Cost vs Value of Rooftop Solar in WA, May, 2016

Retailers across the country are looking at ways of changing residential tariff structures to account for what they see as costs from solar or photovoltaic (PV) systems.

It is worth looking in detail at what exactly the costs are. And on the opposite side of the ledger, what value rooftop solar offers. These numbers are based on Perth, the monopoly gentailer, Synergy and the network operator, Western Power (WP), March, 2016.

Costs

STCs

There are the green certificates, Small Technology Certificates (STC), equal to 1 MWh of green electricity generation. In Perth, the official Clean Energy Regulator rate for each kW of PV is 1.382 MWh of electricity a year. Currently, the scheme allows each system to claim 15 years worth of certificates upfront. So a 3kW system would be eligible for 15 years x 3 kW x 1.382 MWh/kW/year ~ 62 certificates. At the beginning of 2016, the market price for STCs was around $39.00, so just over $2425.

Installers of solar systems will then use this money to reduce the cost of the system to the homeowner. This money comes from retailers who have to purchase a certain percentage every year, they then pass this cost onto their customers.

Attempting to reduce this to an equivalent per year basis, STCs currently cost Synergy, for this solar system, 3kW x 1.382MWh/kW/year x $39.00/STC ~ $162/year. Actually, it is less than this because all retailers in Australia have to buy STCs (to the equivalent of 9.86% of total sales). There are other retailers in WA but only Synergy can sell to the smaller consumers (<50MWh/year). So Synergy pays the STCs only to it's market share of ALL electricity sales in WA, about 60%, ie the cost of STCs to Synergy of a 3kW PV system is more like $97/year.

Lost Network charges cost . . . or not

One of the reasons why retailers are keen to change the tariff, particularly for solar and not, say, those with air conditioners is that a percentage of the retail price is transmission and distribution cost. Solar systems reduce consumption of electricity while airconditioning increases consumption. This reduction by solar system owners means they pay less for the network. This is significant as there is a fixed component for each connection. However, it is not that significant as WP currently charges.

According to the Synergy website, the network costs are 45% of the retail unit price, this is a crude guide and tells us nothing about the fixed and variable numbers. This information is available from Table 1 of the 2015/2016 Western Power Price List. For the RT1 tariff, bundled (transmission + distribution) + meter, the fixed component is $296/year while the total variable component is 8.838c/kWh or $88.4/MWh.

Note that as Synergy only charges households $172/year for the fixed component, they are down $124/year before the variable costs are included.

Ideally, we would have actual data, half hourly from both meters and the solar system inverters from a statistically meaningful sample size, say 30 households, but this does not yet exist.

Assumptions in generation and consumption

So, assumptions need to be made here on how much electricity is generated and consumed onsite and how much is exported or imported. Anecdotal evidence from installers for a system sized for annual electricity consumption seems have roughly equivalent import, export and self consumption.

For our 3kW PV system;

Total generation a year is actually 3kW x 4.5kWh/kW/day* x 365 = 4.9 MWh/year (equivalent to consumption before PV installation).

*a somewhat higher number, 1.64MWh/kW/year than the official STC figure of 1.382

Half is consumed on site, 2.45 MWh/year, half is exported, 2.45 MWh/year, and as much is imported, again, 2.45 MWh/year.

Comparing the above household with and without a 3kW system;

Electricity (MWh/year)
Without
With PV
import/consumption
4.93
2.46
PV generation
0
4.93
export
0
2.46
self consumption
0
2.46

WP Charges ($/year)
Without
With PV
fixed
294
294
variable
436
218
Total
730
512

Renewable Energy Buyback Scheme (REBS)

Synergy offers those with rooftop solar, 7.1c/kWh ($71/MWh) under REBS. So the cost to Synergy will be 2.45 MWh x $71/MWh = $175/year for REBS.

Now let us look at the value of such a system to Synergy;

Value

Under REBS, Synergy pays it's residential customers for excessive electricity from their solar systems, $71/MWh. But what is the value of this electricity now flowing to neighbouring homes that do not have solar?

A crude idea can be gained by looking at the Synergy A1 tariff, it's Synergy most common residential tariff and is a flat 23.37c/kWh or $233.7/MWh (ex GST), and continuing the above assumptions about consumption patterns:

Note that in the Northern Territory, the retailer there reimburses exported electricity at the same price as imported. Interestingly, Synergy does do this for not for profit organisations.

