To Find A Satisfying FiT

No, not a satisfying fit for your pants!

FiT in this context is Feed in Tariff, or what you get paid for exporting the excess electricity generated by your solar panels.

fit
(c) Your Solar Quotes

If you click on that image, you’ll see sample rates currently provided in Australia. A couple of them might be out of date, for example with Diamond Energy, a company based in Victoria, I now receive 12 cents per kWh. I’m in NSW but that offer is wherever they can service my account.

Note that in many cases this is a net tariff i.e. excess solar only, not a gross tariff. You can read about the difference here.

There are people still on gross FiT tariffs, getting upwards of 40 cents per kWh. These were incentives for getting the solar industry moving in Australia, and did their job. Some of them were planned out for over a decade, and have given their owners fantastic service.

Governments attached rules they thought would be broken easily, like losing the gross FiT if there was a change of owner, or if you altered the system. Consumers got around this by buying the system they could afford and never moving house.

As a result, we’ve got a LOT of systems out there under 2kW that need updating to give a net tariff of under 20 cents a fighting chance. A lot of these people are looking at batteries.

I suppose, if you’re somewhere like the USA, some of those figures look pretty sweet. Keep in mind that the average import tariff right now in Australia is around 30 cents, after recent price hikes.

As a result of this visible mismatch, many people wonder why FiT isn’t much higher. After all, those of us with Solar PV on our roof help lower everybody’s bills!

Why do I get paid “only” 12 c / kWh* for my export, when I pay somewhere between 18 cents (off-peak) to 35 cents (peak) for import?

* BTW if you like the look of that 12 cents action, get in contact with me via Twitter – if you sign up with Diamond using my details, we both get an account credit.

There are several reasons, and for this discussion we’re ONLY talking about the east coast grid (the NEM). That’s where the facts and figures are coming from.

Profits Matter

First: I don’t work for a big energy company. I get accused of it regularly when I tweet about energy, but I just don’t.

I do understand that people need to make money. No business profitability = no jobs = no cashflow for other businesses. That’s simple economics. Of course, maybe companies don’t need to make quite as much money as they do, I suppose.

Another truth of our energy market is we have generators and retailers in the delivery chain. This has been the way of things for years, and decouples the generation (industry) from customer service aspect.

Speaking for the eastern half of Australia (not Western Australia or the Northern Territory who aren’t on the NEM), this means competition is supposed to happen at two levels: wholesale and retail.

The National Electricity Market (NEM) connects the 5 southeastern States of Australia, as well as the Australian Capital Territory.

It is the wholesale market. Spot prices are generated to deliver value to generators, so they can pay their staff to manage the backbone of the grid. Additionally, there is the cost of network maintenance as a big line item.

There are instances where generators have held back supply until the spot price gets to ridiculous levels. This behaviour is not illegal, but not exactly ethical, and affects pricing. It is being cracked down upon.

Retailers operate as clients of this market, and have their own battleground.

They need to account for the variation in spot prices in their retail offering, and look at best- and worst-case scenarios.

How do they keep the lights on, pay for staff, and ensure they’re getting a slice of the pie?

Keep the offering as low as they can manage. This not only means trying to keep prices down to attract customers, but also the FiT paid to those customers with solar.

Retailers may have other ways to sell e.g. percentage discount for paying on time. Maybe a few more percent discount for debiting a bank account, which has slightly lower fees than processing a credit card.

Wholesale Pricing Matters

What do the electricity generators actually make? This is important to understand, if we consider the panels on my rooftop to hold a value similar to the big boys.

Check out the second chart here from the knowledgeable @simonahac (and give him a follow because he knows his stuff).

The dollar values above those green bars represent the average spot price per Megawatt hour of electricity in the NEM. In his words: “the average of each day’s volume-weighted average price received by the entire generation fleet’s delivery into the NEM.”

The average* of those five dollar values is a tick over $90.00 / MWh. Dividing by 1000 gives us a price of around $0.09 / kWh.

If that is what I get paid as a generator, I need to make profit on that, so I need to find the best way to deliver appropriate volume.

That is important when we consider the next major leg of the argument.

* Yes I’m fully aware that averaging a set of averages is not accurate because of volumes in each primary set. Just go with it.

Reliability Matters

OK, so let’s assume for a second the “power companies” are all money-hungry, price-gouging fat cats swimming through a pool of cash.

I group generators and retailers together in that statement, because most people don’t understand the difference.

BUT its significant to get your head around the concept, because of the way the NEM operates. Read about that here, without worrying about ancillary services just at this point.

In summary: retailers bid for large volumes (MWh) of generator output, which is based on a forecast. In doing so, retailers expose themselves to financial risk. They need to find that sweet spot to on-sell smaller volumes (at a higher rate) to their customers.

Market volatility can be huge, and as a retail you’ve got competitors. This is not as simple as selling widgets down the Sunday markets.

You can read the details if you like about wholesale pricing in the NEM.

As a random dude/dudette with solar panels on my roof, I’m already getting paid a fairly competitive rate compared to wholesale market spot price. If the big boys get around 9 cents, my 12 cents is pretty sweet.

There is no way I can enter the market with promised volumes like a big generator. Similarly, I can’t guarantee exactly when I’ll be able to provide my paltry 0-20kWh per day.

