Home Blog energy policy Why the Government feed-in rate method is flawed?


You have solar panels, but until batteries become competitive, you need to sell some of your electricity.

The feed-in tariffs for selling electricity have been continually driven down. In Victoria, the initial premium rates of 60c/kWh were reduced to parity with your buying rate, then to 6.2c/kWh now, and 5c/kWh for 2016.

How are the feed in rates set?

In Victoria the Essential Services Commission (ESC) determines the feed in tariff by August 31 each year for the year ahead.

“In determining the minimum feed-in tariff, the Commission must have regard to: prices of electricity in the wholesale electricity market, and any distribution and transmission losses avoided in Victoria by the supply of small scale renewable energy generation electricity.”

(See the government final decision: On this basis, the ESC determined the feed in rate as 5c/kWh for 2016.

What the ESC method ignores

1. Solar energy is produced and consumed locally

Solar energy exported into the grid and is consumed locally because it is embedded in the distribution network i.e. the poles and wires. It does not use the transmission network i.e. the towers. Larger embedded generators receive a transmission credit because they avoid rather than use the transmission network under the ESC’s own guideline. The ESC does not does not include this credit for solar and it should.

Transmission costs account for around 2c/kwh in the bills of residential customers. Adding 2c/kwh would make the feed in rate 7c/kwh.

The true amount of the credit depends on the solar generation on very hot weekdays. Because solar energy is more available on hot days the credit would be significantly more than the average rate of 2c/kwh.

2. Solar energy reduces the wholesale price of electricity

It is now acknowledged that the addition of renewable energy has held down the wholesale prices of electricity. Increasing the supply of electricity drives down prices for all customers.

3. Contract prices should have been used instead of forecast spot prices

The ESC commissioned consultants to prepare spot price forecasts to estimate the value of solar. It’s a little technical, but purchases of electricity are overwhelmingly under contract rather than spot. The spot price does not include the ‘risk management premium’ that applies to purchasing in the wholesale market. Including this effect would add around 0.7c/kwh to the feed in tariff.

4. Overhaul the ESC method of setting feed in tariffs

If the ESC approach is retained, it should be broadened to allow for these adjustments. In a future blog we will propose a better way to set feed in tariffs.

5. Don’t be exploited as a solar customer

Supplier profit margins are 22% in Victoria, about twice those in other States. For solar customers we believe the margins are even higher.

It is a more complex task for you to compare when you have solar and more confusing with the different feed in rates. Suppliers see this as an opportunity to extract a margin, that’s business after all, but it’s not solar friendly. That’s why Energy Umpire has launched its bill analysis service to enable simple accurate comparison.

A fair deal for solar please

We call on the Victorian Government to require the ESC to overhaul its method of calculating the feed in tariff.

Join the campaign for a fair deal for solar customers.