sustain renew fit subs australian pv association the unsw centre for energy environmental markets

8/8/2019 Sustain Renew Fit Subs Australian Pv Association the Unsw Centre for Energy Environmental Markets

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Australian PVAssociation

Australian PV AssociationAndCentre for Energy & Environmental Markets

c/- Dr Muriel Watt11 Cole Crescent

Liberty Grove NSW 2138

12 January, 2009Mr Mark DuffyDirector-GeneralNSW Department of Water & EnergyGPO Box 3889Sydney NSW 2001

Dear Mr Duffy,

NSW Solar Feed-in Tariff Taskforce

Thank you for the opportunity to make a submission to the NSW Solar Feed-in Tariff Taskforce and tomake a presentation at the hearings on Thursday.

Please find attached a combined submission from the Australian PV Association and the UNSW Centre forEnergy & Environmental Markets. A presentation will be forwarded tomorrow.

Yours Sincerely

Dr Muriel WattChair, Australian PV AssociationandCentre for Energy & Environmental Markets

Encl.


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Submission to the NSW Solar Feed-in Tariff Taskforce

January 2009

Australian PV Association

and

Centre for Energy and Environmental Markets, UNSW

January 2009


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The Australian PV Association

The objective of the Association is to encourage participation of Australian organisations in PVindustry development, policy analysis, standards and accreditation, advocacy and collaborativeresearch and development projects concerning photovoltaic solar electricity.

A principal activity is to manage Australian participation in the IEA PVPS Programme. The work of the IEAPVPS is arranged by Tasks, each with its own commitments of time and resources. At present Australiaparticipates in:

Task I PV Information Exchange and DisseminationTask 9 PV Services for Developing Countries;Task 10 Urban Scale PV ApplicationsTask 11 PV Hybrid Systems within Minigrids.

Current Association members: Alice Solar City, ANU, BP Solar, BT Imaging, Bushlight, CEC, ClearSecurity, Conergy, CSIRO, Dyesol, Ergon, GE Trading, Green Solar Group, Greenbank, Greg Watt, GSES,Honda, IT Power Australia, LJW Solar, Novolta, Peter Gorton, Regency Media, RISE, Selectronic,Solarfarm, SA Government, Suntech, Sustainability Victoria, Solco, Sowilo Engineering, Spark Solar,Tindoz, Trina Solar, Xerocoat, UNSW.

The Association receives $40,000 per year from the Australian Government to assist with the costs of IEAPVPS membership and Task activities.

Contact:Dr Muriel Watt, Chair Australian PV Associationc/- IT Power Australia11 Cole CrescentLiberty Grove NSW [email protected]

The Centre for Energy and Environmental Markets

The UNSW Centre for Energy and Environmental Markets (CEEM) undertakes interdisciplinary research in

the design, analysis and performance monitoring of energy and environmental markets and theirassociated policy frameworks. CEEM brings together UNSW researchers from the Australian School ofBusiness, the Faculty of Engineering, the Institute of Environmental Studies, and the Faculty of Arts andSocial Sciences, working alongside a growing number of international partners. Its research areas includethe design of spot, ancillary and forward electricity markets, market-based environmental regulation, theintegration of stochastic renewable energy technologies into the electricity network, and the broader policycontext in which all these markets operate.

Contact:Dr Robert Passey, CEEMc/- School of Electrical Engineering & TelecommunicationsUniversity of NSWSydney NSW 2052

[email protected]
mailto:[email protected]:[email protected]:[email protected]:[email protected]


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IntroductionBefore examining the specific questions posed by the NSW Solar Feed in Tariff (FiT) Task Force, we brieflyexplore the nature of the FiT and market support in some of the IEA PVPS countries in which it has beenapplied.1

What is a FiT?

In the world of grid-connected renewables, the term FiT simply refers to an explicit monetary reward forproducing electricity from a renewable energy source, at a rate per kWh somewhat higher than the retailelectricity rates being paid by the customer which is why the measure is often more correctly termed anenhanced FiT. In principle, the measure encourages efficient production of renewable electricity with theoutput from the renewable energy system being monitored and recorded, and has consequently been

promoted as a performance-based market support measure.

