DRAFT REPORT SOLAR FEED-IN PRICING IN QUEENSLAND March 2016 © Queensland Productivity Commission 2016 The Queensland Productivity Commission supports and encourages the dissemination and exchange of information. However, copyright protects this document. The Queensland Productivity Commission has no objection to this material being reproduced, made available online or electronically but only if it is recognised as the owner of the copyright and this material remains unaltered. Table of Contents SUBMISSIONS Closing date for submissions: 15 April 2016 Public consultation is an important element of the Queensland Productivity Commission’s (QPC) inquiry process. Submissions are invited from interested parties on solar export pricing for small customers in Queensland. The QPC will take account of all submissions received by the due date. Submissions, comments or inquiries regarding this paper should be directed to: Queensland Productivity Commission PO Box 12112 George St QLD 4003 Tel (07) 3015 0111 Fax (07) 3015 5199 www.qpc.qld.gov.au/get-involved/how-to-make-a-submission Confidentiality In the interests of transparency and to promote informed discussion, the QPC would prefer submissions to be made publicly available wherever this is reasonable. However, if a submission contains genuinely confidential material, the person making a submission should claim confidentiality in respect of the document (or any part of the document). Claims for confidentiality should be clearly noted on the front page of the submission and the relevant sections of the submission should be marked as confidential, so that the remainder of the document can be made publicly available. It would also be appreciated if two copies of the submission (i.e. the complete version and another excising confidential information) could be provided. Where it is unclear why a submission has been marked confidential, the status of the submission will be discussed with the person making the submission. While the QPC will endeavour to identify and protect material claimed as confidential as well as exempt information and information disclosure which would be contrary to the public interest (within the meaning of the Right to Information Act 2009 (RTI Act)), it cannot guarantee that submissions will not be made publicly available. Queensland Productivity Commission Solar feed-in pricing in Queensland iii Table of Contents Table of Contents SUBMISSIONS III Closing date for submissions: 15 April 2016 iii Confidentiality iii THE ROLE OF THE QPC VII ABOUT THE SOLAR INQUIRY VIII Key dates viii Contact viii OVERVIEW X Purpose of the inquiry xi What is a fair price for solar exports? xi Equity considerations xiii Barriers to a well-functioning solar export market xiii Regulatory options for setting a fair price for solar PV exports xiv FINDINGS AND RECOMMENDATIONS XVI 1 INTRODUCTION 1 1.1 Background 1 1.2 Queensland Government policy 2 1.3 Our approach 3 1.4 Conduct of inquiry 3 1.5 Report structure 4 2 THE SOLAR EXPORT MARKET IN QUEENSLAND 5 2.1 Feed-in tariffs in Queensland 5 2.2 The Queensland market for solar exports 9 2.3 The electricity market 11 2.4 National and international trends in feed-in tariffs 14 2.5 Factors affecting solar PV investment 17 2.6 Future growth and technology developments 21 2.7 Conclusion 26 3 A FRAMEWORK FOR ASSESSING A FAIR PRICE FOR SOLAR EXPORTS 27 3.1 Context 27 3.2 Policy design process 28 3.3 When is solar export pricing a policy problem? 30 3.4 What are fair prices? 32 3.5 Alternatives to the policy framework 36 3.6 Conclusion 41 4 ELECTRICITY EXPORT MARKET: COMPETITION ASSESSMENT 42 Queensland Productivity Commission Solar feed-in pricing in Queensland iv Table of Contents 4.1 Effective competition 43 4.2 Market definition 43 4.3 Competition in the Queensland solar export market 46 4.4 Strategic considerations to the exercise of market power 59 4.5 Customer protections 65 4.6 Overall assessment 66 5 ENVIRONMENTAL BENEFITS: ASSESSMENT 68 5.1 Environmental benefits of reduced carbon emissions 69 5.2 Types of emissions reduction policies 70 5.3 Are solar PV owners fairly compensated for emissions reductions? 73 5.4 Abatement costs under a subsidised feed-in tariff 76 5.5 A subsidised feed-in tariff achieves relatively low additional abatement at high cost 80 5.6 Relative costs of abatement policies 82 5.7 National emission reductions policies are lower-cost 84 5.8 Neutrality, simplicity and transparency 85 5.9 Summary 86 6 OTHER ECONOMIC AND SOCIAL BENEFITS: ASSESSMENT 87 6.1 Industry development, employment creation and social benefits 87 6.2 Wholesale market impacts 94 6.3 Network impacts 98 7 EQUITY CONSIDERATIONS 110 7.1 Context 111 7.2 Scenario assessment of different feed-in tariff rates 112 7.3 Distributional impacts through the cross-subsidy to solar exports 118 7.4 Distributional impacts through the increase in retail electricity prices 122 7.5 Conclusion 125 8 BARRIERS TO A WELL-FUNCTIONING SOLAR EXPORT MARKET 126 8.1 Context 127 8.2 Are there barriers to solar exports and solar export pricing? 