The fact rooftop solar has been a policy debacle will not come as a surprise to readers of this newspaper. We have consistently argued against populist measures that rewarded the better off (those with the disposable income to spend on rooftop panels) at the expense of everyone else and did so with very inefficient results in carbon abatement. Even so, the scale of the subsidies and costs, estimated in a new report from the Grattan Institute think tank, is startling.
The report — Sundown, Sunrise: How Australia Can Finally Get Solar Power Right — concludes that the cost of rooftop solar outweighs the benefits by almost $10 billion. The cost includes overly generous “feed-in” tariffs paid to householders exporting surplus electricity to the grid, as well as a pricing system that fails to charge these householders for their continued reliance on grid power during the evening peak. The benefits embrace less demand for grid power and reduced greenhouse gas emissions.
This has been a prohibitively expensive and inequitable form of greenhouse abatement — the equivalent of a carbon price of $170 a tonne, according to Grattan’s energy program director Tony Wood. By contrast, the Abbott government paid an average price of $13.95 a tonne for carbon abatement in its first auction of emission reductions last month. And the costs continue because, quite apart from poorly designed pricing systems, some of the overly generous state feed-in tariff regimes still have time to run.
“By the time the subsidies finally run out, households and businesses that have not installed solar (panels) will have spent more than $14bn subsidising households that have,” the Grattan report says. If the expenditure tied up in Australia’s 1.4 million rooftop systems — the world’s highest penetration of household solar installations — had been spent instead on industrial-scale solar power generation in arid zones, the result in terms of carbon abatement would have been impressive.
But the practical question is how policymakers should respond to the high penetration of rooftop solar as well as its future uptake. The Grattan report wisely suggests a deadline for nationwide use of smart meters so that pricing can distinguish between peak and off-peak use. This would eliminate one source of the inequitable subsidy enjoyed by households with rooftop solar. It also would create an incentive for these households — and for new solar power customers — to sign up for battery storage as this technology becomes available. This would allow solar households to draw on their own stored power during the evening peak and thereby reduce demand on the grid.
It is difficult to predict with any precision the effect that widely available battery technology will have on the electricity grid, a subject of keen interest to a state such as NSW that has yet to privatise its poles and wires. The Grattan report concludes that the so-called “death spiral” — as more and more customers disconnect from the grid — is not imminent. It estimates that, at least for the next few years, the upfront cost for a typical urban household to go off-grid will be prohibitive. These calculations may change quickly; forecasting technological change is famously hazardous. Whatever happens, policymakers must learn from past mistakes and make sure they respond with efficient and equitable measures.