SolarVision

Heresthegoodnews.SolarCostshavehalvedinthelasttwoyears,anddramaticfurtherpricereductionsare expected.ThismeansthatwearerapidlyapproachingGridParity,thepointatwhichbuyingasolarsystem andhavingfreepowerfor20plusyearscostseffectivelythesameascontinuingtobuyelectricityfromthe grid1. Now,whenthatoccurs,awavewillbuildofmassivepublicdemandforsolarpowerindeed,billionsofdollars inprivateinvestmentwillbeunleashed.Thiscarbonabatementmeasurewillhavenopubliccostitwillbe justifiedentirelybyitsowneconomics,muchasaninvestmentinenergyefficientlightbulbis.2

TheBarrier
Butamajorbarrierstandsintheway.Currently,assoonasyourgenerationexceedsyourconsumptioninany giveninstant,yourpowerhaszeroregulatedvalue. Forthesolarindustry,thismakesitdifficulttosellsystems.Italsosendssomecrazymessagesthatthe governmentendorsesasituationwherecoalpowerhasgreatervaluethansolarpower3.

SimpleSolution
ThesimplesolutionisaSolarEnergyBuyback,inwhichsolarpowerispurchasedforthesamepriceasthe prevailingretailrate.Effectivelythisisaoneforonepricepaidforallgeneration. ThiswassupportedbyCoAGayearago,andisalreadyimplementedinVictoria,Tasmania,andtheNT.South Australiasrecentlegislationhassimilarintent,ActewAGLhasvoluntarilyofferedit.IndeedtheUSEnergyAct supportsnetmeteringaslawinatleast48oftheUSStates. ASolarEnergyBuybackdoesnotcreateanunsustainablesolarbubble,indeedquitetheoppositeitonly providesa12yearpaybackatcurrentconditions.Butsupportingafairminimumentitlement,cantbe conscionablyarguedagainst,andshouldformpartofanenergystrategyforthefuturethatencompasses demandmanagementandenergystorage.

Gettingthere
Asapolicymeasure,aSolarEnergyBuybackmakessense.Itsfair,responsible,andwillbeeasilyunderstood bythepublic.(Butnoteveryonelikesthisforthcomingsolarrevolution.Especiallynotincumbentelectricity retailerswhofeartheirabilitytoselleverincreasingamountsofenergywillbejeopardised4.Littlesurprise thattwoofthemareactivelysellingsolarpower(indeedthe#1and#14installersnationwide)). Thequestioniswhichpartieswillfundthisfairvalueforsolar?Andthatisatopicofsignificantdebate,debate thatreflectsthegreatcomplexityoftheissue,andtheinterplaybetweenfederalandstateregulation.Onthe onehandyouhaveESCoSAESTIMATINGthevalueofPVis6c,theACTgovernmentministerdeciding similarly5.Butitstimetostopestimatingandstartcalculatingandallmajorstakeholdersshouldbeinvolved. However,weneedtobecarefultowhomwelisteninthedebate.Dowelistentothebureaucratsthatuse outdateddatatosaysolarpowerisexpensive,orcomparerooftopsolartocoal6?Dowelistentothe

1 2

(Thiswillhappenfirstonresidencesin25yearstime,thenoncommercialbuildingsafewyearslater.) Soasolarrevolutionisapproachingthatcandelivercarbonabatementatzerocosttothetaxpayer. 3 AswellasotherperverseoutcomesSuchasencouragingelectricityconsumptionfornewsolarowners

4
5

norbureaucratswhoseskillsetmightbeoutdatedintheprocess.