Is 8 to 12 cents per kWh a fair price, given I don’t meet a lot of the criteria for market supply? I’d say its in the ballpark. I’m around where the wholesale price is, after all.

A side point here that the average person doesn’t understand: small consumers pay their electricity rates differently to big consumers.

A big consumer will pay what looks like a very small rate – often under 10 cents per kWh. Its a volume discount, effectively.

The catch is that the number of kWh they are charged for is based on the peak number of kWh consumed in a half-hour period that month.

If a business has one bad day in summer where all the air conditioners and machinery are running, they’ll get stung, and hard. The retailer may only look like making a couple of cents on each kWh, but if they’re charging on the peak consumption, a lot of kWh are empty space. They never arrived.

As big consumers become more savvy, and introduce measures to monitor and control those peaks, they can pare back these costs. Retailers might lose margin. Its a game of chess.

A FiT Analogy

Disclaimer: I am not wired to provide good analogies, so let’s get this over with…

Let’s say you run a taxi service, and for argument’s sake we’ll call it Wholesale Taxis. Your taxi will run any time of day, turn up on time to bookings, and take the most effective route to the destination. You charge $10 per trip for this service.

Let’s say I’ve got a taxi service, and I’ll call it Rooftop Taxis. My taxi only runs during the day – and goes at half pace (or not at all) when its raining. If a cloud comes over, my taxi will slow right down, and you might miss that meeting you booked me for.

Would you pay the same $10 for that trip? Not likely. I’d have to cut my rates to reflect what I am likely to deliver.

I can still be useful, but I’m not going to get business ahead of Wholesale Taxis, because of the risks my service presents.

Bad analogy over.

Hold Up There, Haters …

Before you conservative types go using that analogy as an argument against the reliability of renewables, keep in mind I’m only talking about small scale producers here i.e. rooftop solar PV, or those rare beasts with domestic wind operations.

This isn’t a reliability problem; its an issue around intermittent behaviour for the market to manage.

And if you want to talk about “baseload”, read this instead, and get back if you gain understanding.

Increasing FiT Value

I don’t think FiT should increase. I think things are fairly good the way they are, with prices in the ballpark of the wholesale market.

I’m of the opinion that FiT in either gross or net guises is probably on the way out.

Introducing generation capacity that doesn’t operate through the NEM needs management. That requires a lot of systems to be able to handle abrupt changes in the network.

A link I provided above to the NEM wholesale pricing talks about ancillary services. One of these services is Frequency Control Ancillary Services, or FCAS. It is extremely important from two perspectives:

  1. Introduction of supply that can be intermittent (mostly renewables)
  2. Evolution of the grid from metronomic consumption to demand response

The first point has been done to death. The second point is key.

While a few of our politicians would like to pretend its still 1950, the Australian grid has moved on. Coal stations are reaching end of life, or are well past it. Generators are exiting the coal market in Australia, and with good reason.

(Also follow Prof Willis – he is another bloke who knows his stuff).

At the same time, consumption patterns of users are changing, which render slow-response systems like coal and nuclear of limited value.

It takes hours for a coal or nuclear power station to respond to demand changes. Even gas stations take minutes to vary output, and the new grid needs it in seconds.

Technology is moving to address this, in order to better integrate renewables and other sources into the wider grid in Australia.

Schemes to control demand, including those backed at the highest levels, will assist the grid in coping with peaks.

A measure of stability will still be required, though, particularly from multiple, small generators. What is needed is a way to buffer power and hold it back for peaks.

Storage FTW!

Yes, as a Powerwall owner, with Reposit Power GridCredits hooked up, I was always going this way. But it makes a whole lot of sense.

As solar and battery prices continue to fall, a new resource is growing in the market: the Virtual Power Plant (VPP). I’ve covered this before, and have not yet seen any convincing argument against it.

Besides Reposit Power, companies like GreenSync, PowerLedger, and even inverter manufacturers like SolarEdge are looking at multi-site power trading and optimisation for solar PV and batteries.

Would the market continue to purchase intermittent solar PV from small producers, where enough battery storage exists in the NEM?

I believe the market players would tend toward the reliability of supply that storage offers. Importantly, batteries can report back how much they’ve got, and how much they can deliver.

Consumers would leverage their investment in battery technology, and participate in the market, at better rates than they get now. Perhaps a pure solar FiT would still exist, but not at the levels we have today.

It may not be enough, though. That’s where the big boys step in, and start using hydroelectric power as the world’s biggest battery (sorry, Elon).

FiT Hydro
Snowy Hydro Scheme, Australia (c) snowymountains.com.au

While hydro power is not perfectly green, as some believe, it represents a step forward to a lower-carbon future.

In Australia, several people in the know are looking at pumped hydro, which is a form of large-scale storage that doesn’t require a natural river source.

Excess solar or wind during the day can be used to pump water uphill. At night, or on demand, the turbines can spin the other way to send electricity out.

FiT Pumped Hydro
Pumped Hydro (c) abc.net.au

Even on the driest inhabited continent, there are enough pumped hydro options to help our grid to 100% renewable energy within two decades. Using wind, solar, and pumped hydro together could be a very feasible answer.

Financing them in the face of fossil-fuelled opposition is the road block. Particularly when our federal government cannot formulate energy policy.

Storing electricity is going to be critical as the grid evolves. The role of a standard FiT for small energy producers is, in my opinion, up for review.