Huglo team
August 31, 2021

Sun tax - new regulation explained

Sun tax - new regulation explained

One of the latest Australian Energy Market Commission (AEMC) rules involve the possibility for power companies to start charging solar customers for electricity exported back to the grid. The proposal started back in March 2021 with a statement claiming to aim for more room on the grid for home solar and batteries. The decision was finally announced on Thursday 12th August.

This measure has caused some controversy since solar homeowners have negatively reacted to the AEMC proposal which could reduce their revenues from solar power. However, how real is this fear? What would the revenue lost actually be? Why did the AEMC take these measures? We will dive into these questions and find out the answers that you are looking for.

Why did the AEMC take these measures?

The fact that the AEMC took this approach is a proof that the solar energy market in Australia has successfully deployed across the country, maybe much more than in other countries. Charging solar customers for the exported energy is a way to reduce the amount of inflow energy received from residential solar systems into the grid at times when there is high congestion.

You see, the power grid is like an traditional weight scale with the power demand on one side of the balance and the power generation in the other side. To maintain stability, security and keep the power grid functioning, there must always be a balance between generation and demand in the power grid. Traditionally, this was controlled by the utilities with large power plants where the flow of energy was unidirectional, but now with distributed energy sources, the task has become more challenging.

Power networks now need to balance incoming solar generation with demand. Sometimes, solar generation is much larger than demand, which is why network operators need to shutdown inverters.  

The large intake of solar power generation in a power grid also leads to a phenomenon known as the solar duck curve, which was first analyzed by the Californian Independent System Operator (ISO). The curve shows a demand graph from the grid with a concave shape in the middle and two peaks in the external regions. The minimum point of the curve occurs around 1pm when the solar production is high while the peak demand occurs at 9pm. To ramp up from 6pm to 9pm demand, power companies needed to introduce about 13,000MW into the grid in just three hours, which is a lot of power. This process cannot be rushed without creating instability issues, which is why it can be a problem.

As in California, the same phenomenon (although maybe more intense) is happening in the power grids of Australia, mainly in South Australia. The solar generation in that state is so large that on 11th October 2020, South Australia became the first jurisdiction in the world where 100% of energy demand was entirely provided by solar energy. This was just for 1 hour, but still gives a reference of the large share solar has in the grid.

Actually, according to the spokesman of SAPower Networks, Paul Roberts, the state’s grid is already reaching its capacity to support household solar networks.

What would be the actual impact on your revenues from solar?

Ok, now that we know there is a technical reason for this statement, how will it financially affect your solar revenues?

According to the AEMC, several scenarios were modelled for the proposal and they found that when introducing exporting fees in the market, the potential impact for bills was that 80% of customers would actually see their bills drop because they would no longer pay for solar export services that they were not using.

As for the remaining 20%, the export charge impact would be very variable according to the system size, but for the average 4-6kW system the annual earnings would drop about $70, meaning an average of $900 earnings still. Alternatives however, show that the impact could be different if they took options that rewarded them for increasing self-consumption.

Under worst case scenario, AEMC modelling shows customers will still earn at least 90% of what they are making today.

Will this apply to every kWh that I export back to the grid?

No, the charge fees for exported energy will only apply whenever the grid is congested, meaning, when demand is low and solar power generation is very high.

Moreover, one of the reform packages include the demand for power companies to design flexible pricing solutions at network level,  where customers could choose plans like free export up to a certain limit or paid premium services that guarantee export during congested times.

How much will I be charged for the kWh I export back to the grid?

There will not be a flat fee established, but the possibility is that it will be close to 2cent/kWh or more.

When will this legislation become active?

These legislation changes are expected to come into effect July 2025. This deadline is established to give some time for power networks to come up with pricing plans and schemes suitable for consumers, households, and governments.

Is there any chance that the proposal will not come into effect?

It is still four years ahead of us, but it is very unlikely that the decision will be withdrawn.  The grid congestion is a certainty today, therefore electricity transmission and distribution networks need to plan ahead for these changes. Doing nothing would be equivalent to accept grid instabilities and statewide blackouts.

This would also mean that under the current system, customers without solar would be unfairly burdened with the extra cost of upgrading power networks to sustain the increasing solar power generation.

What is the actual goal for the solar export charges?

The first thing is securing the power grids of tomorrow by increasing self-consumption of solar power. However, the purpose is also to develop the market for home energy storage systems where the customers can be highly energy independent and where the large development of solar power does not affect the power grid.

Final thoughts: will solar still be profitable?

As we saw, from AEMC analysis many customers are actually expected to see their electric bills drop because they would no longer be charged for services they do not use. Meanwhile, those who use it would see a revenue reduction of approx. 10% annually.

Australia is still one of the most profitable places in the world for solar energy. One out of four Australian homes have solar capability, that is one of the highest rates in the world, and a 10% annual revenue reduction is unlikely to change that.

To ensure you are maximising your savings, utilise Huglo's comparison service. Unlike other comparison websites, we assess 100% of the market.

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