Tuesday, November 24, 2015

Using Market-Based Approaches to Set Roof Top Solar Feed in Tariff Contract Prices

In the past rooftop solar feed in tariffs have been set by governments, government bodies such as productivity commissions and sometimes power retailers.  These FIT's have ranged from obscenely profitable down to unfair rip-off's.
Governments have also tried to use FIT price as a crude mechanism for controlling the rate of installation.  The result has been a rooftop solar business that has gone through a number of boom/bust cycles.

Thursday, May 22, 2014


Government services at both federal and state level have suffered for years because of a shortage of cash and an unwillingness on both sides of politics to increase taxes. Funny thing is that it is OK to do things like increase government charges but not to do anything that can be labelled a tax. Even funnier, successfully, labelling something as a levy may be OK while the same thing labelled as a tax is not. (Perhaps Gillard would have survived if she had talked about a carbon levy to pay for certain climate action instead of a carbon tax.)

Monday, February 3, 2014


This note compares the use of gross Vs net Feed In Tariffs (FIT) in rooftop solar (RTS) contracts. 
The objective of this note was to choose a form of FIT that:
    1. Encourages investment in RTS.
    2. Helps minimize the power bills of those who don't have RTS while giving investors a reasonable return on their investment after taking account of the risks involved.
    3. Avoid forcing householders who don't have RTS into subsidising those who do. 
For simplicity it has been assumed that the FIT will be less than what a householder pays for power.

It was concluded that:

  1. Gross feed in tariffs will be better at driving investment in RTS while reducing the cost per kWh renewable power to consumers in general.
  2. Qld should replace net FIT with gross FIT for all new FIT contracts.
  3. Gross feed in tariffs should also be used where solar and storage are combined and connected to the grid.  

Sunday, December 29, 2013


Australia's successful RET emission trading scheme is an Offset Credit Trading Scheme (OCTS) that has been quietly driving investment in utility scale renewable energy since 2001.  Best of all, it has been doing this without causing any dramatic increase in power prices or political pain.  This quiet success  means that few Australian's have heard of the RET scheme let alone understand what offset credit trading is.
The main aim of this post is to explain what offset credit trading is and how it can be used.  In addition, the post compares OCTS with cap and trade schemes, as well as systems based on long term contracts. (Ex: Feed in Tariff (FIT) based schemes.)
All of these schemes can be used to drive a variety of changes. For convenience, most of the examples used are government run schemes aimed at emission reduction.
A: Offset Credit Trading Schemes (OCTS)
OCTS can be used to drive investment in desirable alternatives (Ex: Renewable energy) or to drive changes in the mix of desirable and less desirable products.  (Ex: Reduce the average emissions per km of new cars )
OCTS use market forces to set a levy on an undesirable alternative(s).  The money from the levy is then used to subsidize desirable alternatives.  Market forces drive the levy/subsidy to the point where desirables can compete with undesirables.  Details of offset credit trading schemes may vary.  The key features of a basic offset credit trading scheme are: 
  1. OCTS  controls averages.  To do this it needs working targets expressed as averages.  (Ex: "average emissions per kWh").  
  2. OCTS cannot be used directly to control things like "total power emissions" because this target is not an average.  However, it will often be possible to convert "primary targets" in an unacceptable form to "working targets" expressed as averages. (Ex: A "total power emissions" primary target could be converted to an "average emissions per kWh" working target by first working out what "average emissions per kWh" would have to be for the total emission target to be met.)
  3. Better than target performance is rewarded by the award of free credits by the government.  (Ex: One credit per mWh renewable power.)  These credits can be held for future use, sold to others directly or sold via a credit trading market. 
  4. Worse than target performance has to be offset by the surrender of credits to the government by "liable parties".  If necessary, credits will be purchased from others to meet this requirement.  (NOTE: Only credits that have been awarded for better than target performance can be purchased.) 
  5. The number of credits that have to be surrendered will depend on the target.  (Ex: If the target is 25% renewable power, one credit would have to be surrendered for very three units of dirty power.)
Key points to note here are:
  1. OCTS is not a tax.  The government does not get any money for the credits awarded for better than target performance. 
  2. As the target rises from zero to 100% desirable, the average price will ramp up slowly from the price of undesirable (without any levy) to the price of desirable (without subsidy) - When the target is low it only takes a small levy on undesirable to make the price of desirable competitive.
  3. The system ensures that the target will at least be met provided there is enough desirable product available.  
  4. A single OCTS can be expanded by adding to the number of actions that generate credits or require the surrender of credits.  For example, the original RET scheme awarded credits for both renewable power and rooftop solar.  The risk here is that expansion can cause confusion and make the market for different types of action less predictable.  The RET scheme was split into separate large and small scale schemes because the growth in rooftop solar was disrupting the market for large scale renewables.  
NOTE: The RET OCTS scheme:

