What the Shocking Tariff Rollbacks in NSW, VIC and SA Mean for Queensland

Well, telemarketers have been saying it for years, normally with not much in the way of evidence. However, It was recently announced that solar tariffs in New South Wales, Victoria and South Australia are being rolled back. This doesn’t mean they are disappearing entirely, but it does mean that some households, may experience a cut to their savings of up to $1500 a year.

So why are only three of Australia’s states and territories getting their tariffs cut, and what does it mean for the rest of us and the future of the solar industry as a whole? And, more interestingly why it might be a good thing for solar in the long term?

To begin with, let’s not confuse publicly provided government rebates with feed-in tariffs which exist merely as contracts between solar powered homes and private energy corporations. Rebates are not disappearing anytime soon and are not up for policy review for another 12 months.

Why are Feed-In Tariffs Important for Solar Power Owners, and what are they?

Tariffs are not governed by any publicly accountable office and in reality can be altered by energy providers at any time, unless you maintain a current contract. For those who may not be aware, feed-in tariffs refer to the price that an energy provider is willing to pay per KW, for the excess power produced by solar owners.

For example, if your household only consumes 80% of the power generated by your solar system, you can negotiate to sell the remaining 20% back to your respective on-grid energy provider. In the past, the feed-in tariffs were so generous — ranging from 44c nationwide, up to 60c in NSW — that many people were able to save more money by selling back electricity, instead of using it themselves. In other words, they could sell a KWh of power for 60c, and buy it back from the grid at the retail price of ~20c per KWh, coming out on top.

Solar Tariff Graph

Energy providers advertised that they were advocating for the adoption of solar power by providing an additional financial incentive, however in reality many companies were struggling to generate enough electricity and were relying on solar powered households.

For many years however, tariffs have been radically reduced down to an average of 8c as the demand for additional power is reduced. Customers who purchase solar power these days are doing so because the technology has improved to the point that they are able to save more on their power bills, than the initial cost of the system itself. This makes solar a worthwhile investment regardless of your energy providers feed-in tariff.

However, what makes this rollback different is that homes with existing contracts that would usually provide them with a sizeable feed-in tariff are having it slashed down by up to 90%. For example in NSW, what was a 60c/KWh tariff has become a 5.5-7.2c/KWh tariff instead.

For many homes, especially those with larger systems, this means that they will see a dramatic increase in their annual utility expenses. On top of this, many of these systems have not been upgraded or added to in many years, despite the technology improving radically in the past decade. This is because the feed-in tariff supplanted the need for a more powerful system, given they were receiving such a generous sum per KW/h.

So, should we expect to see similar rollbacks in Queensland and other states?

Well, given that many of the major energy providers are national companies, there is no reason why we shouldn’t see similar rollbacks across the country in due course, but maybe we will get lucky. It is important to remember that feed-in tariffs are simply a form of trade, and the prices are subject to the effects of supply and demand.

The immediate reaction is one of worry, especially for those households who are holding onto the old 44c tariff from years ago. But, as the renewable industry moves away from relying on traditional energy providers, this period will most likely be looked back on as a period of maturation, not one of turmoil and uncertainty.

The simple fact is solar technology is improving at a rate similar to Moore’s law of computational complexity. By using solar to actually power our homes, rather than as a money making machine, there are still sizeable savings to be had.

Without even taking into consideration tariffs, the average Australian family is able to save up to $40,000 over 25 years with a 6KW system (see our Simple Guide to Solar for further explanation). And, for those families who will be shocked to see their bills increase over the next couple of months, there are many things you can do to make sure you use as much solar generated power in the day.

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First of all, by using a hot water timer, solar owners can heat their hot water without an additional solar system, as well as cool or heat their homes. On top of this, many families who felt trapped by the restrictive terms and conditions that come with a high tariff contract are now able to consider the long needed upgrades that were previously held from them.

Why can’t I sell my excess power to my neighbour without solar?

The final positive that may come out of this mess later down the track is promoting the idea of peer-to-peer energy sharing. What does this mean?

Well given that electricity used to be a public service, the industry still holds a pretty powerful monopoly on the rights to the grid, and have excessive power when it comes to influencing regulations that benefit their ongoing dominance.

In the same way that Uber upended the taxi industry or Airbnb did the hotel and resort business, if it weren't for strict regulations, a similar thing might occur within the energy industry. Right now, it is illegal to sell electricity to your neighbour, or to the grid, without going through a traditional ‘energy provider’.

This means that energy providers and energy providers alone set the price for power, which is why they are able to buy it for one third of what they sell it for. We are all playing on their turf. Hopefully, as solar is more widely adopted and the grid becomes democratized, we will see a fairer and more communal system emerge. But until then, don’t play into their game by simply ignoring the benefits of solar, simply because a number of companies decided to lower their buy back price.

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