Personally,Istillfinditunjustifiabletoonsellat2040cpowerthatwaspurchasedat6c,butconcedethat thecurrentregulatoryframeworkpresentsbarrierstoefficientrecoveryofthetruevalueofsolarpower. 6 Dowebelievethatsolaremissionsabatementisexpensivewhenweseeclearlythatfromparityforwardit costsnothing?

hypocriticalretailersthatusequestionablemethodologytoclaimsolarpowerismiddleclasswelfare,whenall otherdirectevidenceistothecontrary?Indeed,dowetrustaregulatorthatusescreativelanguageto demonisesolar7,butwhocomesupwithnorecommendationsoractionstoaddressthebiggestissue networkpricerisesanditscauseairconditioningandlackofdemandmanagementanditsimpact indirecttaxationonanunprecedentedscaleofregression?Inshort,dowelistentoincumbentsthatare arguinginselfinteresttosupportthestatusquo?Ordowefinallynotjustconsult,butactuallyengagethe solarindustry? Forthesereasons,Iamcallingforanindependentexpertengagedindepthpublicallyreleased commissionintothevalueofresidentialandcommercialsolarpowerintheNSWelectricitynetwork.8Onethat engagestheexpertiseofthesolarindustry,consultsIPARTandtheAER,andlistensdiscerninglytothe electricityretailersanddistributors.Foritsridiculoustocomparepointofconsumptionmicrogenerationto thewholesalecostofcoalpower,unlessofcourseyouplantosetupacoalstationinyourbackyard. Thisstudyshouldalsoidentifymarketdistortionsandbarriersthatexisttorecognisingandrecoupingthistrue valueofPV.IPARThasalreadyidentifiedonediscrepancy9,butindicationsandbiassuggestitwillwontgetit rightagainwithoutproperengagement10.Thisstudywouldconcludebyrecommendingthepaymentsfrom eachpartytoreachfullvalueofsolargeneration.Andanyregulatorybarrierstorecognisingthetruevalueof PVshouldbeaddressednationallytoensurethatnopartyisdisadvantagedbyasolarconnection. Nowifthereisagap,Isuggestitissufficientlyminortobeimmaterial,butthegapcouldbeeasilybridged usingCoAGagreedprinciples,orbyrecoveringtheunduegainsfromSTCpricegougingorSolarBonusScheme windfall.

Andbeyond
Toconclude,theSolarEnergyBuybackprovidesafairpriceforsolar.Itsdoesntoverheatthemarketindeed greatersupportisjustified.Butitsasimplerightthatmustbeenshrinedinperpetuity. Thisisntrevolutionary,itsjustaboutkeepingthegoalpostswheretheyare. Andbytheway,doitnowtheresanindustrythatsabouttoimplode.Inthiscriticalmoment,having investedoverabilliondollarsindevelopingtheNSWsolarindustry,anindustrycollapseiswastefulinthe extreme,liketraininganeliteathleteandthenamputatingtheirlegsweeksbeforetheOlympics.Oneforone SolarEnergyBuybackNOW. WarwickJohnstonMSc(RenewableE)BEBSc.Director,SunWizConsulting Advisor:CEC,APVA,AuSES,SEIA(VP).warwick@sunwiz.com.au0413361534.

describeasfastestgrowingoneoffincreasesingreenschemecosts Onethataccountsforavoidedgenerationcapacityfuel,O&M,andcapitalcost,avoidedtransmissionand distributioncosts,avoidedlosses,reducedwholesaleelectricitypricesplusthevaluesofdeploymentease,grid support,fuelpricehedges,andhealthbenefitsofsolarpower(ohyes,theenvironmentaltoo).Onethat considerstheremaybenetworkcostsassociatedwithPVdeployment,butthatassessesthepenetration thresholdsbeforewhichnomaterialcostsarise. 9 underagrossmeteringconfigurationretailerspaydistributionfeesforgrossenergyconsumptionbut wholesaleratesfornetenergyconsumption(grossconsumptionlesstotalsolarproduction).Thiscontrasts withthesituationunderanetmeteringconfigurationwhichseemstobeamajorinconsistency. 10 Thestudywouldconsiderwhythereissuchamajordistinctionbetweenconsumption(whichisreadonce everythreemonths)andexportedpowerthatismeasuredevery5minutes.Icalculatethatacrossthestateat least60%ofsolargenerationisconsumedonsite,butthatover90%ofhouseholdersstillimportmoreenergy atnightthantheyexportedduringtheday.
8 7

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ImpendingParity==$ve abatementfrom userperspective(APVA,2011)