The FiT does not provide direct support with the problem of the larger up-front costs associated withinstalling a renewable energy system. Successful FiT policies globally have overcome this problem bysetting the FiT level at rate that encourages a positive financial return over the lifetime of the policy andtherefore enables the customer to access private sector finance to overcome the capital cost barrier. Thisprovides a financial driver to ensure systems are designed and warranted to operate reliably over theirlifetime.

Variations in implementation

There are two main variations of the FiT approach: in the first case, all the electricity produced by therenewable energy system, irrespective of how much is used by the customer or fed into the grid, qualifies

for the feed-in tariff (a Gross FiT). In the other situation, only the electricity generated that is surplus to thecustomers requirements is paid under the feed-in tariff (a Net Export FiT). The remainder has the samevalue to the customer as their retail electricity rate. The attractiveness to the customer of the FiT is furtherreduced if net-billing is used and the grid import / renewable electricity export balance is calculated over anextended period of time, rather than on a half hourly or even instantaneous basis.

The FiT can become more attractive for all parties when time-of-use metering and pricing are employed,reflecting the real benefits to the electricity network of reducing customer demand or adding power to thesystem when it is most needed. From the electricity utilitys perspective this may be either when bulk poweris most expensive to purchase or in locations where supply is constrained, or both. However, suchlocational signals may change over the 10 years of a feed-in tariff, while both calculating paybacks andestimating returns on investment may become more difficult if time-of generation rates are used.

Typically, funds for the FiT are raised through a levy on electricity bills across the board, which has twomain attractions: the scheme is not subjected to the usual budgetary whims associated with governmentfunds and, potentially, all electricity customers are contributing to improvements in their electricity supplysystem.

Setting an appropriate FiT level

There are a number of ways that the level of the FiT can be set. Simple financial calculations can indicatethe cash flow required to provide a certain return on investment for a given renewable energy system in aparticular location for example, to pay off the system within its warranty period. Estimates of the value ofexternalities, such as the unfunded costs of pollution associated with traditional energy supply, can form thebasis of the tariff. The specific electricity network benefits that may be relevant, such as peak demandreduction or line support, can also be monetized.

1From the IEA-PVPS publication PV Power, Issue 26. Available from www.iea-pvps.org.
http://www.iea-pvps.org/http://www.iea-pvps.org/http://www.iea-pvps.org/


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The target market

There are 3 distinct application segments that a FiT could target and support: Residential applications(typically 1-3kW), Commercial Roof Top Applications (typically 500kW).

Residential segments < 1.5 kW are eligible for Solar Credits under the proposed revised RET scheme. Anadditional and appropriately set FiT would further assist uptake, help encourage larger systems, andprovide an ongoing incentive to own and maintain a high efficiency, fully functional Solar power systemover its lifetime and not just take advantage of a capital subsidy at time of purchase.

The commercial roof top segment is currently only at demonstration level in Australia yet has a loadprofile well matched to PV output. An appropriate FiT policy would encourage small to medium enterprisesto consider using their roof space to generate solar electricity through private sector finance. This, forexample, could help primary producers generate income streams that are independent of drought orcommodity price fluctuation, as has occurred on a larger scale with wind farms. It would also assist inminimising network costs in servicing the rapidly increasing commercial sector.

The Large Commercial Power Plant segment is nonexistent in Australia. In Spain and Germany, FiTpolicies have been successful in driving uptake of large power plants either in rural regions or on largeareas of unused industrial urban roof space.

The larger commercial and utility scale systems provide the economies of scale which have been critical indriving down system costs, stimulating local manufacture and creating jobs in Germany and Spain. Theyalso create the scale required to make meaningful contribution to peak load supply and greenhouse gas

reduction.

Countries using a FiT

FiT schemes are becoming more widespread and are showing a variety of outcomes. Amongst the IEAPVPS countries notable examples can be found in France, Germany, Italy, Korea, the Netherlands,Portugal and Spain. Detailed data on growth rates in various national markets can be found in the annuallypublished report Trends in photovoltaic applications, available from www.iea-pvps.org. While a high tarifflevel has been shown to be capable of driving substantial market growth, some of the controlling conditionsthat have been placed on different countries schemes have resulted in difficulties in achieving such a resultor sustaining high levels of investment. These controlling conditions have included:

caps on capacity allowed under the scheme, which has resulted in the market being saturatedwithin minutes (eg. Austria) or create risk of a collapse of the market when introduced

retrospectively (eg. Spain and Korea)exclusion of certain types of projects such as larger-scale plants (or lack of appropriatedifferentiation of tariffs), which creates market distortion and does not create the scale required toattract industry investmentinadequate period guaranteed for the FiToverly complex administrative requirements.

