Why solar feed-in tariff cuts are driving a spike in household battery uptake

© Provided by ABC Business Ermanno Brignolo and Minie Minarelli have had two drops in their feed-in tariff since installing solar panels in September, 2020. (ABC News: John Gunn)

Australians with rooftop solar are growing increasingly frustrated as energy retailers slash financial incentives and some households are hitting back by dropping their reliance on these companies and installing batteries.

Exclusive data given to the ABC shows how sensitive solar households are to reductions in feed-in tariffs and energy policy announcements.

This sensitivity is being seen in real time right now, as one of Australia’s biggest energy retailers cuts the reimbursement it gives solar households for the excess power they generate.

Ermanno Brignolo is an EnergyAustralia customer who was just notified of the retailer’s latest tariff reduction.

“It’s a shocker,” he says. “There’s no negotiation. It’s just a one-way conversation. You just feel powerless. They decide what they pay, and you have to accept it.”

Ermanno and his wife, Minie Minarelli, only connected rooftop solar to their Sydney home 12 months ago.

They spent $9,000 on the setup — after New South Wales state government rebates — and intentionally installed a bigger system that could generate more power than their household’s daily power needs.

This is a strategy many solar households employ because, historically, energy retailers have reimbursed them for excess power generated.

Unless they have a battery system, solar power is only typically used by households in real time when the sun is shining, and they still have to buy power off the grid at other times, particularly in the evenings.

The money households gain from selling solar to the grid — determined by so-called feed-in tariffs — can offset that energy that they still need to buy.

Feed-in tariffs were intentionally high during the early days of solar, to encourage the uptake of the renewable technology.

However, those tariffs have been dropping for years, as this sunshine-blessed country reigns as one of the most popular places in the world for household solar.

Energy retailer’s latest feed-in tariff dip

While Mr Brignolo was aware of historically dropping tariffs, when he connected his solar panels in September, 2020, he believed the offer from EnergyAustralia was still high enough to justify a bigger system.

“We were expecting that, apart from being able to use the energy that we produce, we would also be able to sell enough to cover the connection fees,” he said, “and any amount of energy that we use also overnight.

“So, pretty much to bring the energy bill to as close to zero as possible.

“And the first couple of bills that came through were actually on credit.

“So, for six months, we had a little bit of credit that wasn’t much, but was in the vicinity of $10 per month.”

Then, on January 1, EnergyAustralia dropped its NSW feed-in tariff for customers from 10.5 cents per kWh to 9.5 cents per kWh.

That was followed by news of the another reduction, from 9.5 cents per kWh to 7.6 cents per kWh, that will come into effect from October 1.

That’s almost a 28 per cent decrease over just one year.

The energy retailer is also dropping its tariffs in Queensland, the ACT and South Australia on the same date, and has already dropped them for Victoria in recent months.

“It’s disappointing,” Mr Brignolo said.

“It changes completely all the plans that that we have made in terms of the return on the investment that we’ve done, and the yield of the investment.”

It’s worth noting that EnergyAustralia is only the latest retailer to drop feed-in tariffs.

The ABC asked the Australian Energy Council for a list of those companies that had dropped financial incentives in the past 12 months, and the industry body responded saying that it was safe to assume that most had done this.

Why are feed-in tariffs falling?

The amount of rooftop solar has gone from 0.2 per cent of Australian households in 2007 to 20 per cent now. That’s a staggering rise to a total of 2.8 million homes.

Most commonly, the explanation for falling feed-in tariffs is that household solar power has become less valuable as more of it floods the market. It’s a simple case of supply and demand.

“As many households now have solar, there’s more solar-generated energy going back into the grid,” EnergyAustralia wrote in its note to customers about its October 1 tariff reduction.

“This has reduced the wholesale price of energy going back into the grid during the day when the sun is out.”

However, the drop in the wholesale energy price is not only due to booming household solar power.

Growth in large-scale renewable energy projects — such as wind and solar — and a broader decline in the price of gas, are also very much influencing the wholesale energy price decline.

Australian Energy Council’s chief executive Sarah McNamara described the situation as “ironic”.

“Ironically, the wholesale market price for electricity is dropping, because we’ve got so many renewable generation systems coming online,” Ms McNamara said.

“What we have seen over the last 12 months is wholesale market prices dropping quite substantially.”

In April, the Australian Energy Market Operator (AEMO) found average quarterly wholesale electricity prices had fallen sharply, to lows not seen since 2012.

However, the falling feed-in tariffs are not just about wholesale prices.

Apart from in Victoria — where the minimum price that an energy retailer can give a solar home for their power is mandated — other jurisdictions only have recommendations.

This means that there is really an element of choice in how much energy retailers pay their solar household contributors.

“It is a competitive market and retailers sent different feed in tariff rates depending on their circumstances,” Ms McNamara said.

“That’s why it’s really important for customers to shop around.”

EnergyAustralia told New South Wales customers in its latest tariff notification that its drop was also in response to state regulators dropping the minimum recommendation.

“In New South Wales and Victoria, we are still offering above the benchmark feed-in tariff range recommended by the states’ independent energy regulators,” an EnergyAustralia spokespersonfurther told the ABC in a statement.

“EnergyAustralia has reviewed its feed-in tariff rates to reflect the change in the market. Our new rates remain competitive and give customers value for the power they put into the grid.”

