The difference between the minimum feed-in tariff and the retail electricity tariff
07 December 2021
Each year we consult on the minimum electricity feed-in tariff that your energy company is allowed to pay you for power you export to the grid (from sources including solar panels). We receive a lot of stakeholder feedback and questions on the minimum feed-in tariff.
In this article we look at one of the most common questions.
My energy retailer charges me 24 cents per kWh (or more) to import energy, but I’m only getting 6.7 cents per kWh for selling my energy to them. Why are these prices so different?
Solar customers are electricity generators, not electricity retailers. The minimum feed-in tariff is a payment solar customers receive for generating electricity.
When retailers provide electricity to their customers, they must cover the following costs (as shown in the chart below):
the ‘spot price’ of energy in the national electricity market paid to generators
transporting electricity (the poles and wires connecting customers to electricity generators)
complying with environmental programs
operating a retail business (for example, billing and revenue collection systems, information technology systems, call centre costs, human resources, finance, legal services, regulatory compliance costs, licence costs and marketing).
These additional costs that retailers incur but solar customers do not mean the minimum feed-in tariff will always be lower than the retail electricity tariff.
We set the feed-in tariff to reflect the value of solar exports as if they were bought from the National Electricity Market, by building in the ‘spot price’ plus avoided costs. This means that solar customers are paid the value of their solar exports.
If the feed-in tariff was set to match the retail rate of energy, it would also make the energy that solar customers provide more expensive than energy bought in the National Electricity Market. Electricity retailers would need to recover these higher costs through higher retail rates for all energy consumers in Victoria. This would mean non-solar customers would be subsidising a high feed-in tariff.
Our objective when setting the minimum feed-in tariff is to promote the long term interests of Victorian energy consumers. This is achieved by the feed-in tariff reflecting the value of solar energy. This means solar customers receive the right incentives to export and Victorian customers pay no more than they need to for solar energy.