Source:APVA

Precedent
COAG(2008)Principles:
ThatGovernmentsagreethatresidentialandsmall g businessconsumerswithsmallrenewables (small renewableconsumers)shouldhavetherighttoexport energytotheelectricitygridandrequiremarket participantstoprovidepaymentforthatexportwhichis atleastequaltothevalueofthatenergyintherelevant electricitymarket andtherelevantelectricitynetworkit feedsinto,takingintoaccountthetimeofdayduring whichenergyisexported. which energy is exported assignmentoftariffstosmallrenewableconsumers shouldbeonthebasisthattheyaretreatednoless favourablythancustomerswithoutsmallrenewables but withasimilarloadonthenetwork.
Source:APVA;ActewAGL website

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NoBoom

Source:ESCoSA 2011

StatusQuo:puttingfingersintheair
theretailerpaymentwillbeequaltothe Commission sestimateofthevalueofthe Commissions estimate of the value of the electricitythatisgenerated ESCoSA 2011 thenormalcostofelectricitycurrently determinedbytheMinistertobe6c/kWhis fundedbyretailers.Thatamount approximates the savings retailers are able to thesavingsretailersareableto makebyavoidingpurchasesofelectricityfrom theNationalElectricityMarket. ICRC2010

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PVDemonisation
Elderly,lowincomeearners =regressiveindirecttaxation???

Australian Governments consistentlyoverstate thepriceofPV comparedtotrusted internationalbodies

Source:UNSW;MelbourneUniversityInstitute

...vestedinterestorjustwrong?
CreativeEnglish increasesingreenschemearethefastest growinginpercentageterms IPART Fact *Networkprices>50%ofbill andrising1520%thisyear. *BillIncrease:networkcharges2.6c/kWhvs green0.73c/kWh(excludesretailermargin) %growthto2013 41%(IPARTsays49%)

AEMC DistributionNetwork

Portion ofBill 3645% VERSUS

RET FiT

24% 0.122.4%

11% 3% anincreaseinpeakdemandof 1kVA will,onaverage,require aninvestmentofsome$2,500 innetworkaugmentation CountryEnergy(2010)

Source:IPART,AEMC

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PVValue

http://www.renewableenergyworld.com/rea/blog/post/2011/06/smallergenerationincites largestrenewableenergygains

IPARTsSimplifiedExplanation

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missesthepoint (multipletimesover)

PriceGouging>20%WACC???
pricesbelow$40reflectshorttermmismatchbetweensupplyanddemand,... likelythatasmallnumberofcertificatesarebeingsoldattheselowprices reflectingsomeparticipantscostofcarry. IPART/FrontierEconomics2011 itisunclearwhatvolumeoftradeshaveoccurredatpricesbelow$30,andto whatextentretailerscouldexpecttoachievethispriceforamaterialproportionof h t t t t il ld tt hi thi i f t i l ti f theSTCstheyneedtoacquire. IPART/FrontierEconomics2011 Evenallowingfortheholdingcoststhatyouaretalkingabout,itissurprisingthat thecertificatepricehasstayedthatlow.DCCEEExecutiveSecretary,23/5/11 STCMarketBehaviour
$40.00 $35.00 $30.00 e STCPrice $25.00 $20.00 $15.00 $10.00 $5.00 $0.00 18/11/2010 7/01/2011 26/02/2011 Greenbank 20%costofcarry+$1margin 17/04/2011 6/06/2011 NextGen WeeklyTradingVolume 0 26/07/2011 1,500 1 500 1,000 500 2,000 Thousands $45.00 2,500

STCprice isfarlower than20% WACC justifies& most tradesat lowprices

GreenEnergy TradeInGreen

STCTradingVolume

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Summary
Addressbothdemand&supplysideaspects e.g.AirConditioning e g Air Conditioning DM/Levy EngageSolarExpertise DetermineTruePVValue DontDemonisethesolutionconsumerswill forceyoutoembrace Net1for1SolarEnergyBuybackasa enshrinedright(anditsjustifiabletoprovide more)
WarwickJohnstonMSc(RenewableE)BEBSc.Director,SunWizConsulting Advisor:CEC,APVA,AuSES,SEIA(VP).warwick@sunwiz.com.au 0413361534.