In Germany, these problems have largely been avoided. Whilst the high level of initial uptake kept priceshigher than expected demand is now forecast to continue to grow and drive down price in a global marketwhere investments have been made to increase available product supply.

Alternative market support approaches

Notable amongst countries that have not yet pursued the FiT approach but which, in many cases, have still

seen significant development of their grid-connected renewable energy markets, are Japan and the USA,.In these countries the support mechanisms of choice have been direct capital subsidies, renewableportfolio standards, green electricity schemes or tax exemptions, or some combination of these. Generally,
http://www.iea-pvps.org/http://www.iea-pvps.org/http://www.iea-pvps.org/


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in these countries growth of the renewable energy market is slower than in the countries using the FiT. InAustralia, support has been focused on the residential sector and growth of grid connected PV has beenslow relative to countries where FiT policy attracts investment in the commercial and utility segments. Forexample in 2003 the Spanish and Australian markets for PV where a similar size, in 2008 Spain installed 50times (c1200MW) more PV than Australia as a result of the FiT policy,

Controlling the rate of deployment

A particular focus of policies that support deployment of technologies is to achieve a certain level of uptake.This is certainly not easy to predict as demonstrated by the rush of investment in the early stages ofMRET. Where a FiT is used, if the pool of potential investors is not adequately understood theirmotivations, financial positions and so on overheated markets can result initially if the tariffs are set toohigh. Set the tariffs too low and the investments could be negligible, consequently wasting the time andeffort that has been invested in development of the scheme.

The most obvious solution is to set the initial tariff at the right level but this is easier said than done if theFiT is being used as a broad support mechanism. An advantage of a FiT over a market-based schemesuch as MRET is that it can be adjusted in response to changing circumstances and to help target a certainlevel of deployment. As long as these adjustments are well anticipated and not retrospective for existingcustomers, the key parameter of investment certainty can be maintained. It is also possible to use asystem of price tiers that reduce as certain levels of deployment are reached. Such adjustments avoid theneed for setting a potentially problematic cap on the size of the scheme, which has been a source ofconsiderable angst in some international cases, with targets reached within minutes of the scheme beingopened, as in Austria, or severe market destabilisation when introduced later, as is the risk in Spain in2009.

It is of course possible to target the approach onto specific, limited market segments, which can then beexpanded over time. Naturally this limits take-up rates and hence market and industry development.

Policy considerations

As with any proposed tool of public policy, a mechanism should be evaluated broadly against a number ofcriteria. In the case of a proposed FiT, the outcomes that have been achieved elsewhere are becomingeasier to document. However, the local barriers to be addressed may not be the same as those tackledelsewhere. The local electricity industry structure may also not be automatically compatible with theapproach. The scheme needs to be secure and flexible enough to survive political change. It may not besufficient on its own to transform the market or the local industry, so other issues will also need to beaddressed, including R&D, manufacturing and industry development. The administrative burden as well asany potential free-rider effect needs to be minimised. Finally, the overall socio-economic and environmental

impacts of the measure need to be monitored.

The following box summarises the key design principles we consider necessary for a successful FiT forrenewables in NSW. These principles are derived from the international experiences cited above, and onexperiences in Australia with renewable energy support mechanisms. An illustration of the impact ofdifferent FiT types, using a photovoltaics (PV) example, is also provided.


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Key Design Principles of a Renewable Energy Feed-in-Tariff

Feed-in Tariff Rate:The initial FiT should be set so that the total income received by the system owner from the FiT + the prevailing electricitytariff (and any further subsidies available, such as the recently announced Solar Credits) repays the system cost over the FiTtimeframe (assuming reasonable discount and inflation rates). Tariffs can be set higher in the early years to boost privatesector financing of installations and create product offers to encourage sustainable growth in later years when FiT rates arereduced.

