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Solar feed-in tariffs are what you get paid when your rooftop solar power system sends energy into the grid. Their value will decrease in the future.\u00a0 This is inevitable. As more solar capacity is built it will drive down the price of daytime electricity. <\/p>\n
But solar feed-in tariffs<\/a> won’t disappear any time soon and will exist for years to come.\u00a0 While there may be ups and downs, the overall decline over the next 5-10 years should only be moderate.\u00a0 Even in the far future, for as long as we’re still doing the whole buying and selling thing that has been so popular over the past few thousand years, electricity from rooftop solar panels should still be worth something, even though it may not be much.<\/p>\n Because I don’t expect their price to plunge, I am confident you can buy solar and get a reasonable solar feed-in tariff for the entire payback period. \u00a0This is under 5 years for most households.\u00a0 But I do recommend assuming they will decline modestly, just to be on the safe side.\u00a0 This will, of course, slightly extend the payback time.<\/p>\n Image: Space Cop<\/a> — a movie so bad it’s really very bad.<\/p><\/div>\n If I am wrong about solar energy taking many years to drive feed-in tariffs down and instead solar is installed so rapidly it quickly drops them down to almost zero, then my response would be:<\/p>\n Yahoo!\u00a0 Mission accomplished<\/strong>1<\/a><\/sup><\/p><\/blockquote>\n Sure, I’d feel a bit stupid, since it’s the opposite of what I said would happen, but a world in which solar power is that cheap is a world where fossil fuel will be mostly eliminated from electricity generation. \u00a0I’ll tolerate having egg on my face if the reduction in global warming means birds won’t be laying hard-boiled eggs in the future.<\/p>\n Regrettably, this doesn’t seem likely to me.\u00a0 Solar energy will be cheap enough to drive out fossil fuels, but the process will take years and feed-in tariffs won’t be eliminated any time soon.<\/p>\n I’m going to assume that in return for exporting clean solar electricity to the grid, people will receive a feed-in tariff that is within spitting distance of being fair and reasonable compensation and the electricity won’t simply be stolen.<\/p>\n I know there will be some pessimists who will think I am being naive about this2<\/a><\/sup>. \u00a0But if the powers that be couldn’t eliminate solar feed-in tariffs back when Tony Abbott was PM and using the full force of his charming personality to ensure no icecap remained unmelted, then the chances of them pulling it off now seem small.\u00a0 Much of the population now have rooftop solar panels, as well as businesses, and I doubt politicians will want to piss off that many people.<\/p>\n I’m not going to go into any depth on what makes a solar feed-in tariff fair and reasonable, because that’s a can of worms I don’t want to open.<\/p>\n I’ll simply state:<\/p>\n Note that when I talk about electricity prices in this article, I’m referring to average wholesale electricity prices and not the higher retail electricity price you have to pay on your bills.<\/p>\n One reason feed-in tariffs aren’t about to disappear any time soon is that society will adapt to lower daytime electricity prices:<\/p>\n Consumption will shift to the daytime:\u00a0 <\/strong>Large businesses are already taking advantage of lower daytime prices and will take even more advantage if prices fall further.\u00a0 Lower feed-tariffs give households an incentive to shift consumption to the day to take more advantage of their rooftop solar electricity generation.\u00a0 This will become easier as home energy management systems improve and fall in price.<\/p>\n Energy storage is increasing:\u00a0 <\/strong>Lower cost battery cells, such as the ones used by Tesla, are now around $150 per kilowatt-hour.\u00a0 While there’s more to battery storage than just cells — they have to be wired together into packs and need supporting electronics — their cost has fallen a long way and the decline is clearly going to continue.\u00a0 While the installed cost of home batteries<\/a> is still too high to make financial sense for most Australians, home and business battery storage has a lot of potential.\u00a0 We’re also likely to end up with a huge amount of mobile battery storage in electric vehicles.<\/p>\n Thermal energy storage may also be used and pumped hydroelectricity capacity will be increased by a large amount if the proposed Snowy 2<\/a> scheme goes ahead.5<\/a><\/sup><\/p>\n Because this energy storage will be sucking up cheap daytime electricity and discharging it during the evening and morning peaks, it will limit the fall in daytime prices while also helping keep them down during evening and morning peaks.