Solar electricity incentives

As energy prices soar, solar electricity should be a smart investment – but are the incentives strong enough?
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01 .Introduction

Solar panel

In brief

Australia is the sunniest continent on Earth, yet we lag way behind Europe, Asia and North America in solar photovoltaic (PV) panels. While we’re recognised as a world leader in solar energy research, in the past decade numerous Australian renewable energy experts have shifted overseas where there is greater funding and more government support for renewable energy development. 

State governments are currently bringing in feed-in tariffs, which essentially reward customers who purchase solar systems by paying them for any renewable energy they generate and feed into the electricity grid. However, experts contacted by CHOICE believe the model most states are adopting is too limited to have any major effect and falls well short of other countries’ more progressive and generous tariffs.

We look at the state of Australia’s solar PV industry, the incentives currently available to households and what the government could be doing to encourage future growth.

Solar Credits Scheme & RECs

The current Solar Credits Scheme (SCS) is based on the Renewable Energy Certificates (RECs) market, which provides money back to those installing solar panels or hot water on top of any rebates. For every tonne of greenhouse emissions saved (over a 15-year period), the owner receives an REC that they can trade on the market at the going rate – currently about $50 per REC.

Australia’s electricity companies are required to submit a certain number of RECs each year to contribute to achieving the national Mandatory Renewable Energy Target.

However, the number of RECs created depends on where you live, as less sunny climates are deemed to generate lower greenhouse emissions savings. Therefore, those living in Tasmania or Victoria are likely to receive less money back than northern residents. In Melbourne, the subsidy for a 1kW system might be only $4500. The SCS is capped at $7500, and the five-times multiplier only applies to systems up to 1.5kW, so people installing larger systems will only receive the value of one REC above this level.

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In recent years, many grid-connected households and community buildings have installed solar PV cells, thanks to generous federal government rebates. Yet despite the popularity of the rebates and recent growth in the industry, Australia generates less than 1% of the world’s solar electricity. This compares poorly to cloudy Germany, the world’s largest producer and user of solar PV systems, which has about 49% of the global market, largely due to supportive government policies. The bulk of the rest of the world’s solar electricity generation is in Japan, the US, Spain and other parts of Europe.

Gross feed-in tariffs

The rapid growth of solar installations and manufacturing in these countries has been attributed largely to gross feed-in tariffs, where the owner of a solar system is paid for all the renewable energy it generates, including the electricity they use themselves. Industry players in Australia have called on federal and state governments to introduce a similar gross national feed-in tariff. However, state and territory governments, which are responsible for setting electricity prices, have decided to go it alone and are gradually introducing disparate and mostly very limited feed-in schemes.

While the federal government points to its $500m Renewable Energy Fund – which includes a $100m solar research institute – and $150m Energy Innovation Fund as evidence of its commitment to solar and other green energy, solar industry players do not believe current policy is creating the necessary incentives. Our few large solar farms have all had to rely on one-off government grants. “There’s no long-term driver for that market,” says Muriel Watt, Chair of the Australian PV Association. Large-scale commercial building installations and solar farms miss out on government support, such as rebates and feed-in tariffs, as these only apply to small-scale solar systems.

BP Solar's relocation

BP Solar’s recent decision to relocate its Sydney solar cell manufacturing plant to Asia has marked, at least for now, the end of Australia’s solar cell manufacturing industry. BP Solar’s Australian spokesman, Chandran Vigneswaran, says the decision was prompted by the need to increase efficiency by locating its manufacturing close to the supply of silicon, which is primarily in Asia. It was not due to lack of demand for solar in Australia. He says federal government rebates had driven growth in recent years, but the solar industry is not reaching its potential – BP Solar has a vision of one million Australian solar homes by 2020. “We’ve been calling for one national gross feed-in tariff,” he says. “It’s hard for the industry to scale up without investment certainty.”

Brad Shone, of Moreland Energy Foundation, says rising electricity prices make solar panels a wise investment. “Our electricity demand is growing and the current infrastructure is straining to cope,” he says. But like others, he sees government policy as providing limited support.

Wodonga solar retailer and chairman of the Solar Energy Industries Association of Australia (Victoria), Gary Davy, believes most Australians do not see the value in investing in solar panels. “People have always had that attitude: how long will it take before it pays for itself? Yet people will go out and buy a $90,000 car and think nothing of it.” Davy believes real government rebates or inducements, such as a generous gross feed-in-tariff, are needed to boost support.