Timeframe:In order to create market certainty, attract investment and deliver meaningful economic and environmental dividends:

A FiT should guarantee payment to the system owner for a minimum of 10 years after which net metering shouldapply. The timeframe should allow investors to generate an appropriate rate of return over the lifetime to encourageinvestmentEach technology should have its own FiT, with further breakdown by system size or application. For instance,separate FiT rates should be specified for residential, commercial and large scale installations.For each technology included, the programme should run for minimum of 10 years, meaning the FiT is paid out over 20years (systems installed in year 10 will still earn a FiT for the following 10 years).

System sizes and caps:No caps should be placed on system size, as this creates perverse incentives to separate larger systems into smaller ones.However, the FiT rate can be varied for different size ranges. Caps on overall capacity should also be avoided as they create

panic in the market, with rapid uptake followed by market collapse, rather than steady industry development.

Reducing tariffs:The FiT should be fixed only for the systems installed in any one year and be gradually reduced for the systems installed insuccessive years. A predetermined system of reducing FiT price tiers over the scheme timeframe provides predictability forinvestors. The FiT for installations in successive years should decrease (by say 5% - 10% pa) to capture and encourage costreduction potential as the industry moves down the cost learning curve.

Contestable Retail Electricity MarketsThe FiT should be paid as a separate tariff in addition to and independent of the prevailing retail electricity tariff. Thisensures all systems receive the same benefit, regardless of their local tariff, and there is no loss of competition betweenretailers.

Payment on total generation:The FiT should be paid on all electricity generated by the system. This simplifies calculation of future revenue streams as it is

not dependent on time of electricity generation or electricity usage profiles, and so provides investment certainty. The graphson the following page illustrate this point.

Source of subsidy money:The revenue to pay for the FiT should be raised through an across-the-board levy on network providers so as to remove anyissues of competition at the retail level. The retailer pays the appropriate end-user electricity tariff for each kWh generatedand the network provider pays the FiT for each kWh generated.

Interaction with other support mechanisms:To maximise new deployment, to prevent double dipping and to facilitate the introduction of standard metering arrangements,the FiT should take into account any other support received for the system so that the net impact of all financial supportrepays the system cost over the FiT timeframe. An interval meter with at least 2 channels should be used so as to enablemetering of total generation.

Guaranteed connection and purchase:

Electricity retailers and network providers should be required to guarantee that renewable energy systems which comply withtechnical connection requirements imposed by Australian Standards and State or Territory regulators will be connected andall their generation purchased.

Standardised grid-connection agreements:Application and approval for installation and connection of PV systems to the grid should be streamlined via standard localgovernment and electricity industry processes so that these cannot be used to delay approvals. Ideally the FiT arrangementsshould be incorporated directly into these processes.

Standards and warranties:Customers taking advantage of the FiT should be required to use certified installers and products which meet Australianstandards. System warranties of at least 10 years should be mandatory.

Monitoring:Since the FiT is providing transition market support prior to grid parity being reached, some form of monitoring/assessmentprogram should be incorporated into any FiT program to:

assess PVs contribution to total generation and during times of peak demand, and any issues arisingcollect demographic energy information, andassess take-up rates, drivers, significant price points, customer preferences and any issues arising.


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Empirical assessment of different FiTs

A Photovoltaics Example using Newington Solar Olympic Village data

The UNSW Centre for Energy and Environmental Markets (CEEM) conducted a study of the PV systems installed inthe Newington Solar Olympic Village for the NSW government in 2006.

2Using the correlated half hourly household

load and PV output data from 30 houses in this study, they found that, on average, just over 4% of the output of a1kW PV system was exported over the year.

Given that the Newington houses were passive solar designed with gas hot water and cooking, they may have a lowerdaytime load than the average Australian house, thus increasing the net PV export. Similarly, it is possible thathouseholds that choose to install PV may use less energy than average and so have greater PV export.

If we assume the Newington half-hourly load and PV data isrepresentative of householdsgenerally, it is possible to changethe effective PV system size andresidential load and recalculatenet export for each half hourperiod - see Figure 1. It can beseen that the average net exportis significantly dependent on theinteraction between load andsystem size. This highlights a keyissue for developing FiT policy if

a Net Export FiT is used, ie.estimating the financial returns tohouseholders and therefore costsof providing the FiT.

