Bruce Mountain Director Embedded generation: what rate should exports receive?

Average households in the NEM on regulated/standing tariffs are paying between 30 and 37 c/kWh on average 2 Average price paid by households on regulated tariffs in the service area of each network service provider

Average network charges range between 7 c/kWh and 22 c/kWh 3

Subtract network charges from the total price and we get the implied non-network charge 4

Putting the two back together we see some more interesting things 5

Export prices for households with embedded generation? (a 10 c/kWh difference is worth circa $1,800 per kW of PV capacity) 1. Excluding Ergon, implied non-network charges range between 14 c/kWh and 25 c/kWh 2. But PV export (non FiT) is typically paid circa 8 c/kWh. Rationale is avoided cost of generation, ancillary services and losses. 3. If 8c/ kWh covers the avoided generation costs, what about the remaining 6 c/kWh to 17 c/kWh of non-network charge? Some of this is competed away on market tariffs, some is LGC and STC, and a little is retail cost, but the remainder is margin - higher than reasonable in some cases it might be suggested. Is there a case that embedded generators should receive some of this? (a) From a retailers perspective: No! Its our margin not theirs. (b) From the embedded generator’s perspective: retailer is monopoly buyer, why should they capture all the rent from my production? ((cf. dispute between farmers and supermarkets) (c) From the public interest perspective: is this just rent transfer or does the distribution of rent affect investment and operation ? (e.g. generator may prefer to invest in its own generation if it keeps the rent from that, rather than procure from embedded generators) 6

What about network charges for households with embedded generation? Hard to see that embedded generation is any other than a net economic benefit in most cases (reduces demand therefore defers need for augmentation, extends economic life of network). Embedded generation is a competitive threat to NSPs: perhaps one day it will be treated as such, rather than a justification for redirected revenue recovery by networks. Perhaps argument for some additional expenditure (automatic tap changers on transformers) in some cases. But minor in the scheme of things. Arguments for higher unit rates (or higher fixed charges) to compensate for lower consumption are dubious at best: does anyone recall hearing the argument for lower unit rates (or lower fixed charges) when households increased consumption or demand ? 7