Goodbye rebates, hello credits

Since 2000 the federal government has provided a rebate for solar panels for remote systems (not connected to the grid) and grid-connected homes. Rebates for both have been scrapped and now come under the Solar Credits Scheme. For those households earning less than $100,000, who previously qualified for a rebate of $8000 if they installed solar panels, the new scenario is less generous and infinitely more complicated.

Those earning more than $100,000 will now be eligible for a much greater subsidy – but what you get will really depend on where you live. Importantly, unlike the previous rebates, small businesses and non-primary residences such as holiday homes will also be eligible for the new scheme.

The new scheme also has its environmental critics. In a joint statement, the Alternative Technology Association (ATA), Greenpeace and the Moreland Energy Foundation say the scheme allows “phantom” certificates to be created by multiplying the Renewable Energy Certificates (RECs) by five. These RECs then go towards achieving the national Mandatory Renewable Energy Target, even though four in every five certificates do not represent actual green energy.

“Households investing in solar do so at significant personal cost,” says Damien Moyse, Energy Advocate for the ATA. “In return for their sacrifice, the government is effectively cancelling out the greenness of their solar system.” Given that most people are motivated by increasing renewable energy in Australia and cutting their own emissions, he believes the new scheme is duping solar investors.

Community bulk-buying schemes

To combat the high cost of solar panels, some communities have set up bulk-buying schemes, whereby a large number of households in one area commit to buying PV systems at a discounted price. Some solar retailers, local councils and community groups have also facilitated schemes using this model.

However, they have been largely dependent on the $8000 solar rebate which, combined with the selling of RECs, had reduced the price for a bulk-purchased 1kW system to as low as a few hundred dollars (but typically about $1500-$3000). Some systems were even offered for free under the old rebate scheme.

The reduced subsidy from the new Solar Credits Scheme is likely to put an end to those ultra-cheap bulk deals, although some companies may still be able to keep prices quite low in the sunnier parts of Australia.

State by state feed-in tariffs

Most states have introduced or are considering plans for feed-in tariffs, which set the rate at which householders must be paid for solar electricity generated in systems connected to the grid.

Feed-in tariffs help those who invest in solar panels to calculate their returns and payback period. They also ensure better returns, since the tariff is significantly higher than what electricity companies currently choose to credit their customers because it is funded through a small levy on everyone’s electricity bills. However, Muriel Watt, Chair of the Australian PV Association, believes only the ACT has introduced a truly effective gross feed-in tariff where customers are paid for all electricity produced by the panels, even what they use themselves.

In contrast, SA, Queensland, NSW and Victoria have introduced a net feed-in tariff, which means PV owners are paid only for the excess electricity they send to the grid, which for most households is very little. The ACT is also the only state or territory to apply the feed-in tariff to larger systems as well as small ones, thereby attracting large commercial installations and solar farms to the state.

Although the solar industry has argued strongly for a national gross feed-in tariff, state governments have shown little interest in collaborating on a national scheme and are instead going their own ways. Our solar panels buying guide details feed-in tariffs state by state.

Case study

When Lizette and John Salmon installed a solar system in 2007 on their home in Wodonga, northern Victoria, they were prepared for a large upfront cost to reduce their family’s environmental footprint. They live in a spacious family home with their two young children. More than half of their electricity consumption was for powering their pool’s filtration pump.

The Salmons installed a top-of-the-range 3kW system worth $34,000. They received the $8000 federal rebate plus a further $1500 from selling the RECs, making their total investment $24,500. They calculate they have saved an average $1000 per year through reduced electricity costs and credits paid to them for the excess green energy they feed into the grid. Currently, their electricity provider credits them at the same rate as they are charged for incoming conventional electricity (this rate will increase under the new Victorian feed-in tariff).

As electricity costs rise, their payback time will reduce. Based on their electricity savings to date, and at an annual increase in electricity prices of 6%, the payback period for their investment would be 30 years; a 10% price rise would reduce this payback period to 19 years.

The Victorian net feed-in tariff, which will kick in later this year, sets the return on excess generation at 60c per kWh and is credited to their account. This will most likely reduce the Salmon’s payback period.

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