Add Category
After a career spent working at an investment company, Jay Iyer reckons he knows a good financial bet. And he was sure that putting solar panels on his roof would pay off handsomely.
Key points:
- Feed-in tariffs paid to households exporting solar power to the grid have plunged in recent years
- Critics say tariff reductions are unfair amid rapidly rising electricity prices
- Experts say building more storage in the system will boost demand and prices for solar exports
"Now that I'm in my 70s, I find I require more heating and cooling," Mr Iyer says.
"And that's been a significant cost.
"So I was hoping by having solar panels it would help me reduce my dependence on energy from outside."
It has been more than six months since the 72-year-old installed solar panels at his home in Castle Hill in Sydney's north-western outskirts.
Despite his initial optimism, he says the panels have been a disappointment.
He is especially unhappy about the feed-in tariff he receives of 5 cents for every unit of surplus electricity his solar panels pump back into the system.
Low feed-in tariffs 'unfair'
By comparison, he says he's paying more than 30 cents per kilowatt hour to buy power from the grid.
"In terms of the return on investment, it's been poor," he says.
"We're effectively subsidising these large power companies who are, in my view, ripping us off by getting cheap power and then selling it back to us at a highly inflated price, which I find is totally not fair."
Mr Iyer is one of a large number of solar householders upset at the growing divergence between power prices and feed-in tariffs.
Last week, the Australian Energy Regulator and its Victorian counterpart, the Essential Services Commission, confirmed benchmark prices would jump more than 20 per cent from July.
It follows hefty increases to regulated prices last year and big hikes in the broader market as wholesale prices soared in 2022 and many smaller retailers hit the wall.
At the same time, feed-in tariffs for household solar exports have plunged across Australia in recent years as the number of customers with installations has soared.
Alistair Sproul, the head of the School of Photovoltaic and Renewable Energy Engineering at the University of New South Wales, says there are clear reasons for the divergence.
Crucially, he says a unique characteristic of the electricity system is pushing feed-in tariffs down.
Electricity unlike other goods
Unlike other commodities, Professor Sproul says electricity supply has to match demand almost perfectly at all times, meaning generation overwhelmingly needs to be used instantaneously.
Professor Sproul says storage such as batteries, pumped hydro plants, and electric vehicles will eventually change this equation, allowing surplus renewable energy to be stored for later use.
But, in the meantime, he says the real-time nature of electricity supply and demand means the daily glut of solar power will weigh heavily on prices during those hours.
"The challenge for the electricity industry is the solar systems … if they are putting a lot of power back into the grid and nobody is really using much power in the middle of the day, there's the problem," Professor Sproul says.
"So, we need to balance supply and demand.
"Solar in the middle of the day — if no-one is using it — isn't worth a lot to the electricity distributors.
"That's why they're paying less for solar as time moves on."
It's a view shared by the Australian Energy Council, which represents major power providers.
Sarah McNamara, the lobby's chief executive, denies solar customers are being ripped off.
Ms McNamara acknowledges that feed-in tariffs are much lower than electricity prices but points out energy companies also have to account for costs including generation, poles and wires, government policies, and retail.
What's more, she says the high feed-in tariffs available last decade — when governments were offering up to 60c per kilowatt-hour — were only ever supposed to be temporary.
Using solar, not selling it is the key
"When feed-in tariffs were first proposed by different states, they were excessively generous," Ms McNamara says.
"They represented an amount well in excess of the actual value of the electricity that was being fed back into the grid.
"Now, that was done really to encourage people to put solar on to their roofs.
"That's been extremely successful. Australia has the highest penetration of domestic solar PV of any country on earth."
Professor Sproul echoed the comments, saying Australia's adoption rate of solar was unmatched anywhere in the world and made the country a test-bed for how to deal with the technology en masse.
He says the case for rooftop solar is still extremely strong but adds the caveat that households reap the biggest benefits by using as much of their own supply as possible.
By doing this, he says, they avoid having to buy electricity from the grid at much higher costs.
"Feed-in tariffs probably should be a secondary concern to people installing solar," he says.
"The biggest gain when you put rooftop solar in is if you can be generating electricity in the middle of the day and use it in the middle of the day, then shift as much of your load to use your own solar.
"That's going to be the best way to help pay back your system fairly quickly — probably five or six years of operation if you're doing that sort of thing.
"The power system is evolving very rapidly and changing very rapidly. Australia is in an interesting position — we're at the forefront, really, in terms of adoption of solar."
If you're unable to load the form, click here.