Soaring peak demand has caught our electricity networks unprepared, leading to dramatic price increases over the past few years. There seems to be no relief in sight, with the Australian Energy Market Commission predicting a 42% increase in NSW retail electricity prices by 2014. The cause of these price rises is largely due to increasing network costs. Australian energy consumers continue to use more power during peak times. Traditionally distributors have responded by upgrading networks, building more 'poles and wires' between power stations and consumers, to meet this demand.

This approach has been questioned as to its cost effectiveness. Demand management strategies such as load shifting (making lifestyle adjustments to use more off-peak electricity), energy efficiency measures and embedded generation such as solar photovoltaic (PV) have all been proposed as alternative strategies to reduce network costs.

The NSW Independent Pricing and Regulatory Tribunal (IPART) recently held a public meeting as part of its review process into solar feed in tariffs. Network managers, energy retailers and solar industry representatives met to flesh out a fair price for solar energy exported to the NSW grid.

The draft report derived a value for the direct financial gain to retailers from solar exports to be between 8.3 and 10.3 cents per kilowatt hour. This low value was reached as retailers still have to pay the fixed network costs (approximately two thirds the retail tariff) when the solar electricity is resold to the next customer.

IPART failed to make a clear recommendation as to how this benefit should be passed on to future solar customers. Three possibilities exist; voluntary payments by retailers, the regulated retailer being forced to offer a feed-in tariff (FIT) or legislating a fixed tariff for all retailers. Energy retailers put forward that existing voluntary FITs of 0 to 6.0c per kilowatt hour are proof that market competition is working and that they supported a light-handed approach by government.

Ironically, IPART clearly recommends the NSW Government force energy retailers to pay for the electricity exported under the NSW Solar Bonus Scheme (SBS). Currently retailers are receiving a $300 million windfall as the electricity from the SBS is being paid for from the NSW Climate Change Fund and an additional levy on electricity customers.

The boom in solar PV has become a test case for how the Australian electricity market responds to new generation technologies. In 2011 we saw the cost of solar fall below retail parity. For the first time, without government subsidy, it is now cheaper to use solar off your own roof than to pay for electricity from the grid.

Geoff Brag, chairman of the Solar Energy Industry Association, has warned retailers about consumers' response to an undervalued FIT, saying customers would load shift and store energy for use during peak times to reduce their solar exports.

In 2012 we will see PV costs continue to reduce and a range of alternative products coming to market that allow customers more control over when they buy electricity from the grid. Embedded storage can be incorporated into many devices we all own, well beyond our computer and phone.

The mass release of plug-in electric vehicles such as the Nissan Leaf has huge opportunities and risks for peak electricity demand. The power storage embedded in these vehicles has the potential to reduce customers dependence on the grid during peak periods.

Technology will soon allow consumers to charge their vehicles from their own solar systems or overnight during off-peak and draw from it or sell it back to the grid at peak times.

As Muriel Watt from the Photovoltaic Association identified, a new era of power generation is upon us. 'The era of the incumbent electricity system being the one that dictates everything is over because customers now have their own choices.'

IPART's final report is due to be released in April. Let's hope it is a document that helps lead us forward, embracing the opportunities and managing the risks that new technologies provide us. This is essential for us to solve Australia's future energy challenges.

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