22 May 2012 – The Victorian Competition and Efficiency Commission draft report, Power from the People, reviewed the feed in tariffs for distributed energy and concluded that the carbon price means that value in renewable energy creation will now be delivered through a competitive market and that the government should phase out its involvement in regulating FiTs.

Following are highlights of the report.

Key messages are:
In the right locations, small-scale consumer and commercial electricity generation can deliver low cost energy that avoids transmission losses and benefits the network.

This improves the efficiency of the electricity industry, consistent with the National Electricity Market objectives. To play this role, distributed generators need to connect to the network without compromising its reliability.

Such generators should also receive a fair return for the value of the energy they produce and for their value to the network.

The introduction of a price on carbon will change low-emissions energy market signals. In this context, it is timely to reconsider the amount, structure and regulation of feed-in tariffs, or FiTs, and distributed generation in Victoria. Similar reviews have already taken place in New South Wales and South Australia.

FiTs are paid to small-scale domestic and commercial distributed generators for the electricity they produce. Three FiT schemes operate in Victoria — Standard feed-in tariff (SFit), the Premium feed-in tariff (PFit) and the Transitional feed-in tariff (TFiT). Only SFiT and TFiT, are open to new entrants. A FiT can effectively pay distributed generators for the value of the energy they produce. This value can be delivered through a competitive market and, therefore, the Victorian Government should phase out its involvement in regulating FiTs.

From 1 July 2012 when the carbon tax is introduced this price will also automatically incorporate a value for greenhouse gas reduction.

The Commission proposes:

  • moving to a fully competitively determined FiT by December 2015, provided adequate consumer protection, transparency and information are in place
  • this transition be gradual to smooth the move to deregulation
  • TFiT be closed to new entrants once 75 MW of generating capacity is reached (as previously announced) or by 31 December 2013, whichever is sooner
  • SFiT be broadened to include all low-emissions and renewable technologies, with a requirement that until 31 December 2015 large retailers must offer a wholesale price based FiT for distributed generation of 100 kW or less.

The Victorian Government should focus its efforts on barriers to distributed generation where there is market failure and current regulation is flawed.

One such barrier is proponents’ limited ability to realise the network value of their generators. This value is highly location specific and depends on the type of generator and when and how reliably it produces electricity. Because it is not directly related to actual output, this value cannot be efficiently captured through a feed-in price. Other mechanisms are needed to capture this network value.

Medium-scale generators, due to their size, have most potential to reduce network costs and greenhouse gas emissions. But the process for connecting such generators is often difficult and costly. The rules for sharing costs, such as the cost of augmenting the network to accommodate multiple distributed generators, are also unclear. These rules and processes are regulated nationally and there are processes in train to address these barriers. By advocating for change the Victorian Government could reduce a major burden on medium-scale generators.

The Victorian regulations for connecting household-scale generation result in more complex connection processes than in other states. It imposes considerable regulatory burden on the installers of solar PV units and creates confusion for consumers. The Victorian regulation should be changed to simplify this process.

Key recommendations are:

Connecting embedded generators (Draft Recommendation 4.1)

That, to facilitate efficient connection of medium-scale distributed generators up to 5 MegaWatts, the Victorian Government support the Proposal to amend the National Electricity Rules for connecting embedded generators submitted to the AEMC, with specific support for:

  • improved information on connection processes
  • an automatic right of connection based on meeting standard technical criteria
  • a standard connection process
  • improved engagement by Distribution Network Service Providers
  • specific timelines, including limits on how information requests can impact on overall timelines.

Should these issues not be resolved through the national rule change process within 12 months, the Victorian Government add a licence condition requiring distribution network service providers in Victoria to establish such standards and rights by incorporating them into standard connection services that are submitted to and approved by the AER.

Network reinforcement costs (Draft recommendation 4.2)

That to clarify the circumstances and conditions in which network reinforcement costs can be spread across new distributed generators and other users, the Victorian Government:

  • in addition to Draft Recommendation 4.1, make a submission seeking reform in cost sharing arrangements to the Australian Energy Market Commission’s consideration of the Proposal to amend the National Electricity Rules for connecting embedded generators. This submission be prepared by the Department of Primary Industries in consultation with the Australian Energy Regulator (AER), distribution network service providers and distributed generator proponents
  • advocate to the AER to prepare and provide guidance on cost sharing arrangements for the connection of distributed generators before the next round of network distribution pricing determinations expected in 2015.

Household distributed generation (Draft recommendation 4.3)

That to facilitate the connection of household distributed generation to the network the Victorian Government amend, where relevant, the Electricity Industry Act 2000 (Victoria) and associated regulations, industry codes and guidelines to:

  • clarify roles and responsibilities of the parties involved
  • reduce duplication, such as the installer providing the Electrical Work Request and Certificate of Electrical safety to the retailer who provides it to the distribution network service provider
  • remove or reduce the impact of unnecessary or burdensome steps
  • establish contestability for meter installation.

Operation of feed-in tariffs (Draft recommendation 6.1)

That, to improve the efficiency and effectiveness of the operation of feed-in tariffs (FiTs) in Victoria, the Victorian Government:

  • close the Transitional FiT, either by 31 December 2013 or once the 75 MW capacity is reached (as currently provided in legislation), whichever occurs first
  • amend the Standard FiT to require that Victorian electricity retailers with 5 000 or more customers offer fair and reasonable prices for electricity exported to the grid by all small low-emissions or renewable distributed generators (100 kW or less) until 31 December 2015
  • establish a fair and reasonable price for energy supplied by distributed generators through the retail electricity market.
  • define low-emissions technology as generators that produce 50 per cent or less of the emissions intensity of electricity generation in Australia
  • allow market-determined arrangements based on gross payments by mutual agreement
  • ensure that FiT prices are published by the Australian Energy Regulator under the requirements of the National Electricity Customer Framework.

That the Essential Services Commission:

  • publish information on the likely range of wholesale market-based net FiT payments which would be consistent with a fair and reasonable offer —updated at regular intervals
  • consider the extent to which FiT market offers are consistent with fair and reasonable criteria, redefined to be based on the wholesale price of electricity (the energy value).