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Legislative Council - Fifty-Second Parliament, First Session (52-1)
2011-06-22 Daily Xml
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ELECTRICITY (MISCELLANEOUS) AMENDMENT BILL

Second Reading

Adjourned debate on second reading.

(Continued from 9 June 2011.)

The Hon. T.A. FRANKS (11:06): I will start my contribution today by declaring that I do not, in fact, currently have solar panels on my roof. That does not mean I have not had them in the past but, currently, I live in a rental property and many would be aware that it is quite difficult to engage a landlord in installing solar panels where they do not have the inclination to do so.

However, in saying that, I also declare that I now have ducted air conditioning in the property that I currently rent. You might be asking why I should declare that in this debate because, if it is felt necessary to declare that the electrical fixture that has the most significant cross subsidy through our electricity grid from rich people to poor people—a subsidy which the Hons Rob Lucas and Paul Holloway spent much time discussing in their contributions to this bill—then that is, in fact, large air-conditioning systems, not solar PV.

According to the WA Office of Energy, each two kilowatt air conditioner installed in that state costs around $6,000 to supply in terms of grid augmentation and other net work infrastructure costs, regardless of how often it is used. That roughly equates to a cross subsidy of about $3,000 per kilowatt. Therefore, every time my neighbour puts up a new air conditioner on their roof, I take a hit on my electricity bill—in fact, quite a big hit. As I understand it, people without air conditioners are subsidising new air conditioner installations on their neighbours' roofs to the tune of about $100 a year.

I thought I would mention that upfront because I understand the cost of South Australia's solar feed-in scheme is estimated to cost around one-third of the cost of air conditioner cross subsidies, let alone other cross subsidies that already exist in the electricity market. Last week, on 14 June 2011, Giles Parkinson, writing in the excellent Climate Spectator online news service, wrote:

Green energy schemes may be the easy targets to blame as the scapegoats for rising electricity prices but they are the wrong ones.

Two new surveys released last week made this much clear: the rush to install air conditioning to cope with the increasing number of hot days is the biggest single contributor to electricity costs in Australia and green energy schemes play an extremely small role. But, while we are spending billions on network upgrades that we use only a few days of the year, we are not yet smart enough to spend money on measures that could avoid some of that spending and give us a three-fold return on our investment.

The final report of the Australian Energy Market Commission (AEMC), which is the rule maker and developer for the nation's energy markets, into future electricity prices rises out to 2012-13 was released on Friday. It fingered rising distribution and transmission network costs, a combination of soaring peak demand, ageing infrastructure and higher capital costs for half the anticipated 30 per cent increase in average retail electricity prices expected over the next three years.

AEMC went on to state that the increasing use of air conditioners is expected to push peak demand up by more than 3 per cent in most states, forcing distribution and transmission businesses to spend billions of dollars expanding the capacity of their network, even though this may, in fact, be required for only a few peak periods over the course of a year. The rate of peak demand is growing 50 per cent quicker than the increase in overall energy consumption and customer numbers.

In looking at the cause for the price rises, AEMC found that, in Queensland, the investment in distribution networks will add nearly 3¢ per watt hour to the cost of residential electricity costs in that state by 2012-13. By contrast, the state's solar feed-in tariff, which pays a net 44¢ watt hour rate, will add only 0.03 watt hour to electricity costs.

So what about New South Wales, which has been so much in the press lately because of its on again, off again solar scheme? The upgrade to the New South Wales distribution network will add 4.32¢ to kilowatt hours to residential retail prices in New South Wales by 2012-13, nearly two-thirds of anticipated price rises. The state's solar bonus scheme, which has been by far the most generous in the country, has recently been shut down. It will add 0.45 kWs by 2012-13, according to AEMC estimates.

In South Australia, AEMC states that more than half of the increased capital expenditure on distribution networks is being caused by anticipated increased demand, driven by the growing use of air conditioners during summer heatwaves. South Australia has the highest penetration of air conditioners in the country, and peak demand is forecast to grow by another 2.4 per cent per year, despite consumers using less energy, on average, as a result of energy efficiency programs. I think it is really important that we put this debate into the proper context of real costs and real subsidies. The Hons Rob Lucas and Paul Holloway talked about these nasty cross subsidies in the electricity markets; now I know exactly what they were talking about.

I would like to spend a little time in my contribution today responding to some of the similar statements they made in their contribution to this bill. Let's start with welfare support. First, I would like to comment on how the honourable members' thoughtful awareness of the impact of rising electricity prices on those more vulnerable electricity consumers in this state, and this is much welcomed. The Hon. Paul Holloway said:

In my view, the focus of electricity policy in the future has to be very much on price overall and particularly for low income customers.

The Hon. Rob Lucas said:

It is the low income, the people struggling to pay their electricity bills, who have to pay the costs of these particular schemes, and we should never forget it.

