NSW Solar Bonus Scheme regressive and ineffective

This article was written a couple of weeks ago, but in waiting to be published has been rendered largely invalid due to this recent announcement. It seems sense can prevail even without my input 🙂 Who would’a thunk?

Anyway… shame to see it go to waste.

January 2010 marked the introduction of the NSW Solar Bonus Scheme. The scheme was designed as an incentive for home-owners to install solar PV electricity generation on their rooftops, by way of a feed-in tariff.

At launch, it was projected that 72,900 households would take part in the scheme over 7 years.  Only nine months in, over 30,000 solar PV units have been installed, leading to the question: Has the Solar Bonus Scheme been a run-away success story, or has the high uptake rate exacerbated inequities built into the scheme design?

There’s no doubt that the last minute switch to a 60c/kwh gross tariff, representing the most generous feed-in tariff in Australia, has driven the take-up rate beyond original projections. That’s a win if you believe that installing solar panels on as many roofs as possible is the measure of success. However there are two key points that policy makers failed to acknowledge in the design of the scheme, and one big secret.

The issue of whether the scheme represents the least cost solution has been avoided. As a climate change policy, the primary objective of the Solar Bonus Scheme must be to reduce carbon emissions. The evidence shows that Solar PV units are in fact a costly way of reducing emissions, coming behind many energy efficiency responses, particularly in commercial property. Wind farms, bio-fuels, efficient household hot-water systems and car fuel efficiency are also cheaper.  In fact, according to a McKinsey and Company report An Australian Cost Curve for Greenhouse Gas Reduction, all of the measures listed above, with the exception of wind farms, could be implemented at no net cost to the economy. For small scale solar PV, this is not the case.

Germany is often held up as the paragon of feed-in tariffs, due to the early and high uptake. However even Germany’s scheme has been criticised for being overly costly and failing to add to the renewable generation capacity of that country. As a member of the European Union, Germany is obliged to meet emission reduction targets. The effect of the German feed-in tariff has led to a displacement of lower cost carbon abatement measures, rather than additional reduction in carbon emissions.

The travails of the Carbon Pollution Reduction Scheme in Australia are well known, and the architects of the Solar Bonus Scheme do not have to consider the immediate co-existence of an emissions trading scheme with a feed-in tariff. Through one form or another, it is inevitable that Australia will sooner rather than later commit to a set target for carbon emission reductions. Once this occurs, it will be as true in Australia as it is in Germany that a feed-in tariff does not lead to further emission reductions.

Here lies the big secret of the NSW Solar Bonus Scheme. It will not reduce carbon emissions. It will simply displace the installation of lower cost renewable energy sources that would have otherwise occurred under Australia’s commitment to reduce carbon emissions, in favour of the more expensive solar PV. With this in mind, the NSW Government needs to explain why the stated objectives of a scheme to install renewable generation do not include the reduction of carbon emissions.

How is it that the NSW Government has allowed an ineffective and expensive policy to pass through to legislation? This follows the decision by the NSW Feed-in Tariff Taskforce to removed the Government from responsibility for the costs of the program. The scheme can be a high cost option and at risk of large cost blow-outs because it is not being funded through general revenue, but through customer energy bills. Low-income and rental households are being forced to bear a disproportionate share of the costs.

In a blatant example of middle class welfare, the Solar Bonus Scheme represents a wealth transfer from renters, who are not able to install semi-permanent structures on their rooftops, and low-income households, who are unable to stump up the upfront costs, to home owners. Further, as the scheme is not means tested, there is nothing stopping the most wealthy NSW residents from accessing this cross-subsidy too.

When the Solar Bonus Scheme was launched, the Minister for Energy stated that the scheme could add as little as $2 a year to residential bills. However, given the accelerated uptake rates and based on the Government’s own costings, this looks set to blow-out by orders of magnitude over the life of the seven year scheme.

Solar panels are incredibly popular amongst home-owners, who see the opportunity to insure against rising energy bills and to reduce the carbon emissions of their household. They are, when considered alongside any future carbon targets, unlikely to further reduce carbon emissions. This policy has the appearance of being driven by the electorate’s desire to satisfy personal carbon-guilt, rather than follow evidence of the most effective policy. Voluntary reduction of emissions should be facilitated and encouraged, however providing a subsidy and leaving vulnerable and disadvantaged households to foot the ever expanding bill should not be accepted.

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6 responses to “NSW Solar Bonus Scheme regressive and ineffective

  1. perhaps word spread of pending publication and they acted first…

    how goes ewcap? wfgu? translationsblog?

    • If so, they were duped. The article was on a veeery slow train.

      All goes well. Interested in contributing a food related guest post to this humble soapbox?

  2. um, yeah. might take me a while though. the 11 day working fortnight is starting to take a toll…

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