Free solar power scheme could have unexpected impact on energy market
Energy retailers fear their ability to bear the cost of poles and wires will be hampered by a federal solar energy scheme offering free midday power, risking ‘exits’ from the Australian market.
Australia’s power companies fear Energy Minister Chris Bowen’s Solar Sharer scheme could drive energy retailers out of the market, as the Albanese government looks to fundamentally change consumer behaviour.
The peak body for energy retailers and distributors on Tuesday said fees designed to share the infrastructure costs of the Australian grid across stakeholders may grow increasingly onerous for retailers under a government scheme offering free solar power to all homes with a smart meter during the sunniest hours of the day.
Network costs are flat rate fees covering the price of energy infrastructure like transmission lines and power meters – along with their maintenance – which are moderated through an annual Default Market Offer determined by the Australian Energy Regulator. They constitute 33 to 48 per cent of household power bills.
Tariffs recouping these infrastructural costs for distributors from retailers are part of the value equation businesses consider when determining how to pass their costs on to customers in the face of new subsidies or price demands. These tariffs are regulated by the AER.
The Australian Energy Council on Tuesday said the AER and Albanese government must consider “changes to network tariffs” if it wished to keep small retailers in the market. “It will be critical for the government to consider changes to network tariffs across all jurisdictions to ensure retailers can provide the most cost-effective retail price to DMO customers,” AEC chief executive Louisa Kinnear.
“Without this change, this offering is unlikely to be successful.”
The AEC told The Australian it had yet to work through the details of the proposal and while it had seen no indication network costs would rise, it would need to “consider how retailers can recover their costs including the network tariffs that they are charged”.
“In developing energy products such as those that offer free energy for a period of time, retailers, and in particular, smaller retailers, need to carefully consider their exposure to the market, their hedging strategy, the impact of network costs, and a range of other factors,” Ms Kinnear said.
“These factors are not identical for all retailers, and universal access to a product places material risks on retailers that in some instances might only be mitigated by them exiting a market.
“This … risks damaging industry confidence, as well as creating the potential for unintended consequences.”
Network costs have declined as an overall proportion of the DMO price for customers by between 9.5 and 22 per cent over the past five years for Australia’s five major power distributors – Essential, Endeavour, Energex, Ausgrid and SA Power Networks – as wholesale costs lifted sharply on rising coal and gas prices.
According to the AER, network asset value per customer per annum – meaning the per capita share of Australia’s energy infrastructure – has remained essentially unchanged for the past 10 years at about $11,000 to $11,700 a customer.
Mr Bowen said the AER would keep consumer power prices in check. “I fully expected this not to be universally welcomed, but I make no apologies for putting the best interest of Australian consumers first, second and third,” he said.
The AER said the change could flatten out any rising network costs as the threshold of Australia’s grid was pushed less strenuously at peak hours, with consumers instead opting to constrain power use to the free midday hours.
“Shifting more demand to the middle of the day would lower the cost of the electricity system for all consumers as we don’t need to build as much generation or poles and wires to meet the evening peak,” AER chair Clare Savage said.
“By establishing the proposal as part of the DMO, more customers will have access to this type of offer but with the added confidence that they are not being overcharged outside the free power period.”
Under the scheme, retailers would be required to offer at least three hours of free energy to all households with a smart meter during the daily solar generation peak.
Smart meter households are usually charged “cost-reflective” tariffs by retailers, which bulk together a range of passed-on costs, including network tariffs, that are intended to match power prices as they fluctuate in the day.
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