Sunday 20 May 2012

Sunday solar

Just what you wanted to wake up to - some more stuff on solar power.

I'll start with this point - if you want solar power, good for you. Just don't expect me to subsidise your power bill, either through paying part of the installation of your system, or paying you above market rates for any excess power you produce. And if the power grid needs expensive upgrades to cope with you exporting power into the system, you can pay for that too. If the cost of solar power has in fact reached "gird parity", then you shouldn't need to steal any of my cash in order to install a system on top of your house. 

So how much money are we pouring into roof top solar installations?

Well, as Rob has pointed out, the current price for STCs is not $40 - it's $27.35.

That price has moved around a lot over the last few years.

From the link above:

REC/STC brokers take the assignments and then create and sell the REC/STCs for several dollars more.

That's another way to generate "green jobs". If 44 million certificates are created, and the brokers push a few electrons around and charge $2-3 for the service, then they can cream off over $100 million for themselves. In The Bonfire of the Vanities, this was described as picking the crumbs off the cake. That's some crumb! Remember this - a pretty big chunk of the cash being poured into these renewable energy schemes is not actually being spent on installing renewable energy systems - it is being soaked up by brokers and intermediaries who probably used to sell shares in mining companies, tobacco companies and arms manufacturers.

I've read plenty of opinions this morning that the price is heading south due to a large over supply of STCs. When supply greatly exceeds demand, the price can only go one way - down. 

The Regulator has issued a target of 44.78 million STCs for 2012. If we multiply the spot price of $27.35 by 44.78 million, we get $1.063 billion.

Where does that $1.063 billion come from?

STCs are bought by the "big polluders" - mainly coal fired generators I suppose. As this increases their costs, they can either reduce their profitability or put up their prices. As many generators are state owned, and they pay dividends to state governments, any reduction in profitability means less revenue for state 
governments to spend on health, education, roads, police etc. So they have a big incentive to put up prices. If they can't put up prices, then governments need to raise taxes somewhere else. Either way, residents get it in the neck. Or the hip pocket.

Alternatively, they can pay exorbitant amounts for solar power - up to 52 cents per kWh - and then pass that cost on to consumers.

The over supply in STCs is exacerbated by the deliberate government policy of handing them out with a multiplier (currently 3, although it is 4 for contracts signed before May 2011). That's like me employing you to dig a hole in my backyard, "deeming" that you in fact dug three holes (when you dug one) and paying you for digging three. Yes, it makes about that much sense to me too.

Yes, the cost of solar panels is plummeting - more on that later. If that's the case, and solar is now at "grid parity" (which I view as the wholesale price of power charged by large coal fired generators), then we should be able to do away with this entire panoply of subsidies and certificates. Close down the STC scheme and eliminate the solar tariff - let the market decide.

1 comment:

Rob said...

If you want coal power that's fine but don't expect me to subsidise your choice. The Australian Academy of Technological Sciences and Engineering studied the health impacts of coal fired power in 2009 and estimated that coal power results in $2.6 billion dollars in Medicare costs, so if I produce my own renewable power or live in Tasmania where over 95% of our power comes from renewable sources why should we subsidise the costs of your dirty power sources. There are similar costs to the environment and loss of productive land to open cut mines, all of which are externalised costs of ocal mining and power generation subsidised by non users. The life expectancy of Australian coal miners and power station workers is 15 years lower then the national average, that is nothing short of a disgrace.

I'm glad you have acknowledged that renewable subsidies are well under half of what you suggested they were just yesterday. You did however gloss over the fact that it will be cut by a third again in just 5 weeks and then halved in 12 months. The rapid price reductions have exceeded policy makers expectations and I would fully support the multiplier being scrapped altogether in July as even unsubsidised solar is now competitive with retail power for rooftop installations.

Finally I would ask why you consider grid parity being when solar rooftop can generate at the wholesale coal rate? What does a homeowner considering solar care what their utility pays for it's power wholesale? Clearly that system will offset power bought at the retail rate. Grid parity's definition changes depending on whether you are talking about domestic rooftop installations or utility scale installations. I'd also suggest you have a look at what the wholesale price of power is in the mid afternoon when solar is producing at its peak. It is usually about 30-40c/kwh WHOLESALE, that means in the mid afternoon every generator receives that rate even coal regardless of their generation costs, some afternoon that wholesale rate spikes to several dollars per kwh. Utilities get to buy rooftop pv output at the retail rate during the afternoon when they would often have to pay several times more for any other power available to them, this is referred to as the merit order effect and in countries with larger solar output is resulting in a fall in wholesale price in the mid afternoon or a reverse of the normal trend.