<\/p>\n The generating mix will change:\u00a0 <\/strong>As solar capacity expands we won’t keep operating all our current fossil fuel power stations.\u00a0 We’ll start shutting them down, starting with the coal power stations that are most costly to run.\u00a0 Every time one bites the dust it will provide a boost to electricity prices and feed-in tariffs, followed by a fall as the price increase encourages the construction on additional renewable capacity.6<\/a><\/sup>\u00a0 This will continue until there are no more coal power stations to close.<\/p>\n There are two main forms of solar power that supply energy to the grid:<\/p>\n Distributed solar:\u00a0 <\/strong>I usually refer to distributed solar as rooftop solar, because that’s where you usually find it.\u00a0 But it doesn’t have to go on roofs.\u00a0 It can go on the ground, walls, windows, or anywhere the sun shines.\u00a0 So under the carpet’s no good.<\/p>\n With rooftop solar there is a home or business underneath the solar panels making use of the electricity that’s generated before any is sent into the grid.\u00a0 It’s only the surplus power that’s exported for a feed-in tariff, although most solar homes these days produce considerably more solar electricity than they consume.<\/p>\n Solar farms:\u00a0 <\/strong>There is nothing at a solar farm to use the electricity produced, so all output is supplied to the grid.7<\/a><\/sup>\u00a0 The exception is if there’s on-site battery storage.<\/p>\n Solar farms are built to make money.\u00a0 While most of the people involved in these projects want to save the planet — very few have a vested interest in destroying it — they’ll only get the resources required to construct them if they make a reasonable profit.\u00a0 For this reason, solar farms can never eliminate solar feed-in tariffs.<\/p>\n Even if the cost of large scale solar falls by half over the next 7 years — which is not impossible as it’s only taken around that long in the past — it still has to make money to be built.\u00a0 So while enough large scale solar could be constructed to drive average daytime electricity prices down to almost zero, no one would do it because it would drive electricity prices down to almost zero.<\/p>\n While solar farms can’t eliminate feed-in tariffs, they can drive them down a long way.\u00a0 At the moment the world’s lowest-cost solar electricity will come from the Al Dhafra solar project<\/a> in the United Arab Emirates<\/a> (UAE).\u00a0 This huge 1.5-gigawatt solar farm will be built in return for just 1.35 US cents for each kilowatt-hour it produces.\u00a0 At the current exchange rate that’s 1.9 Australian cents.<\/p>\n This solar farm is expected to begin supplying power in the second half of 2022.\u00a0 But this doesn’t mean in just two years time solar farms can cause the average price of daytime electricity and feed-in tariffs to fall to under 2 cents per kilowatt-hour in Australia.\u00a0 This is because:<\/p>\n The Best Solar Locations Aren’t Near East Coast Cities:<\/strong>\u00a0 While Australia has locations that are just as sunny as the UAE, they are a long way from population centres.\u00a0 Perth comes close to being an exception, but a solar farm in the UAE will still produce 6% more energy than an identical one near Billionairetopia.\u00a0 For most of Australia, the choice is either to build solar farms in locations that considerably less sunny or build long-distance transmission lines that will raise costs.\u00a0 This means even if all else was equal, solar farms couldn’t be built here for the same low cost.<\/p>\n Their PPAs Are Bigger Than Ours:\u00a0 <\/strong>The UAE solar farm has a 30 year Power Purchase Agreement that guarantees they will receive 1.9 cents per kilowatt-hour for 3 decades.\u00a0 PPAs here are generally much shorter, with many being around 10 years.\u00a0 A shorter PPA means the price per kilowatt-hour will have to be higher and this is another reason why solar feed-in tariffs unlikely to plunge in price.\u00a0 Costs are more likely to be front-loaded.<\/p>\n Electricity contracts such as PPAs play a big role in stabilising wholesale electricity prices and may be a major reason why prices generally haven’t fallen as far as I expected<\/a> due to the pandemic.<\/p>\n Increasing renewable capacity — both wind and solar power — is pushing down wholesale electricity prices and this has already driven some fossil fuel generators out of business.\u00a0 Coal power is particularly vulnerable because, unlike gas, it’s inflexible and unable to easily shut down during periods of low electricity prices.