Cost vs Value of Rooftop Solar in WA, March, 2021

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), 2021.

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 9 years worth of certificates upfront. So a 3kW system would be eligible for 9 years x 3 kW x 1.382 MWh/kW/year ~ 37 certificates. In early 2021, the market price for STCs is around $39.00, so just over $1446.

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 28.8% 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 $96/year.

Lost Network charges cost . . . or not

One of the reasons why retailers are keen to change tariffs, particularly for solar and not, say, those with air conditioners is that part of the retail cost is transmission and distribution, some of which is fixed.

As solar systems reduce consumption of electricity while airconditioning increases it, this means solar system owners cost Synergy proportionally more for the network use. Until the middle of 2017, the fixed cost for distribution and transmission was actually greater than the fixed component Synergy charged. Now, however, Synergy does not lose on any solar installations, regardless of self consumption.

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 2020/2021 Western Power Price List. For the RT1 tariff, bundled (transmission + distribution) + meter, the fixed component is $350/year while the total variable component is 8.936c/kWh or $89.4/MWh.

Note that as Synergy now charges households $377/year for the fixed component, they are up $27/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 information is hard to get hold of.

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 based on 4.5PSH (Peak Solar Hours) /day in Perth, 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
350
350
variable
441
220
Total
791
570

Renewable Energy Buyback Scheme (REBS)

Synergy offers those with rooftop solar, 3c/kWh ($30/MWh) under DEBS for excess solar generated electricity before 3pm and 10c after. The previous scheme, retired in November of 2020 with REBS and paid 7.1c/kWh regardless of time of day. So the cost to Synergy depends on how much solar generation is spilt into the grid before and after 3pm.

More assumptions will need to be made. Say 2MWh spilt before 3pm and 0.46MWh after. The cost to Synergy will the be 2MWh x $30/MWh = $60/year for spill before 3pm plus 0.46MWh x $100/MWh - $46/year for a total of $106/year for DEBS.

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

Value

Under DEBS, Synergy pays it's residential customers for excessive electricity from their solar systems, $30/MWh before 3pm and $100/MWh after. 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 26.203c/kWh or $262.0/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 8.936c/kWh out of this 26.203c/kWh, so Synergy nets 17.27c/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 8.936c/kWh bundled rate.

In summary;

Synergy Income ($/year)
Without
With PV
Fixed
377
377
Variable
1,292
646
REBS Value
0
426
REBS Cost
0
-106
STC Cost
0
-96
Network Charges
-791
-571
Total*
878
676
$/MWh*
178
274

*Before the cost of generation is considered.

In terms of $/MWh delivered to the household, Synergy actually makes more with the PV system installed, $274 vs $178 per MWh not just because the value of the electricity exported is greater than the cost of the REBS and STC schemes but also because there are less network charges.

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 an averge of around $50/MWh for 2016. 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 generation capacity during this time. This varies enormously depending on whether the panels are facing west or not and any shading at the time. Dividing the number of GWhs/year (GWh = 1,000 MWh) (17,462 GWh - Load Summary 2020) by the cost of providing that capacity ($5407 million from Reserve Capacity Target (RCT) of 4,008MW x Reserve Capacity Price (RCP) of $126,683/MW for 2019/2020) suggests an average of about $29/MWh. Details from the AEMO website.

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

The first three 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.

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