What it means for power bills

Mr Brignolo understands all of this about the wholesale prices. It was explained in EnergyAustralia’s latest letter to him about the October 1 tariff drop.

What he does not understand is why he is not also being charged significantly less for the electricity that his retailer is selling him to use when he is not using solar energy.

He received a price-drop notification in August 2020 that saw his peak daily rate go from 33.31482 cents per kWh to 33.12980 cents per kWh.

“The wholesale component of EnergyAustralia’s electricity prices has also dropped over the last 12 months, leading to lower overall electricity prices for many of our customers,” the company said in its statement.

“Wholesale costs make up about 20 to 30 per cent of a customer’s bill.”

However, those prices will soon be more than four times higher than what Mr Brignolo is being paid for the solar energy that he sells into the system.

“If the price of energy is going down, I would expect also the cost of energy going down for me as a consumer,” Mr Brignolo said.

After briefly being in credit, Mr Brignolo’s basic number-crunching has him back to paying $80 on his quarterly bills.

Ms McNamara said energy retailers were legally obliged to pass on savings to their customers and that the industry does do this. EnergyAustralia also defended its price reductions.

Ms McNamara explained that retailers charged more for selling electricity than buying it from solar homes, because there were many overheads for these companies.

“When a retailer sends you a bill, the price you are paying on that bill incorporates a bunch of other charges as well,” she observes.

“And they include the cost of the networks, the poles and the wires that deliver you the electricity you need.

“They include the costs of government environmental schemes, and also other operational costs.”

However, research by Victoria University energy economist and the director of the Victoria Energy Policy Centre, Bruce Mountain, has found that, historically, energy retailers are not quick to pass on wholesale price declines.

“The export price often falls a lot sooner than the import price does,” he says.

“So, you almost get a worse deal from declining wholesale prices, if you’ve got rooftop solar.

“We seem to be seeing a little bit of a stagnation in the rate of solar installation. It’s not as strong as it has been.”

Some solar homes buying batteries

To counter the price disparity, some solar household owners are responding with snap decisions that minimise their reliance on energy retailers altogether.

Like Mr Brignolo, Alexander Pain had also installed panels on his family’s home only 12 months ago and had been looking to gain a financial benefit from selling excess power to the grid.

The Sydney resident is also with EnergyAustralia and he got the same letter as all its other solar customers last week.

“I’d been thinking about a battery for a while and that was just the trigger,” he says.

On the very next day, he called up a local solar battery company and enquired about installing one of these storage systems. Three days later, he’d forked out $13,000 for one.

Household batteries are a much newer technology being adopted by Australians. They allow people with solar to store their excess energy to use at all times, such as in the evenings when the panels are not generating energy.

“When I saw that the feed-in tariff was going down, it just made me realise that the power that’s being generated by the solar panels is just worth so much more to me than it is to the power company,” Mr Pain said.

So, on Monday, the Tesla system was installed at his house and the company that sold Mr Pain his battery, Natural Solar, is the largest installer of home storage in Australia.

According to that company, it sees a spike in enquiries for its products whenever major solar announcements are made.

In March, the AEMC controversially floated the idea of a so-called “sun tax”, which would have seen solar households charged for feeding energy into the grid at some very busy peak times.

The week that hit the headlines, Natural Solar’s customer enquiries spiked 186 per cent over the following seven days. 

In August, after the AEMC finalised reforms about how solar feed-in tariffs would be treated, Natural Solar saw a 191 per cent increase in customer enquiries.

The company also saw enquiries spike after Victoria’s extended power outage in the Dandenong Ranges this year. 

Over the past year, the company has seen a 223 per cent rise in battery installations on Australian homes.

Its chief executive, Chris Williams, said the latest announcement by EnergyAustralia was also generating more business for the company over the past week.

“Each time that we see a change in feed-in tariffs, or a proposed change — even from a federal body — we see a real uptick in customer inquiries, which always translates into an uptake in customer orders as well,” he says.

“It’s very clear to us that customers and households around the country are very sensitive to how much they are actually getting paid for that power that they’re sending back to the grid.”

However, battery systems are still expensive. Despite predictions of major price declines by now, they can still cost up to $20,000 and the technology is still technically considered early adopter on the numbers installed.

In total, about 110,000 home solar batteries have been installed nationally, according to Sunwiz data. That works out to about 4.4 per cent of solar households.

“They are still quite pricey pieces of equipment,” Ms McNamara said.

While she said the energy retailers were very happy to take cheap solar power, she urged households to weigh up “the pros and cons” before installing new systems, and to speak to installers about the financial benefits.

Customers want less reliance on energy companies

Mr Pain said his high-tech battery system would pay back what it cost within 10 years.

Apart from the cost, the Sydney resident also saw his battery purchase as something that would see him rely less on his energy company.

“I’m always going to need them, but the less reliance I have on a power company, the better,” he said.

Mr Mountain said the uptake of household batteries by fed-up solar homes was an area to watch and could grow into an example of the energy retailers killing off their own market.

“They are scoring an own-goal. And it’s not just the retailers. It’s also the network shippers. And the regulators,” he says.

“What we’re seeing in the market reaction is customers are wanting to grow more of their own vegetables. And, when you’re selling vegetables wholesale, you don’t want your customers to do that.

“And that will progressively undermine the wholesale electricity market and, indeed, the retailer’s own business.”

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