Buy back rates
Buy back rates offered by retailers for generation exported to the grid have dropped significantly since the introduction of solar distributed generation which, for early adopters of this technology, may have had a negative impact on their expected financial benefits.
Today’s buy back rates are now closely aligned to wholesale electricity pricing.
| Contact Energy |
8¢ / kWh
|
Up to 10kW
|
| Genesis |
8¢ / kWh
|
- |
| Mercury Energy |
8¢ / kWh (some exceptions)
|
- |
| Meridian |
8¢ / kWh (summer)
10¢ / kWh (winter)
|
Up to 10kW |
| Trust Power |
7¢ / kWh
|
Up to 10kW |
* all rates exclude GST. Rates as at September 2018.
Can I make money selling back to the network?
Current market buy back rates offer around 8c per kWh for generation exported to the grid. This reflects the cost of wholesale electricity, and electricity retailers are understandably not prepared to pay a premium to buy solar electricity over what they would pay buying other forms of electricity on the wholesale electricity market. At 8c per kWh the buy back rate is less than a third of the price you pay for purchasing delivered energy. This factor limits the income you can earn from exporting back into the network and reinforces that the best value is achieved through directly consuming solar generation, and avoiding higher value retail electricity purchases.
Protection from future price rises
A popular reason for purchasing and installing solar energy is to provide greater financial security and control, in relation to future energy price rises.
Electricity price rises have featured regularly in the headlines over the last fifteen years, so it is understandable that people are considering installing solar energy to reduce their need to purchase electricity, minimising the impact of future increases on their electricity bills.
Obviously it’s hard to predict the future, but the general agreement among electricity industry analysts is that with wholesale electricity prices remaining flat in real terms since 2009, any future increases are likely to be only slightly more than the rate of inflation until 2020. This is due mainly to slow increased demand for electricity, and increased competition between electricity retailers.
In addition to the wholesale price of electricity, your monthly account includes distribution charges from Unison (which incorporates charges from the national grid operator, Transpower). These charges fund continued investment and maintenance of the electricity network supplying energy to all connected consumers (including solar energy users). With recent major infrastructure investment projects now largely complete, further price increases in transmission and distribution charges (regulated by the Commerce Commission) are likely to be no more than inflation.
Based on these forecasts for wholesale electricity and distribution pricing, you should check to ensure any calculations of electricity cost savings by solar energy installers are at a conservative level of around 1% above inflation, rather than the historical rate of 4% which we have seen used by some solar installers when promoting solar energy’s financial benefits.
For information on future projections for electricity prices in New Zealand, see the Ministry of Business, Innovation and Employments data contained in their publication - 'New Zealand’s Energy Outlook – Electricity Insight'.
Potential changes to distribution network charges
The electricity industry is still adapting to the introduction
of solar distributed generation. The network, its infrastructure and tariffs
were based on a one-directional energy flow (from the grid to the consumer),
and the introduction of solar generation is changing this.
To ensure reliability of supply, the national grid operator, Transpower, and
Electricity Distribution Businesses (EDB’s) like Unison need to maintain and
invest into building the electricity network infrastructure required to meet
electricity supply needs of every consumer at times of peak demand.
The cost of building, maintaining and operating network
infrastructure is met through consumer line charges, which are intended to be
reflective of the value of electricity infrastructure required to supply
electricity to your home or business during network peaks – usually winter
mornings and evenings. These charges are commonly based on a mix of ‘variable
charges’ that vary depending on your electricity usage, in addition to a ‘fixed
charge’ component.
Although solar reduces the household electricity consumption
from the grid, it has little benefit in reducing overall peak demand, which
drives network infrastructure investment. Effectively households with solar
will reduce electricity usage from the grid during the daytime when solar
generation occurs, but will continue to rely on grid supply during morning and
evening peaks. Because DG users can significantly reduce their
electricity consumption, they are effectively avoiding a significant amount of
their network charges, meaning DG consumers using the network are effectively being
subsidised by other consumers.
To address this imbalance in cost sharing, from 1 April, Unison
is introducing a new price category for Distributed Generation (DG) customers.
This price category will be comprised of a fixed component, and a variable
component, with a ‘Low User’ option for those using less than 8,000kWh/year. The
DG price category is mandatory for all new DG consumers after 1 April 2016. For
existing DG customers, they will remain on their existing price category
through until 31 March 2019, after which the DG price category will also be
mandatory.
The introduction of the DG price category is part of an
industry-wide review of the impact of evolving technologies on the pricing of electricity
distribution services, which included a recent consultation paper issued by the
Electricity Authority.
This issue is currently being reviewed by the electricity
industry and regulators, and it’s likely that distribution charges will change
in the future to ensure different types of power users contribute a fair and
equitable amount to the cost of maintaining reliable electricity supply. So, it
pays to bear in mind that the figures you are using to base an economic
decision on today, may change in the short to mid-term future. This could
reduce the level of perceived future savings, which a lot of customers
count on when deciding to invest in solar energy. Unison's calculator
gives you the option to calculate solar returns based on Unison’s current DG electricity
distribution charges.