Thursday 16 June 2011

Hansard of the Legislative Council


Mr FINCH (Question) - My question is to the honourable Leader.
Is the Government aware of a Gartner power industry report which says that re-bundling of power generators, transmission, distribution and retail is needed, quoting from the Financial Review, 4 and 5 June of this year, page 47, 'to send the overall price signal needed to trigger the huge investment that smart grids require.'? It goes on to say that 'Britain which also has an unbundled system is now tackling this issue in a regulatory overhaul.'
Does the Government believe there is a benefit in undoing the separation of Hydro, Transend and Aurora?
As power prices increase, will the Government be considering increasing the present 20 cent feed-in payment to encourage more solar power installations?
Mr PARKINSON - I thank the honourable member for his question. The first question falls within the terms of reference for the Energy Supply Industry Expert Panel. The Government will not make any decisions regarding this matter until the panel has completed its work. To be clear, however, disaggregation of the HEC was part of a broader Tasmanian energy sector reform framework. The restructuring of the HEC was consistent with National Competition Policy and National Energy Market reform occurring at the national level at the same time.
As the honourable member is no doubt aware, the expert panel has released a discussion paper on the evolution of Tasmania's energy sector which sets out the basis and progression of energy market reform in Tasmania from the mid-1990s. This is available on the panel's website,, and includes substantial discussion on the basis and reasoning for the current industry structure in Tasmania.
A feed-in tariff is a pricing mechanism whereby an electricity utility pays a customer for electricity that is generated by the customer and exported to the grid. In Tasmania, for small renewable energy generation by customers, Aurora Energy currently offers a feed-in tariff that is equivalent to the retail tariff paid by the customer. As the retail price goes up, the feed-in tariff will also keep pace with increases. The retail rate for tariff 31 - light and power - since 1 December 2010 has been 22.648 cents per kilowatt hour.
There are three main justifications that are presented to support feed-in tariffs to customers. These are: cost savings from deferred network augmentation and reduced distribution loss factors; industry assistance; and reduction in greenhouse gas emissions. The Government has considered these issues in the Tasmanian context. In relation to savings in network expenditure, this could be achieved if renewable energy generation at the household level coincided with times of peak usage - peak demand - when congestion on the distribution network is highest. In Tasmania peak demand occurs on winter mornings and evenings at times when solar electricity generation would either be low - mornings - or absent - after 6 p.m. Because the distribution network needs to be built to handle these peaks in demand, the value of embedded solar generation to contribute to savings in deferred network augmentation is not able to be achieved.
The second issue is that of industry assistance. The objective of industry assistance is to provide a subsidy to stimulate the development of a particular industry. For domestic-scale renewable electricity generation, the benefits of a feed-in tariff as an industry-assistance measure are unclear. There is no local manufacturing industry within the State, so if industry assistance were a goal, it would be of assistance to solar PV manufacturers interstate or overseas - that is, solar photovoltaic manufacturers interstate or overseas.
In relation to reduction of CO2 emissions, solar PV certainly helps. However, it comes at a cost. A feed-in tariff of 22 cents per kilowatt hour is the equivalent of $220 per megawatt hour. The average cost of electricity generation from other renewable sources ranges from around $60 to around $120 per megawatt hour. Thus domestic-scale solar PV is not the most cost-effective way to reduce CO2 emissions, and certainly increasing the feed-in tariff will not change that. The current value of the feed-in tariff at 22.648 cents per kilowatt hour, the equivalent of tariff 31 - light and power - as applied since 1 December 2010, means that at present Aurora Energy is already paying customers who have invested in photovoltaic systems at a rate more than three times the cost of the wholesale price of electricity from other sources, and it should be remembered that this tariff is being funded, at least in part, by all other customers. If the tariff were to be increased significantly, households who have invested in solar panels, some of whom have received significant rebates or generous RECs multipliers, would receive an increased subsidy at the expense of higher cost imposed on other electricity customers who were not able to take advantage of the rebates, including customers in rental accommodation.
There are currently in the order of 3 780 grid-connected solar photovoltaic systems in Tasmania, with around 1 200 awaiting connection. While these customers certainly benefit from reduced electricity bills, the remainder of Tasmanians, most of whom cannot find the capital to install solar PV systems or live in rental properties, are potentially facing higher costs as a consequence.
The policies in other jurisdictions have also contributed to the recently increased REC charges applied to electricity consumer bills in all States that are part of the National Electricity Market, including Tasmania. The Federal Government rebate is being reduced at the end of June and a number of other States and Territories which previously had generous schemes have now abandoned, significantly reduced or are in the process of reviewing the arrangements that are in place given the impact on prices that has been experienced thus far as a result of the schemes. Therefore, at present the Government believes that increasing feed-in tariffs runs counter to its desire to reduce the upward pressure on electricity bills.