale wind or hydro. A community with a large capacity of solar PV feeding into the grid also creates a healthy renewable energy base load during the day to substitute traditional power generation (something that the network should capable of handling). Furthermore a more decentralised energy network, through a higher number of renewable energy suppliers, offers better energy security and more employment than a more centralised one.

I hope this was useful information to those of you wondering whether Feed-in-tariffs will be important to us in the future. And as per our previous Solar Choice Blog please have a look at which electricity retailers are offering the best feed-in-tariff rates, above and beyond what is stipulated by their respective governments.

Renewable Energy Consultant/Senior Solar Energy Broker

Brendan Noakes

Solar Choice

© 2010 Solar Choice Pty Ltd

Matt Lasauce

Matt Lasauce is the Chief Commercial Manager for Solar Choice Pty Ltd.
Matt Lasauce

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Comments

  1. I am from NSW and are thinking of putting a 3kw unit on, do you think its worth it now considering the drop of FIT from 60 to 20cents. Agl will pay 28c
    and I are just wondering how many kw a 3kw will produce in a year and do you think will they make the states FIT the same eg 40c

    regards greg

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