The Victorian government has launched an inquiry into solar feed-in tariffs just weeks after the Essential Services Commission slashed minimum tariffs required to be paid to solar households by 20 per cent.

The Inquiry into the True Value of Distributed Generation to Victorian Consumers, an election commitment, will examine the value of distributed generation – which is mostly solar – to the electricity market and network.

The inquiry will investigate whether current regulations for compensating Victorian households and businesses for solar fed into the grid is adequate.

“We believe that families and households with solar panels should be fairly compensated for the value their power generation provides and that’s why we are launching this inquiry,” Victorian energy minister Lily D’Ambrosio said.

The minimum feed-in-tariff for 2016 has been set at 5c a kilowatt hour, which Australian Solar Council’s John Grimes said represented a “transfer of wealth from solar PV owners to electricity retailers”, as it would be on-sold to neighbours for upwards of 25c/kWh.

The government is promising that the inquiry findings will be used to inform how feed-in tariffs are structured. It is, however, the Essential Services Commission, whose logic on slashing the feed-in tariffs has been called into question, that has been tasked with carrying out the inquiry.

The terms of reference stipulate the Commission must examine “the value of distributed generation for the wholesale electricity market; the value of distributed generation for the planning, investment and operation of the electricity network; and the environmental and social value of distributed generation”.

The Commission has been told not to consider the policy and regulatory frameworks governing the cost of connecting distributed generation to the network, nor to consider whether the feed-in tariff should be deregulated.

Ms D’Ambrosio said she encouraged all relevant stakeholders, including “the energy industry, environmental organisations and consumer advocacy groups”, to participate in the inquiry.

A draft report will be presented to the government by the end of November 2015, with a final report to be submitted by the end of February 2016.

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