ROOFTOP SOLAR - GROSS Vs NET FEED IN TARIFFS

This note compares the use of gross Vs net Feed In Tariffs (FIT) in rooftop solar (RTS) contracts. 

The objective of this note was to choose a form of FIT that:

1. Encourages investment in RTS.
2. Helps minimize the power bills of those who don't have RTS while giving investors a reasonable return on their investment after taking account of the risks involved.
3. Avoid forcing householders who don't have RTS into subsidising those who do. 

For simplicity it has been assumed that the FIT will be less than what a householder pays for power.

It was concluded that:

1. Gross feed in tariffs will be better at driving investment in RTS while reducing the cost per kWh renewable power to consumers in general.
2. Qld should replace net FIT with gross FIT for all new FIT contracts.
3. Gross feed in tariffs should also be used where solar and storage are combined and connected to the grid.  

Gross FIT:

This is the system used in states such as NSW. Briefly:

1. All power produced by roof top solar is paid for at the FIT. As a result, income per kWh from RTS IS NOT affected by:

• When the householder consumes power. (This reduces the investment risk and the return on investment needed to justify the investment.)

• The size of the installation. (This will encourage more investment in RTS because, in general, larger installations will cost less per kWh.)

2. All power consumed by the householder is paid for at the normal rates. As a result, RTS owners will be making the same contribution to the cost of connection as those with the same power consumption but no RTS.)

Net FIT:

This is the system used by states like Qld. Briefly:

1. When there is a net flow of power out of a house with RTS this net flow of power is paid for at the FIT.
2. When there is a net flow of power into a house with RTS this net flow is paid for at the normal consumption rates.
3. As a result of 1. and 2, income/saving per kWh from RTS IS affected by:

• When the householder consumes power: Savings+income will be higher if power is consumed when the RTS is producing power (This variation increases the investment risk and the return on investment needed to justify the investment. In addition, it encourages consumption during the high demand part of the day – Hardly a desirable outcome.)
• The size of the installation. (This will reduce investment in RTS because the income+saving per kWh will be higher for small installations for which most of the income+saving comes from savings at the higher than FIT normal power costs.)
  
  
  In addition, Net FIT reduces the contribution RTS owners make to the cost of connection. In Qld, this has been used to demonize RTS owners and justify the imposition of uniform connection charges for all householders. These charges unfairly penalize pensioners and other low income earners who consume little power. (It can be argued that RTS will significantly reduce future investment needs for the grid and large scale power consumption because most RTS power is consumed close to the generation point.)

CONCLUSION:

1. Gross feed in tariffs will be better at driving investment in RTS while reducing the cost per kWh renewable power to consumers in general.
2. Gross feed in tariffs should also be used where solar and storage are combined and connected to the grid. 
3. Qld should replace net FIT with gross FIT for all new FIT contracts.