Solar subsidy not so sunny

Government subsidies are driving a boom in the installation of rooftop solar panels, paid for by those without panels. That perennial beneficiary of government largesse, Elon Musk, is now proposing many more should be added to roofs in South Australia.

The incentives to install rooftop solar are significant. The main one is a generous installation subsidy, funded through the electricity bills of those who buy power from the grid.  The subsidy is delivered via Small Technology Certificates. For a typical home solar installation the Government provides about 150 Small Technology Certificates, currently valued at $40 each. This reduces the installation cost from around $12,000 to $6,000. Electricity retailers are then required to purchase a certain number of Small Technology Certificates, the cost of which is added to consumer electricity bills.

Another incentive is that the new owner now uses less electricity from the grid, thus reducing their regular electricity bill. Of course, this also means they pay less of the cost of the installation subsidy from which they have benefitted.

And finally, the excess electricity produced by the household’s solar panels can be fed into the grid where it is purchased by the electricity companies, whether they need it or not.  This is known as a feed-in tariff, and its cost is also added to the bills of all electricity consumers. 

It is little wonder that almost one in four Australian homes now have solar panels. Nor should it surprise anyone that the three in four households which do not have solar panels are paying a hefty price for those that do.

In 2017 the subsidy cost of rooftop solar was nearly $500 million.  At the current rate of increase, the expected cost in 2018 will be at least $1.2 billion.  Any chance of reducing electricity bills through the introduction of the National Energy Guarantee (whatever that is) will be swamped by the impact this growing subsidy has on household bills.

This impact is avoidable. When the subsidy was introduced by the Gillard government it included a provision to allow the minister to reduce the value of Small Technology Certificates if the cost of subsidies topped $240 million in a year.  No minister has used this provision to date.

This is now a matter of priority.  Of the three in four households that do not have solar roof panels, large numbers are renters, apartment owners, pensioners and low income households who do not own the property in which they live or cannot afford the upfront capital cost despite the subsidy.

Lower income people are copping a double whammy.  Not only do they pay for solar panels for higher income households through the cost of the subsidies included in their electricity bills, they are also part of a diminishing pool of electricity consumers, wholly reliant on the grid, who are paying higher prices to pay for the generous feed-in tariffs enjoyed by wealthier households with solar panels. They are trapped in a scheme that transfers wealth from lower to higher income households.

A report by the Grattan Institute concluded that by the time subsidies run out in 2030, households and businesses that have not gone solar will have spent more than $14 billion subsidising those that were able to afford solar installation. This is middle class welfare of the first order.

The history of governments regarding the cost of solar is devious. There has never been a requirement for electricity bills to show the subsidies that add to the total.  Ministers never talk about the cost of solar and, when they talk about expected bill reductions from the National Energy Guarantee, they never mention the additional cost attributable to greater uptake of solar.

Even if there was once some justification for subsidising the cost of solar panels, that is certainly no longer the case. The cost of solar panels has fallen dramatically and uptake has gone through the roof. It’s time the subsidy was removed.