The Essential Services Commission (Vic) Minimum Feed-In Tariff review 2022/23

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On 2 December 2021, the Essential Services Commission (ESC) released its draft decision for minimum feed-in tariffs for solar exporters. It is anticipated that the figures in the draft will apply from 1 July 2022.

This short article will discuss the proposed tariffs and provide a brief summary of the reasoning behind the adjusted tariff. We will also look at how the ESC calculates the tariff.

The New Proposed Tariffs:

The draft minimum feed-in tariffs have been calculated the same way as previous reviews (discussed below). The draft minimum feed-in tariffs are as follows:

The draft minimum flat feed-in tariff for 2022–23 is 5.2 cents per kWh. This is 22 percent lower than the minimum rate for 2021–22. The draft time-varying feed-in tariffs are also lower than for 2021–22.

* Feed-in tariffs of solar customers registered for GST are subject to GST. Most residential solar owners are not registered for GST and GST will not apply to their feed-in tariffs.  

The Reason for the Drop:

The primary reason for the drop in feed-in tariffs is due to the lower forecast for wholesale electricity prices during daylight hours (2022-23). There has been a significant decrease in wholesale prices (daylight) due to the increase in exported solar. The ESC also cited a general drop in demand, due to the effects of the pandemic and an increase in rooftop solar installations. The draft also cited the ongoing investment in generation capacity as a factor in driving wholesale electricity prices lower.

The ESC also noted that the feed-in tariff should not be compared to retail rates as solar exporters do not incur the same expenses as retail providers. They noted that retailers have to ensure that they are able to cover their wholesale costs, the costs associated with hedging, the cost of transporting electricity, and their compliance and day-to-day running costs.

How does The ESC Calculate Feed-in Tariffs:

The ESC estimates the price that a retailer would pay if they bought electricity in the National Energy Market (NEM) from the large generators. When setting the minimum feed-in tariff, the ESC they start by looking at the prices that large-scale generators receive in the NEM.

The ESC then add amounts to account for avoided market fees (of the solar exporters), energy saved by not transporting power for long distances and the additional environmental benefits of green energy.

The Factors Considered by the ESC in Setting the Feed-in Tariff:

The primary factor used by the ESC to set the feed-in tariff is time block structure. They determine a flat feed-in tariff and minimum time-varying tariffs:

Table 2.1 – Time block structure for the time-varying feed-in tariff  

Period  Weekday  Weekend
Overnight10pm-7am  10pm-7am  
Day  7am-3pm, 9pm-10pm  7am-10pm  
Early Evening  3pm-9pm  n/a  

The ESC also consider other factors, such as the avoided human health costs attributable to a reduction in air pollution. The factors above show the ‘tweaking’ process that has the effect of raising and lowering the feed-in tariff calculations.

The ESC is conducting a delicate balancing exercise in setting the minimum feed-in tariffs. They incorporate environmental benefit considerations with the commercial viability factors of retailers. A full copy of the draft can be found at:

https://www.esc.vic.gov.au/sites/default/files/documents/minimum-feed-in-tariff-2022-23-draft-decision-20211202.pdf


 

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