However, Synergy will expect to pay the variable WP network charges of 8.838c/kWh out of this 23.37c/kWh, so Synergy nets 14.53c/kWh. Whether Synergy should pay so much for electricity being transfered from one house to the next is another question, entirely. Much of Perth's electricity is generated by coal fired power stations in Collie, 200 km south of Perth and then stepped up to high voltages, 230kV, and transmitted up to Perth before being stepped down. Transmission powerlines, towers, transformers and substations are all part of this 8.838c/kWh bundled rate.

In summary;

Synergy Income ($/year)
Without
With PV
Fixed
172
172
Variable
1152
576
REBS Value
0
358
REBS Cost
0
-175
STC Cost
0
-97
Network Charges
-730
-512
Total*
594
322
$/MWh*
121
131

*Before the cost of generation is considered.

In terms of $/MWh delivered to the household, Synergy actually makes more with the PV system installed, $131 vs $121 per MWh.

Generation

The cost to Synergy of buying electricity to supply it's customers is not considered here. Given that Synergys' Power Purchase Agreements with its' various generators are all commercial in confidence, there is simply no way of knowing how much generation costs, though an estimate from the Short Term Energy Market (~ 5% of generated) gives a weighted averge of around $50/MWh for 2015. The next biggest cost is in terms of capacity costs; a house with a pool and or electric hot water will tend to have higher electricity bills but may not be running an air conditioner during peak times. Then there is the benefit of solar panels in reducing the requirement for geneeration capacity during this time varies enormously depending on whether the panels are facing west or not and are unshaded at the time. Dividing the number of GWhs/year (18,500 GWh for 2015) by the cost of providing that capacity ($540 million from RCT of 4,500MW x RCP of $120,000/MW for last year) suggests an average of $29/MWh.

It can be said that if the household with PV consumed 55% of it's solar production instead of just 50%, Synergy would be earning the same as it would with house without PV ($121/MWh) before.

If self consumption is varied to from 30% to 70% as well as the 50%, above, and 4kW and 5kW systems are also considered, we get the following curves.

The curves above show how much a year, based on rooftop solar systems that generate according to north facing panels in Perth AND sized to match the annual consumption of those households. The more electricity exported, the more Synergy makes because of the fixed component from Western Power.

There is a clear line (in red) below which Synergy looses out.

These curves also show how Synergy battery storage enabling much higher levels of self consumption will really cost Synergy.

Shown below is a look at varying how closely the size of the solar system matches the load, and assuming self consumption increases as much, for instance, a system generating 10% less than consumption will mean self consumption is up 10% and export down 10%.

Again, the value for Synergy drops with greater self consumption.

And then there are all the other benefits;

More value

The following is a list of advantages rooftop solar provides to the grid;

  • deferral, possibly forever, of expansion of distribution and transmission
  • lower line losses (particularly in rural areas)
  • lower maximum operating temperatures for lines, transformers, switchgear thus increasing their longevity
  • free placement of smartmeters - required for all rooftop PV systems
  • and free placement of RCDs (residual current device) for old houses and other safety benefits of electricians inspecting old electrical systems

These are benefits which are enjoyed by the grid operator, Western Power not, it needs to be said, Synergy.

One benefit enjoyed by Synergy are the lower wholesale prices during sunny periods (minus a modest increase in Ancillary services). Note that the benefit of lowering of the cost of generation capacity by reducing maximum demand and pushing it into late afternoon/early evening, is actually part of the bundled A1 tariff.

Then there are benefits we all enjoy, all the health and environmental benefits of pollution free generation. Whilst difficut to put hard numbers to, these benefits are huge.

What does it all mean?

It means that rooftop solar, at least here in WA, 3kW+ systems actually earn money for Synergy and it's solar systemless customers unless there is little export and import.

Some key points;

  • Synergy is the only Retailer allowed to sell to households but shares the STC obligations with all other retailers in WA.
  • Synergy pays Western Power a variable rate, per kWh, regardless of where that kWh is transported from and to.
  • Synergy pays Western Power a fixed rate which is lower than the fixed component of the retail rate for householders.

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