The Premier of Australia’s largest state, New South Wales, recently announced a gross feed-in tariff (FIT) of AU $0.60/kWh for seven years. This tariff is approximately four times the rate residential customers pay for electricity, and is available for all small consumers of electricity (below 160 MWh/year consumption). This gross FIT, which will pay on the entire amount of solar generation from systems up to 10 kWp, modifies the initially proposed net Feed-in Tariff, which would have run for 20 years.
The gross FIT also means that the more affordable small installations of 1.5 kW again become financially sensible investments.
The Australian states of Victoria, South Australia, and Queensland all have net FITs, which pay a premium only for power export to the grid. This incentivises PV owners to install large solar power systems and to minimise daytime power consumption in order to maximise revenue from power exports.
The problem with a net FIT is that it does not provide guaranteed returns on investment, as the revenue created depends significantly upon the occupant’s daytime power consumption.
As such, the gross FIT opens up the market for small scale commercial systems, which could have paybacks within 7 years. The gross FIT also means that the more affordable small installations of 1.5 kW again become financially sensible investments, largely due to “solar credits”, the complementary federal government support measure that targets 1.5 kW systems.
It’s not all good news, however. Systems in niche markets that would have exported significant power to the grid anyway now face a shorter FIT duration, which might halve their return on investment. By 2012, financially-motivated investors will require significant system cost reductions in order to compensate for the remaining five years of a premium tariff.
However, the assured return on affordable systems that exists for the next two years offers some confidence that one part of the Australian solar energy industry will be able to survive the low Renewable Energy Certificate price. Meanwhile, solar installers located in states with net FIT must creatively convince small electricity consumers with large roofs to invest significant amounts of money in order to have a reasonable return.