I very much look forward, then, to the support of those two members for the Greens' amendments to spare the cost of the South Australian solar feed-in schemes to approximately 200,000 households, those who are the vulnerable in our electricity market.

We have proposed a responsible option that will make a very real impact on the life of vulnerable South Australians. I also look forward to some positive suggestions from those two members about ways in which to spare low income households from the vicious cross subsidy from large air-conditioning systems.

Secondly, there was a false assertion from those two aforementioned members that the Greens' amendment to extend the scheme from five years to 20 years was, in fact, the wrong course and needed to be challenged. It was not the wrong decision: it was very much the right decision for that time and for the conditions in 2008. I strongly urge all members, especially from the crossbenches, not to get sucked in by this argument.

My colleague the Hon. Mark Parnell described the change in payback rates before, during and after that debate in 2007 and 2008. In 2008, the payback period was going to be around 15 to 20 years. The result of the 20-year amendment was that the industry was able to tell customers in 2008, 'You will be able to pay off the cost of the scheme before your warranty runs out.' We must remember that this scheme was put forward as a way in which to drive extra installations of PV panels on people's roofs over and above what was already taking place.

It was providing an extra incentive at the margin. It was based on what the industry had told parliament was needed to tip a potential customer over the edge into making an investment in solar. Ironically, the Hon. Paul Holloway in his contribution quoted the Hon. Mark Parnell, a quote which actually backed up the 20-year amendment. My Greens colleague then said:

If no new panels go up it is a failure. All we have done is given a bit more return to people who have already done the right thing.

The Hon. Paul Holloway cannot have it both ways. In his contribution he talked about how successful it was and how good a scheme it was and, yet, he fails to acknowledge that the major reason it worked was because it was changed from a five-year scheme, which would have delivered very few additional panels beyond what the commonwealth scheme was driving, to a scheme that assisted in actually driving significant industry growth. If we did not want it to work the parliament should not have voted in favour of it in the first place.

The 20-year amendment was fundamental to the scheme's success in 2008 with the technologies that were existent then. The problem is—and I hope that the Hon. Paul Holloway has the good grace to acknowledge it—that the government was extraordinarily slow to react when PV panel prices started to fall. When panel prices tumble, payback rates reduce quickly, and the need for public subsidy is, of course, lessened. The scheme was supposed to have been reviewed in May 2009. We have had a failure to review this scheme in a timely fashion.

Of course, 2009 was over two years ago and an incredible amount has changed in the solar industry even in this time and, on top of that, the Premier made an announcement of what they proposed to do to the scheme in August last year and then waited until just a few weeks ago to actually make that change in parliament. The Hon. Paul Holloway, rather than blaming the upper house for making some positive amendments in 2008 to a scheme that was supposed to have been comprehensively reviewed once it reached a figure of 10 megawatts installed capacity—

The Hon. P. Holloway interjecting:

The Hon. T.A. FRANKS: If it was supposed to have been reviewed when we reached just 10 per cent of the capacity we are now contemplating, should we accept that the challenges we are now encountering with the significant increase in the cost of the scheme are a result of the government well and truly taking its eye off the ball? In his second reading contribution, the Hon. Rob Lucas posited that the Greens' statements in the 2007 debate about the potential costs of the scheme were significantly below the current reality.

But of course they are! The Greens were modelling the cost impact then of a much smaller total installed capacity, not the 120 megawatts that we are expected to have now. I would like to acknowledge that the current energy minister, the member from Napier in another place, took over responsibility to amend the scheme only recently. The previous incumbent, therefore, must accept the lion's share of the blame for his tardy reaction to the need for a change in the feed-in scheme.

The Hon. Rob Lucas spent a large part of his speech quoting from the report of IPART, the New South Wales energy regulator. That report was about New South Wales and about the New South Wales scheme and its costs there. IPART was not talking about South Australia's scheme and, as a result, neither was the honourable member. The New South Wales scheme has a number of major differences from South Australia's. In fact, before the New South Wales Labor government commenced the scheme it was advised by the solar industry that it was, in fact, going to massively overheat that industry in that state.

Also, in his contribution the honourable member tended to blur the line between the cost of a federal RET change (the solar multiplier) and the New South Wales state-based scheme. For a more appropriate look at the real costs of the SA scheme, especially in comparison to other more weighty drivers of the electricity prices rising (like air conditioning) I refer members to the report of the Australian Energy Market Commission (AEMC) that I referenced earlier in my contribution today.

I should also mention that the consultant whom the Essential Services Commission of South Australia used to crunch the numbers on the different proposals we will debate shortly is also the firm used by AEMC. However, the Greens from day one have acknowledged that there is a cost to this scheme which is borne by households without panels. That is why the office of my Green's colleague, Mark Parnell, has worked closely with the South Australian Council of Social Services (SACOSS) and Uniting Care Wesley in working out a response to this bill that is deeply aware of the financial impact of any changes and why we are trying again to exempt low income households from the cost of this scheme.

