The Decline of Solar Feed-In Tariffs
Posted on 09 October 2024
The Decline of Solar Feed-In Tariffs
Solar feed-in tariffs (FiTs) have been steadily decreasing, with further declines on the horizon. When the generous 60c/kWh premium tariffs were phased out a decade ago, it came as no surprise. Back then even with small 1-2kW solar system, Those generous premiums once provided significant returns for solar owners, paying off their systems in record speed and then passing on energy savings for. However, homes with legacy feed-in tariffs now experience high energy bills because their solar systems primarily cover the household’s energy consumption, leaving only minimal excess energy for export.
These early schemes, though expensive for the government, were instrumental in kickstarting Australia's solar industry. Once the foundation was laid, energy retailers took over, introducing net-metered FiTs. At that time, solar installation costs were balanced by FiT returns, driving a surge in solar uptake.
However, in recent years, FiT rates have dropped from over 20c/kWh to around 5c/kWh in South Australia, leading to frustration as tariffs are adjusted. Meanwhile, electricity prices have soared, shifting the value of solar systems from relying on FiT credits to reducing grid energy usage through self-consumption.
Here’s why this trend is unfolding:
Energy Market Forces
Australia's energy market operates on a reverse auction system called "economic dispatch," where AEMO (Australian Energy Market Operator) forecasts demand and power generators bid to supply it, with the cheapest sources being dispatched first. Retailers like Origin and AGL manage this price fluctuation, offering simplified rates (e.g., $0.30/kWh Off Peak & $0.60c/kWh Peak).
When you export solar energy, retailers pay you a FiT, but due to market volatility, they often make minimal profit, especially when midday solar production lowers prices. In some cases, retailers even incur losses from their feed-in tariffs, particularly when market prices turn negative, as they must pay for your excess energy and the cost of offloading it. This is why energy plans in South Australia with higher feed-in tariffs tend to have higher energy rates overall – they offset midday losses with evening gains.
Infrastructure and Distribution Networks
Distribution networks manage and upgrade the grid but don’t deal with energy buying and selling. While FiTs come from retailers, grid operators handle the infrastructure that enables solar exports. During the day, solar production often exceeds local demand, requiring energy to be transported over long distances, a costly and inefficient process in a grid built for one-way energy flow.
To address this, SA Power has implemented "flexible exports," allowing them to dynamically adjust a solar systems maximum export limits between 1.5kW-10kW per phase depending on grid conditions. This helps prevent excessive solar energy from overloading the grid, which could lead to instability and blackouts. The additional idea of a "Sun Tax" to address this issue has been floated, but in my opinion it isn’t a great fear as most homeowners can generally have their installer adjust current equipment to prevent solar exports if it was necessary. My own system has access to wholesale rates and regularly see’s negative fee-in prices and at that time it automatically stops exporting to the grid until they are positive – smart hardware like this will be replicated for retrofit quickly if ‘Sun Tax’s’ became an issue.
Conclusion: Is Solar Still Worth It?
As FiTs continue to decline, the key to getting value from solar lies in boosting self-consumption. Larger solar systems are worthwhile, particularly during winter when solar output is lower. But the focus should be on using your solar energy smartly—such as running air conditioners during the day to pre-cool/heat your home or using timers for electric water heaters (turning them into thermal batteries) or installing energy efficient electric heat pumps which can be powered by your solar system.
Installing batteries can further improve the returns, storing surplus energy for use during peak times when electricity prices are highest. Though the days of relying on FiTs alone are over, solar remains a valuable investment when paired with strategies to optimise self-consumption and energy storage. New approaches like Amber Electric’s wholesale energy model and network-integrated batteries are emerging to help consumers better manage energy costs.
My Experience with Solar and Batteries
Personally, I have a 20kW solar system paired with a 20kW battery and access to wholesale electricity prices through Amber Electric.
I often encounter negative FiT rates between 10am-3pm, and my battery system optimised with Amber Electrics ‘Smartshift’ software stops exporting during this time, but during other times the feed-in tariff is significantly higher which off-sets the ‘loss’ from curtailing my system and during power spikes, I've received FiT rates as high as $16-$19 per kWh (yes, you read that correctly). A fortnight ago, my battery earned $201 in credits during a two-hour spike. On the wholesale market, crazy things happen too such as Yesterday (8th October) for example at one point in time you earnt 50c per kWh of electricity you consumed – so if I switched off my solar and used my air-conditioning on high I could have generated $2.5 per hour credit from being paid to use electricity, thanks to surplus renewables in the grid!
Given the current state of retail electricity and FiT prices, which show no signs of dropping (when do electricity prices ever go down?), I believe we've come full circle. Like the early days of solar, the benefits of having a battery for grid independence, backup and the potential rewards from exporting energy during peak times on the wholesale market make solar & batteries an even more attractive proposition today.
The rising cost of electricity is creating a natural incentive for consumers to invest in solar and battery systems.
If you have any questions about solar, batteries, VPPs like Amber Electric, or EV charging, feel free to reach out! I’m always happy to chat about these topics and eager to help people learn more.
Regards
Robbie Williams