 "The  RET scheme was first introduced in Australia in 2001. It imposes legal liability to support electricity generated from renewable sources on retailers and large wholesale purchasers of electricity. These 'liable parties' are required to meet a share of the renewable energy target in proportion to their share of the national wholesale electricity market. Liable parties must prove that they have purchased the relevant proportion of renewable energy by surrendering renewable energy certificates (RECs) or paying the shortfall charge, which is a penalty for non-compliance....."  
The option of paying a shortfall charge protects the scheme from causing blackouts when there isn't enough renewable power available to allow the renewable target to be met. 

Wednesday, December 11, 2013


These are some brief comments on the Qld Competition Authority (QCA) report Estimating a Fair and Reasonable Solar Feed-in Tariff for Queensland (March 2013) Table numbers are QCA report table numbers.  Key findings were:
  1. The report admits that it was only concerned with being fair to the retailers, not rooftop solar PV (RTS) owners, power generation companies or consumers.  By implication, the QCA was also comitted to defending the payments made to power distributors.
  2. When calculating the "fair" FIT the QCA managed to find excuses for not including most of the savings associated with the use of RTS.  This made an enormous difference.  If these savings are included, the FIT would have to be above 100 cents/kWh before RTS stopped reducing the power bills of Qld householders who dont have RTS.  The QCA exclusions reduced this figure to a measly 8 cents/kWh.
  3. The difference in estimates highlights the problems associated with having bureaucrats or politicians set the feed in tariff.  It also highlights the problem of determining the FIT on the basis of the effect on household power bills.
  4. This post is not advocating that the FIT be raised to $1.00 kWh.  It is suggested that auctions or some other market based system be used to set the FIT.

Saturday, March 30, 2013


This post is based on an article of mine, “Methanol electro fuel: A transport game changer” published in RenewEconomy on 12/3/13.  It has been expanded to include more discussion on other renewable, low impact fuels and the extraction of CO2 from air and water.  Briefly:
The renewable, low impact fuels described in this post can be produced in sufficient quantities to replace all fossil fuel requirements using commercially proven processes.  All these renewable products are low impact because, unlike many bio-fuels, their production doesn’t require the diversion of land from food production, or damage to the environment. With the exception of hydrogen they could all be handled using existing gasoline, diesel or LPG infrastructure.  Ammonia and methanol can replace LPG or gasoline after minor engine adjustments.
These renewable fuels are game changers.  They provide an essential part of any credible plan for 100% renewable transport.  As a result we don’t have to choose between 100% renewable transport vs destroying the economy, starving the poor or forgoing overseas travel.
Renewable hydrogen, methanol and ammonia can also be used to convert the production of a wide range of metals and chemicals to 100% renewable.

Monday, December 24, 2012


This is a summary of an article of mine  Why Utilities will Pay a Premium for Rooftop Solar published in REnewEconomy on 14 Dec 2012.  It was written to counter claims that people without rooftop solar (RTS) were paying more for their power so that RTS owners could be paid a 44 cent/kWh feed in tariff  much higher than the current tariff of about 23 cents/kWh .

Claims are being made that ordinary householders are subsidising rich rooftop solar owners. For example, Mark McArdle, (Queensland Minister for Energy and Water Supply) issued a media statement saying “the QCA analysis showed the solar bonus scheme currently added $26 per year to everyone’s annual electricity bill, which will increase to $90 next year if an application by Energex to the Australian Energy Regulator was successful.”

He added, “Rooftop solar costs are projected to add more than $240 per year to average electricity bills within five years.” (These claims were based on the previous government’s feed in tariff of 44¢/kWh)
So what is rooftop solar actually doing to household power bills in Queensland? And how high could the feed-in tariff go before it really would be increasing household power bills?
In the detailed section below, a comparison of demand and revenue vs time of day for 2008 and 2012 is used to answer the above questions. The quick answers are:
1. Rooftop solar is actually saving the “typical Queensland household” (without PV) $65/yr.
2. The feed-in tariff would have to rise above 96¢/kWh before rooftop solar actually stopped saving households (and power companies) money. Power companies can actually become more competitive by locking in extra contracts for the supply of rooftop solar, even if it means paying the small premium that was offered to me.
3. It is difficult to say what effect rooftop solar would have on household bills in five years’ time. My guess is that investment in rooftop solar will be justified at feed-in tariffs below what householders will be paying for power and that it will still be saving households money.