\u00a0 A typical Australia coal power unit can only cut its output to around 60%.\u00a0 Because stopping and starting increases wear and tear and maintenance costs, Australian coal power is poorly suited for competing with renewables, which have far lower operating costs and infinitely lower fuel costs8<\/a><\/sup>.<\/p>\n This will result in coal power stations being driven out of business.\u00a0 But they won’t all shut down at the same time.\u00a0 Instead, it will be a more gradual process and each time a large one closes it will boost the price of electricity and thus feed-in tariffs.<\/p>\n An example of this occurred in November 2016 when the owners of the Hazelwood brown coal power station in Victoria announced it would close down in March 2017.\u00a0 This came as a surprise because the highly polluting power plant was expected to operate for years to come.\u00a0 But it had simply become too dangerous for workers and had to cease operations.\u00a0 This unexpected closure has been a major contributor to the high wholesale electricity prices we’ve had since then.<\/p>\n Here is a list from October last year of projected coal plant closures.\u00a0 But I regard any coal power predictions beyond 5 years as being fictional:<\/p>\n Image source: Financial Review<\/a> who got it from the AEMO<\/a><\/p><\/div>\n While the chart makes it appear coal power stations will be operating for many years to come, in reality they’ll be shut down as soon as they stop making their owners money. For some of them, that point is coming soon.\u00a0 Thanks to the pandemic, it may already be here.<\/p>\n Despite the current economic downturn caused by the coronavirus, renewable energy projects are going ahead in Australia and taking advantage of considerable falls in the costs of solar panels and wind turbines.\u00a0 While the price of coal has fallen, this doesn’t affect the majority of Australian generation using stranded coal that can’t be exported.\u00a0 This means the pandemic has reduced the price of electricity without reducing the fuel costs of these coal power stations, while also lowering the cost of building renewable capacity.\u00a0 Record low-interest rates also favour renewables, as they are high capital and zero fuel cost sources of generation.<\/p>\n Without an economic recovery, I expect to see a general fall in wholesale electricity prices and feed-in tariffs until the Liddell coal power station is closed in 2023 — assuming it doesn’t occur sooner.\u00a0 This will boost wholesale prices, which will encourage more renewable capacity to be built, continuing the cycle by lowering prices until the next coal power station is shut down.\u00a0 After the price increase from the Liddell closure is over, I expect coal power stations will be lining up to be allowed to exit the market.\u00a0 Each fresh closure will cause a temporary boost in wholesale prices and feed-in tariffs, although the effect will tend to be smaller each time.<\/p>\n It will take years to replace all of Australia’s coal generating capacity that currently supplies around 70%<\/a> of our grid power, so there will be a considerable period before feed-in tariffs drop to a possibly permanent low level.\u00a0 We know from their past behaviour that Australia’s lowest-cost coal power stations will keep operating even when they only receive an average of around 2.5 cents per kilowatt-hour.9<\/a><\/sup>\u00a0 While coal power is inflexible, it can still ramp up in the evening when electricity prices are higher and ramp down when electricity prices are low.\u00a0 So unless the government requires them to pay at least a portion of their health and environmental costs, it may take a long time to drive all coal power from the grid.<\/p>\n While the current Federal Government has me feeling a little pessimistic about our chances of rapidly driving out coal power, I am sure it will happen faster than they expect.\u00a0 A few reasons to be optimistic are:<\/p>\n![\"\"](\"https:\/\/www.solarquotes.com.au\/blog\/wp-content\/uploads\/2020\/08\/space_cop.jpg\")
If I Am Wrong — Hooray!<\/h2>\n
I Assume Solar Electricity Won’t Be Stolen<\/h2>\n
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We Will Adapt<\/h2>\n
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Solar Farms & Rooftop Solar<\/h2>\n
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Solar Farms Can’t Eliminate Feed-in Tariffs<\/h2>\n
Solar Farms Can Drive Feed-In Tariffs Very Low<\/h2>\n
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Coal Plant Closures Will Boost Prices<\/h2>\n
Projected Coal Closures<\/h2>\n
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