Following consultation with consumers, industry and other stakeholders on its pricing methodology and market modelling, the commission has set three minimum feed-in tariffs to come into effect on 1 July 2023. This includes an additional minimum time-varying feed-in-tariff to provide more choice to Victorian solar customers.
2023-24 minimum solar feed-in tariffs:
The minimum flat rate tariff is 4.9 cents per kilowatt hour (kWh), down on the 2022-23 flat rate of 5.2 cents/kWh).
Option 1 for the minimum time-varying tariffs ranges from 4.4 to 11.3 cents per kWh.
Option 2 for the minimum time-varying tariffs ranges from 3.9 to 10.6 cents per kWh.
Feed-in tariffs at times of peak demand, which is usually in the evening, are significantly higher due to forecast increases in night-time wholesale electricity prices.
Executive director of pricing Marcus Crudden says the 2023-24 tariffs reflect Victoria’s changing electricity supply and demand profile as more homes and businesses switch to lower emissions, lower cost solar power.
“We’ve had lots of great questions from stakeholders asking why the minimum flat rate feed-in tariff is falling when average wholesale electricity prices have climbed in recent months, with forecasts suggesting ongoing higher wholesale prices in the short-medium term,” said Mr Crudden.
He explained that wholesale electricity prices have increased sharply in the evening “peak” period when demand for electricity from the grid is at its highest, driving much higher average wholesale prices.
“But daytime wholesale prices are still low. This is because rooftop and utility-scale solar systems kick in during daylight hours, providing lots of relatively cheap electricity to the market. Solar’s contribution increases supply and lowers demand, ultimately leading to lower daytime prices,” said Mr Crudden.
“To unpack that further, solar customers reduce electricity demand from the grid during daylight hours by supplying their own energy needs. At the same time, they increase electricity supply by exporting any excess solar power to the grid. This increase in supply and decrease in demand keeps daytime wholesale electricity prices low.
“Low daytime demand and low daytime wholesale prices lower the value of daytime solar exports. This continuing trend of increased solar power leading to low daytime wholesale electricity prices is driving a lower minimum flat rate feed-in tariff.”
Mr Crudden said that while solar power is keeping daytime wholesale electricity prices down, wholesale prices then trend up as the sun sets, the supply of solar power drops off, and the market responds to increased consumer demand for grid-supplied electricity in the evening.
“As a result, feed-in tariffs during peak demand times in the evening have increased significantly in line with forecast evening and overnight wholesale electricity prices,” said Mr Crudden.
“We heard from stakeholders that this shift to an evening peak, together with more economic battery storage options coming onto the market, means that time-varying tariff options are increasingly important to customers looking to maximise the benefits of their solar set-ups.
“The commission has addressed this important consideration by adding a second optional minimum time varying feed-in tariff in 2023-24 to give solar customers more choice.”
Mr Crudden said solar customers should consider time of use feed-in tariffs when working out which energy retailer offer best meets their needs.
“Ultimately, the enduring value for solar customers is avoiding paying retail prices for their energy usage. Make the most out of your solar power by planning for your daily energy usage to be met as much as possible during daylight hours when your solar system is hard at work. Run power-hungry appliances during the day to avoid paying higher evening peak prices charged by retailers. Any leftover energy is then exported to the grid, and you get paid via the feed-in tariff.”
Mr Crudden thanked stakeholders for their participation in the consultation process and contributing valuable feedback to help inform the commission’s pricing determination.