22 May 2012 – The Victorian Competition and Efficiency Commission has released its draft report on Feed-in Tariffs, called Power from the People. It would be more appropriately described as A Welfare Scheme for the Existing Electricity Industry.

The reality is that distributed generation competes with the existing electricity industry to deliver “electricity services”. But it is not allowed to compete on equal terms, because a distributed generator (DG) is not allowed to sell its electricity across property boundaries. This is an artefact of the way the present electricity market has been designed, and it is anti-competitive in the modern world.

If a distributed generator had the right to sell power to its neighbours, then the reference price it would be entitled to would be the retail price charged by the present electricity industry to deliver green electricity (or low emission electricity if it is a cogenerator or fuel cell) to the customer at the same time, minus the cost for the DG to deliver that electricity a short distance in a cable it provides. Instead, VCEC (and other recent studies) propose that a DG is entitled to be paid only the amount of money they save their competitors (ie a retailer, network, transmission and generator).

I can’t think of any other market where the price a participant is paid is tied to how much money they save their competitor!

Somehow , VCEC and most others in this debate don’t seem to understand the concept of a free and fair market that extends beyond the traditional suppliers of electricity services. VCEC’s role is not limited to regulation of utilities, like IPART. So why has it not taken a broader societal perspective in its analysis? It seems to be trapped in an outdated paradigm.

VCEC also needs to consider what DG action payment of a low FiT might lead to. As VCEC’s own analysis shows, using energy storage to avoid exports and supply on-site demand at times of high prices is beginning to look financially attractive, even when it simply stores off-peak power and sells it at peak times. When the choice is to store the electricity produced by a DG  to replace imports of high priced power instead of selling it for a pittance, the numbers look even better.

Indeed, it may be legal for a DG to charge up a battery, then move it across a property boundary for a neighbour to use: they would not, strictly speaking, be selling electricity across a property boundary, but a service provided by a battery on the consumer’s property. So denying DGs a fair price for their exports may accelerate the decline of the traditional electricity supply industry.

The necessary technologies are emerging fast: check out Samsung’s Home Energy Management System at https://www.treehugger.com/gadgets/ces-2012-oled-tvs-transparent-tvs-and-home-energy-management-samsung.html . This includes energy storage and smart management software that can link to on-site generation. Energy storage costs are declining rapidly, driven by a massive research effort aimed at reducing battery costs for electric vehicles. So we are moving rapidly into a very different world.

The VCEC draft report also confuses the real cost of greenhouse gas emissions with the carbon price under the Clean Energy Futures scheme. VCEC argues that the need for subsidy of zero and low emission technologies is removed once a carbon price is introduced. But we know that if we were aiming for the kind of abatement target that’s really needed to avoid runaway climate change, the carbon price would be much higher. And then there’s the small matter of massive subsidies to some coal-fired generators to offset the impacts of carbon pricing….

And it’s great to see VCEC acknowledging that the Victorian energy market is not perfect.

VCEC’s draft report doesn’t deal with other issues I raised in my submission to its Inquiry (also published in The Fifth Estate https://thefifthestate.com.au/archives/33579 ). These include the unfair treatment of DG in comparison to consumers of electricity, and the justification for subsidies to DG.

The report is useful in highlighting a lot of unresolved issues in relation to retail electricity pricing and drawing out some limitations of the present situation. For example, low emission DG is not treated fairly. And network costs are not closely linked to actual consumption, but to peak demand on the network. So it is a very useful contribution to the debate, despite its limitations.

Alan Pears is adjunct professor at RMIT and director of Sustainable Solutions Pty Ltd