127 9 REGULATORY OPTIONS FOR SOLAR FEED-IN PRICING 139 9.1 Regulatory options 140 9.2 Regulatory options in the SEQ market 143 9.3 Form of regulation in regional Queensland 145 ACRONYMS 152 APPENDIX A : TERMS OF REFERENCE 155 APPENDIX B : CONSULTATION 158 Submissions 158 Consultations 159 APPENDIX C : FINANCIAL RETURN TO SOLAR PV INVESTMENT 163 Queensland Productivity Commission Solar feed-in pricing in Queensland v Table of Contents Background to the data 163 Net vs gross metering arrangements 166 Sensitivity tests 167 APPENDIX D : THE RENEWABLE ENERGY TARGET 172 The RET scheme 172 RET targets 173 Liable entities 173 How STCs are created 175 The price of certificates 178 APPENDIX E : INTERSTATE AND INTERNATIONAL FEED-IN TARIFFS 180 Interstate feed-in tariffs 180 International feed-in tariffs 181 APPENDIX F : SOLAR PV AND ELECTRICITY SUPPLY PRODUCTIVITY 185 BIBLIOGRAPHY 199 Queensland Productivity Commission Solar feed-in pricing in Queensland vi THE ROLE OF THE QPC The Queensland Productivity Commission (QPC) provides independent advice on complex economic and regulatory issues, and proposes policy reforms, with the goal of increasing productivity, driving economic growth and improving living standards in Queensland. Wide-ranging, open and transparent public consultation will underpin these functions. Our work encompasses four key streams: WE ARE COMMITTED public inquiries into matters relating to productivity, economic TO PROVIDING A development and industry in Queensland, as directed by the TRANSPARENT AND Treasurer CONSULTATIVE advice and research on matters beyond our formal inquiry PROCESS TO ALLOW function ALL INTERESTED advice and guidance to departments, including providing STAKEHOLDERS TO independent support and information on the quality of regulatory PARTICIPATE IN THE proposals INQUIRY PROCESSES. investigation of competitive neutrality complaints about state and local government business activities. We operate and report independently from the Queensland Government—our views, findings and recommendations are based on our own analyses and judgments. We have an advisory role. This means that we provide independent advice and information to the Government that contributes to the policy development process—but that any policy action will ultimately be a matter for the Government. After undertaking a public inquiry, the QPC must prepare a written report and provide it to the Treasurer. The Treasurer must provide the QPC a written response within six months of receiving it. After that, the QPC must publish the Final Report. Queensland Productivity Commission Solar feed-in pricing in Queensland vii ABOUT THE SOLAR INQUIRY The Queensland Government has asked the QPC to determine a fair price (or fair prices) for solar power produced at the home or business premises of a ‘small customer’ and exported into the electricity grid. The full terms of reference are provided at Appendix A. Scope Key dates This inquiry is confined to feed-in tariff arrangements going forward. Existing renewable policy, including the Solar Bonus Scheme, is Terms of Reference considered as part of the concurrent Electricity Pricing Inquiry. 20 August 2015 This Draft Report has been released to provide a further opportunity for Issues Paper released consultation on the issues raised by this inquiry—and in particular on our October 2015 preliminary analysis, findings and recommendations. Due date for submissions Our Final Report will be prepared after further consultation has been 23 November 2015 undertaken, and will be forwarded to the Government in June 2016. Release of the Draft Report Opportunity for comment March 2016 Due date for submissions We are providing all interested parties a range of opportunities to 15 April 2016 contribute as we finalise the report. Final Report submitted to We invite interested parties to make written submissions on the Draft the Government Report by 15 April 2016. June 2016 We will also provide stakeholders with an opportunity to present their evidence and views through public hearings and issue-specific Contact roundtables in early April across Queensland. Any stakeholder wishing to participate should register their interest by 21 March 2016. Enquiries regarding this project should be directed Stakeholders can also arrange to meet with our Commissioner or the to: team, in person via phone or video-conference. Kristy Bogaards Tel. (07) 3015 5106 Queensland Productivity Commission Solar feed-in pricing in Queensland viii Proposed public hearingsa Location Date Venue Brisbane 4 April 2016 Queensland Productivity Commission L27, 145 Ann Street, Brisbane Toowoomba 5 April 2016 Toowoomba City Golf Club, 254 South Street, Toowoomba Bundaberg 7 April 2016 Bundaberg School of Arts 184 Bourbong Street, Bundaberg Rockhampton 11 April 2016 Travelodge Rockhampton 86 Victoria Parade, Rockhampton Townsville 12 April 2016 Rydges 23 Palmer Street, Townsville Mt Isa 13 April 2016 Redearth Hotel Cnr Rodeo Drive & West Street, Mt Isa Cairns 14 April 2016 Cairns Sheridan Hotel 295 Sheridan Street, Cairns a Proposed public hearings will only proceed if there is sufficient stakeholder interest.