1. Bruce Mountain Director Electricity Tariff Revolution: some questions Presentation to Energy Efficiency Council Annual Conference

2. A statement of the problem, and some questions that follow 900,000 rooftop PVs (Australia-wide) installed between 2010 and 2012 has meant: – $252m less income to DNSPs – and hence recovered from other (non PV) users per year (in the NEM) for DNSP charges*. –Around $180m less income per year to other NEM generators (at current prices) (demand impact only i.e. excluding second order price impacts) –An uncertain but likely non-trivial downward impact on spot prices in some markets (e.g. SA where very high market penetration – 22% of household roofs)* –An uncertain but non-trivial impact on network capability* In terms of its impact on network use of system charges (and lost income to generators) the output from 900,000 PV is about equivalent to a 2% higher energy efficiency in the NEM. How to think about this? The next slides use SA as a case study * Source Mountain, B and Szuster, P. 2013 Australias million solar roofs: a preliminary analysis of costs and benefits in The rise of decentralised energy: what is at stake, Sionshanis, F. (ed.) 2014 (forthcoming). 2

3. There is a reasonable correlation between PV and regional demand 3 Circa 36% of PV installed capacity producing at time of regional peak PV now accounting for 15% of electricity demand between 10am and 4pm in SA in summer Likely non-trivial impact on market prices.

4. But PV does not have an impact on typical HH peak demand 4 Peak daily demand unchanged for typical HH

5. And it has reduced SA Power Networks income by about $300 per year per household that goes solar 5

6. And typical households with PV are paying higher average prices for network service, albeit only slightly 6

7. Some questions Before we get tied up on tariff structure issues, its helpful to be clear on a few even more fundamental questions? 1.Should HH that reduce consumption or leave the NEM altogether be required to compensate other energy users for consequently higher prices? Should this also apply to other energy users that reduce consumption or leave the NEM? 2.Is $850/yr the right amount to charge a typical HH (without PV) for network services? Just four years ago SAPN charged a typical HH $420/yr for the same service? 3.Is SAPN liable to some degree for failing to anticipate reduced demand for its services? 4.Has SAPN been allowed a rate of return that compensates it to bear volume risk? 5.Has SAPN actually achieved a rate of return that has excessively compensated it for the risks that it bears? 6.Regardless of whatever SAPN charges HH without PV, is $550 nonetheless the right amount to charge typical HH with PV? 7.Has the typical HH with PV enjoyed windfall gains as a result of capital (SRES) and production (feed-in tariff) subsidies? If so, is a change in network tariffs the right place to account for this? 7

8. And on the question of tariff structures … Cost reflective tariffs, like world peace, is a common goal, but what is the cost that tariffs should reflect: -The avoided costs? -Marginal costs (in the short run) -Marginal costs (in the long run, and if so how is this to be calculated?) -Average (and if so, how are costs to be allocated in calculating charges?) -Some combination of the above (in which case how and why) -Keep an eye out for pigs with lipstick! 8

9. Concluding remarks Higher end use energy efficiency and the rise of PV is starting to significantly reduce demand for the services and products provided by the NEM. This trend is surely likely to continue and may gather steam (no pun intended). Sectional interests are pretty clear. Much more could and should be done by Australias governments, regulators, consumers and academies to understand the public interest in energy efficiency, distributed generation in general and rooftop PV in particular. There are no simple answers. Careful construction of economic and equity arguments and a good understanding of the actual circumstances and data is vital. And finally, the tariff schedules for many NSPs already shows big changes for customers with or without PV. The regulatory debate needs to catch up with the world as it is. 9