New scheme proposed for solar households

The proposed changes to the rules that govern Australia’s electricity market aim to better manage the growing volume of energy from solar homes.

The Australian Energy Market Commission, the rule maker for Australia’s electricity market, has proposed changes they say will help to integrate more rooftop solar into the grid and address the emerging “traffic jam” caused by rooftop solar uptake in certain areas.

In March, the AEMC released its draft determination that would also change the way distribution networks can recover costs associated with hosting solar and offer new incentives for solar homes to shift their exports outside of peak times.

The proposal would allow networks to implement “two-way” pricing, offering payments to solar households for sending energy to the grid when it is needed, but also potentially charge to export at congested times.

For the first time, electricity exports from rooftop solar PV would be treated as a regulated service within the electricity rules. This means that networks will be required to invest in the system to accommodate more solar if this is demonstrated to be of net benefit to all users of the system or the system as a whole.

The proposal does not mandate charges for exporting power. To charge customers for exports, networks will need to consult extensively and have a transition plan approved by the Australian Energy Regulator. Their pricing proposal would only be approved if it was genuinely cost-reflective and in the overall interests of consumers.

AEMC Chief Executive Benn Barr said they need to make changes to the power system.

“We want to open the solar gateway so more Australians can join the 2.6 million small solar owners who have already led the way. But it’s important to do this fairly. We want to avoid a first-come, best dressed system because that limits the capacity for more solar into the grid.”

“One option to deal with more solar traffic – building more poles and wires – is very expensive and ends up on all our energy bills whether we have solar or not. While the sun may be free, the poles and wires aren’t, so we think the key is to use the power system smarter to avoid costly over investment and keep new infrastructure to a minimum,” he said.

What is network hosting capacity anyway?

How much rooftop solar or other DER can be connected to a distribution network, while the network remains within its voltage and thermal limits, is called its ‘hosting capacity’.

ARENA projects have demonstrated a range of innovative ways to increase network hosting capacity, ranging from distributed batteries to active voltage management, load shifting, new protection schemes and innovative tariff arrangements.

Solar panels on the roof
Rooftop solar panels

One problem is that there is currently no incentive for electricity networks to make these investments.

In 2020, ARENA worked with the Australian Energy Regulator (AER) on a study that looked at when and where it might be most cost-effective for networks to invest in increased hosting capacity.

Our world-leading rates of solar PV installations are simultaneously testing the safe operating limits of certain networks and depressing the value of day-time wholesale electricity as the market is flooded with abundant zero marginal cost solar.

The AER found that the market value of midday solar exports is likely to be near zero in the medium term and so it will be hard for networks to justify a large capital investment to increase midday hosting capacity. It is more likely that networks will invest in lower cost, flexible solutions like dynamic operating envelopes, that increase households’ ability to export outside of peak solar times. This will support customers shifting their demand to the middle of the day or store their solar energy for export during the evening peak period.

How much would it cost?

Under AEMC’s proposed scheme, the likely cost for network upgrades could vary greatly depending on the local network.

In one scenario, the AEMC found the changes could cost a household with a medium-sized solar system about $70 per year, against a total income of about $900.

A large system earning more than $1200 per year could be charged $100, while a small 2-4 kW system earning around $645 could pay about $30 per year.

Collaborative process

The proposal has been developed with the support of the group of government agencies, market authorities, industry and consumer associations that form the Distributed Energy Integration Program (DEIP) following nine months of consultation.

DEIP led a series of workshops in 2020 that looked at the way solar homes access the grid and how the services the networks offer are priced. ARENA supported this process by funding workshops where consumers and industry groups worked together to co-design the initial rule change proposals.

Following that consultation, the AEMC received three proposed rule changes, from SA Power Networks, St Vincent de Paul and, the Australian Council of Social Services (ACOSS) and Total Environment Centre (TEC).

The AEMC predicts that half of all energy users will install home energy devices like solar within 10 years, up from the already 2.6 million households that have installed rooftop panels to date. At the recent DEIP CEO forum, the Clean Energy Regulator reported that at the current rate of installation, we could have 33,000 MW of rooftop solar nationally by 2025, equivalent to the total peak demand of the National Electricity Market today.

Difference of opinion

Some community groups have been critical of the plan, suggesting the changes could be a “handbrake for Australia’s energy transition”.

Solar Citizens, who advocate on behalf of a large number of solar households, said people should not be ‘penalised’ for putting panels on their roof.

“If we want to look at equity in the energy system, let’s look at the big players like energy retailers making big profits, not Mums and Dads with solar,” Solar Citizens National Director Ellen Roberts said.

ACOSS climate and energy adviser Kellie Caught has said reforms were needed to ensure people on low incomes were not left behind the energy transition.

“Without new rules, more and more current and future solar owners will not be able to make good use of the energy they are generating, resulting in less benefits to them,” she said.

“In addition, people on low incomes who can least afford it will pay disproportionately more to fix the problems unless pricing methods are changed to ensure pricing is fair and delivers on affordability for people more at risk.”

St Vincent De Paul Society’s policy manager Gavin Duffy said: “We need to design the energy system, so it delivers energy service, equitably in a way that supports all Australian households.”

“This means for many low-income and disadvantaged households, renters and people who don’t have solar won’t be paying for costs that are incurred by others.”

The Clean Energy Council said the package of reforms was complex and further detailed consultation was needed to ensure consumer protections were in place.

ARENA CEO Darren Miller said broad consultation was needed to find a balance between the needs of solar owning households and consumers as a whole.

“It is important that consumers who own solar — and those who don’t — are considered as part of redesigning the system to accommodate more distributed energy in a way that ultimately benefits everyone.

“With careful design and appropriate safeguards, the proposed changes can support the development of our electricity networks as platforms for the two-way trade of services that enhances the contribution that solar and other distributed generation assets can make to Australia’s energy transition.”

“However, we must do this while ensuring the costs and benefits are shared in an equitable way.” he said.

Learn more

Read more about the AEMC’s proposed changes.

AEMC is calling for feedback on the draft determination, with submissions open until May 13.

A final determination is due in June.