Energy economics 101: why AGL got it wrong on solar subsidies

Electricity rates is always a fun discussion. In Australia, it’s a hot topic and rightfully so considering that photovoltaics do have the ability to lead to creative destruction.

One of the most recent contribution to this never-ending debate is a paper by AGL’s Energy Economics expert Paul Simshauser. In the energy economics experts paper, it is claimed that they have isolated the occurrence of inequitable wealth transfers that stemmed from AC and solar PV units. Critics have considered this to be a rather bold statement by AGL and thus should be discussed further.

Energy economics expert Paul Simshauser

It seems like energy economics expert Simshauser considers the cost structure of Queensland’s southeast network to be at 20% fixed, 20% flexible and 60% sunk. He went on to say that the best energy economics tariff structure should aim to recover fixed costs by setting up fixed charges, variable thru variable and sunk thru demand.

He computes the network payment for several types of households that have or do not have air conditioners and PV, with a 3-part tariff.

Energy economics expert Simshauser compares these charges alongside the charges with the current 2-part tariff, which, in his opinion, recovers fixed costs through fixed charge, with the variable and sunk costs recovered through energy charges.

The result of the comparison then gives him the numbers which he believes are the wealth transfers.

What can others gleam from this? By asserting the correct answer (which, if you ask Simshauser is a 3-part tariff and cost structures) and then comparing it to the current situation, the answer while seemingly impressive, is nothing but an assertion.

Likewise, AGL’s claims such as “substantially increases the efficiency and fairness of the price signal” is also a mere assertion.

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Energy economics expert’s paper misses the big issue

Moreover, if you take a look at the paper it does not have anything to say about some pressing issues. The issue nowadays is not about peak demand because according to the National Electricity Market, energy distributors have expanded in recent years. In addition, in South Australia and Queensland, PV demand has shifted to later in the day, so simultaneous peaks are no longer prevalent today as it was before.

Renewable industries getting cheaper

The crux of the issue is that homes with PV are paying less compared to before. Renewable industries including network service providers consider the difference as a subsidy (or if you were to ask Simshauser, it’s a wealth transfer). But why is this so? Technology has evolved and homes with PVs are now clamouring for a different service. Why should these service providers be given the right to be paid just so they can meet demands of the past?

There are a lot of redundant networks because the demand has dwindled – an event that was not anticipated. Due to regulated monopoly in the renewable industries, guidelines are harder to implement and decisions rest with bureaucrats and politicians.

The argument that the problem is in the tariff design would mean that network service providers can be protected from the real demands of the consumers. We’ve been doing this for so long and the undesirable outcomes are there for everyone to see. It’s time we make a change.

The Author

Hi, my name is Eddy and I am an editor and content creator working within the media release department at Australian Solar Quotes and American Solar Quotes. Within my work I strive to educate and inform others through my coverage of current news and events within the renewable energy field from around the world. I invite you to join the conversation by commenting below with your thoughts.

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