May 10, 2013
Australia's one million (and counting) solar powered households could be keeping everyone else's power bills down, by suppressing wholesale electricity prices.
That conclusion is drawn from a peer-reviewed paper recently published in the Journal of Energy Policy. The paper is a result of a joint research effort between the Melbourne Energy Institute and climate solutions think-tank Beyond Zero Emissions.
“Feed-in tariffs have been criticised by some, because all electricity users – with or without solar panels – pay the costs of the tariff on their electricity bill,” said Beyond Zero Emissions spokesperson Ben Courtice.
“However, the “merit order effect”, explained in this paper, offsets the cost of a low to medium feed-in tariff. It is often overlooked in setting policy in Australia, with the result that solar households aren't getting fair recognition, with feed-in tariffs being set too low.”
State governments in the last two years have been keen to slash the Feed-in Tariff (FIT) arrangements that guarantee a premium (or at least minimum) payment for solar electricity generated, saying they cost too much.
The merit order effect (see explanation below) means that solar power (and other renewables) displace more expensive forms of generation in the national electricity market, thereby lowering the wholesale price paid by all users. Failure to include this effect misrepresents the overall costs of solar support schemes.
“Contrary to state governments' assertions, feed in tariffs and solar PV may actually lower electricity prices paid by consumers. The current feed-in tariffs in several states are abysmally low and could be raised to a fairer level without impacting consumer prices,” said Mr Courtice.
The paper models the effect of up to five gigawatts (GW) of rooftop solar panels across the Eastern states' electricity network. This is about double what is currently installed in Australia. The researchers calculated the effects of from zero to 5GW of extra rooftop solar panels on the electricity market, over the years 2009 and 2010, based on the real electricity market data from those years.
The researchers' modelling suggests that the price suppression (merit order effect) resulting from 5GW of solar would have been worth $628 million in 2010, 8.6% of the total value traded that year. In 2009, the value could have been $1.2 billion, over 12% of the total value traded that year.
The lower electricity wholesale prices caused by the merit order effect should flow through to consumers in their electricity bills. This effect can offset the cost of support schemes and results in a wealth transfer from electricity generators to all consumers.
“When governments cite the cost of FITs but ignore offsets such as the merit order effect, they are effectively overstating the overall cost of supporting solar,” Mr Courtice said.
“Solar power is a cheap and effective way to reduce pollution, and it should receive better support so it can keep growing in Australia.”