Using average solar insolationdata, this can be estimated with a fair degree of accuracy for a Gross FiT based on total generation, but is much moredifficult for a FiT based on net export because this is also affected by the household load by time of use, which isdifficult if not impossible to estimate for a 20 year period. For other technologies, such as wind, it would be even moredifficult to estimate.

Figure 2 shows how the financial outcomefor different sized systems is affected bynet metering, payment on total generation

or payment on net export (assuming a5000kWh/yr load,3 a 22c/kWh retail priceand a 44c/kWh FiT). It can be seen that fora 1kW PV system a net export FiT is littlebetter than the current net meteringarrangement; for a 1.5kW system (the sizelimit for Solar Credits under eRET) theextra annual earnings are around $100. Asexpected, payment on gross exportprovides a predictable and higher financialreturn.

2 This report,An analysis of photovoltaic output, residential load and PVs ability to reduce peak demand, can be provided onrequest. Note that some members of APVA are CEEM staff.3 The Newington systems were 1 kW and the average annual load was about 5,850 kWh.


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Wider Benefits of a Feed in Tariff Policy

Employment and Investment

Policies that support the uptake of Renewable Energy have been proven globally to generate significantemployment. It has been estimated that 40-50 jobs are created per MW of PV manufactured and installed(ref pp 48 Solar Generation V Greenpeace & European PV Industry Association, 2008). In 2007, inGermany alone, 42,000 people were employed in the PV sector 70% in field installations which, bydefinition, are local. A sustainable NSW FiT policy that supported on average 100MW per annum ofinstallation by 2020 would be expected to create employment for c4,000 people, the majority in the small tomedium business sector, located in all areas of the State, that would install and service the equipment.

World-leading research facilities at UNSW are well recognised in providing technical leadership that hascontributed to the establishment of todays $10 billion global solar PV industry. A successfully FiT policywill allow the State to participate in this high-growth market where investment, and hence employment,follows areas where uptake and deployment scale is significant.

Network Reliability

Solar PV output typically supports network supply during periods of peak demand. At a feeder andsubstation level, PV output is particularly well matched to commercial and light industrial loads, which aredaytime peaking and can have a high airconditioning component. The majority of forward investment in the

NSW electricity networks is forecast to help meet growth in peak demand.

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NSW DemandNov-Mar

Solar PV Output

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Figure 3: Solar PV output versus 5-year average NSW demand & NSW NEM price(Nov. - Mar., 2000-4)

Environmental Impact

A FiT policy that supported installation of 1500MW of PV by 2020 would offset 2 million tonnes of CO2 perannum.


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Answers to Specific Questions Posed by NSW Solar FiT Task Force

The following answers are drawn from the above.

1) What factors should be considered in setting a tariff rate?

Current and projected PV system prices

Likely PV system electricity generation

Interest rates, inflation rates and discount rates

System life-times

Current and projected electricity prices

Other support available, such as Solar Credits

Estimated average household energy use and profile if a Net FiT is to be used

Potential market size and correlation with load

2) Should the tariff be set for gross (all energy generated from the PV system) or net (energygenerated less energy used by household)?

The FiT should be paid on all electricity generated by the system. This simplifies calculation offuture revenue streams, as it is not dependent on time of electricity generation, or electricityusage profiles, and so provides investment certainty. It also simplifies calculation of the cost of

the scheme.3) Should the tariff be based on a fixed rate or a variable rate consistent with time-of-use

pricing for consumption?

A fixed rate ensures maximum PV generation over the system lifetime. A variable rate could beset to encourage west facing arrays and afternoon rather than midday peak generation,however, this may not suit all locations and would result in higher overall PV electricitygeneration costs, because of reduced output compared with an optimally oriented array.

4) Should the tariff be paid to solar PV owners by the electricity distributor or the electricityretailer?

If the FiT is paid via a distribution levy, the cost would be borne by the distributors. However,this would need to be passed through to the retailer.

5) How long should the Government maintain the FiT and should the rate be fixed for the entirelife of the program or varied in over time?

For a particular system the FiT should be maintained at the same rate for a minimum of 10years, otherwise the FiT rate would have to be very high to ensure system payback in a shortertime.

The FiT rate implemented in successive years of the scheme should decrease with time toencourage price reduction and system efficiency.

6) What eligibility criteria should exist for the FiT?

Components and systems should meet all Australian standards

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