The Hon. Rob Lucas made a big play of quoting the federal Labor energy minister, Martin Ferguson, who, apparently, opposes support for small-scale solar. In a recent Crikey there was another interesting article from Giles Parkinson, who wrote about the recently announced successful recipients of the Solar Flagships Program. The Greens, of course, and those backing emerging technologies, want added assistance such as feed-in tariffs and loan guarantees and will put these ideas forward at a solar roundtable on 8 July. Minister Ferguson has resisted this, although it was interesting that he noted that the costs of solar PV were plunging because of economies of scale. What is driving those economies of scale here and overseas? The very feed-in tariffs and loan guarantees that the minister eschews.

The Hon. Paul Holloway stated, 'I think it is basic economics that, [when] you have subsidies for anything, you tend to get distorted allocations.' I welcome the honourable member's statement and look forward to his advocacy for the ending of a diesel fuel rebate for the mining industry, which artificially cheapens the cost of the use of fossil fuels at the expense of more sustainable options. For example, I hope he will be consistent in his principles and share the Greens' concern about the expected $70 million to 80 million yearly gift to the world's richest diverse resource company, BHP Billiton, via a diesel fuel rebate through the construction of the Olympic Dam open pit and decades of ongoing mining operations, or, as I have previously stated, the greatest cross subsidy to installers of large air conditioners.

Honourable members have stated that it is important that the scheme be hosed down. The Greens could not agree more. Everyone agrees that this scheme does need to be hosed down. Personally, I would prefer to use the term dampened. It is just a question of whether it should be a hard or soft landing. Should it be a responsible or irresponsible government intervention into such an important industry?

If, as the honourable members have stated, the scheme is so overheated, why then is the government in this bill intending to increase the price to 54¢? Why is it trying to increase the amount given to current households in a way that will not deliver one single additional panel on South Australian roofs after 1 October? I would also like to ask the honourable member to justify his assertion of the $250 million cost that has been attributed to household solar from network augmentation. This is an intriguing claim, a claim the Greens would like some more information about.

In conclusion, I would like to express my support for the package of amendments of my honourable Greens colleague Mark Parnell. If we are starting from scratch, I would say that, in 2011, a government scheme to encourage the uptake of small-scale solar power would, in fact, look very different from the one that was debated in 2007 and 2008. What the Hons Rob Lucas and Paul Holloway need to realise is that we are not starting from scratch here.

We in the chamber are now faced with a flawed government bill and we need to work out the best response to that bill for a range of stakeholders—the solar industry, low-income consumers, householders with solar panels and households who want to invest in solar panels sometime in the future. That is what the Greens have done here and we welcome the excellent public policy process, suggested by the member for MacKillop in another place, of inviting the Essential Services Commission of South Australia to independently assess the alternate proposals put forward in this debate.

We strongly believe that this appealing model should be embraced by both Labor and Liberal ministers in the future and we commend the Minister for Energy for accepting the suggestion and facilitating the Essential Services Commission of South Australia's involvement. I look forward to the committee stage of the bill as the upper house does its job of improving flawed government legislation.

The Hon. K.L. VINCENT (11:23): I wish to briefly place on the record my position on this bill. First of all, it is worth pointing out that I form part of a generation that is lucky enough to have a lot of environmental science available to it. We have been educated to respect the planet and minimise the harm that we do to it. As such, I can easily see the benefits of alternative energy sources like solar. Of course, I can see that it is not just my generation who understands these benefits and I must congratulate the Rann government on sometimes understanding and recognising the importance of the environment, with one notable example being the introduction of South Australia's solar feed-in scheme in 2008.

It is a fantastic scheme which was a nation leading concept and which has been very successful, but the scheme has not reached its full potential. Now the government is planning on using this bill to cut it short. I can understand that the government wishes to minimise the added financial burden that a feed-in tariff has put on electricity consumers, but I do not believe that this benefit has been properly weighed against the cost of cutting off an alternative energy scheme that is still in the developing stages.

Halting the feed-in tariff this October, with hardly any warning, will cripple the solar industry, potentially meaning the loss of 1,500 jobs. It will also drastically reduce the affordability of solar systems for householders, meaning South Australia continues into this decade with a heavy reliance on expensive and harmful fossil fuels. It is better for us, for the environment and for the economy to continue to support the solar industry a little while longer.

That is why I must thank the Hon. Mr Parnell for taking the time to do the thorough research necessary to draft his amendments. With the Hon. Mr Parnell's amendments, I believe that this bill can strike the right balance. It will reduce the financial burden on some consumers paying for a feed-in tariff while still supporting the solar industry up until the point that it can stand alone. I am particularly pleased that the Hon. Mr Parnell has seen fit to make a special provision for those who are most vulnerable by giving concession holders an exemption from paying the feed-in tariff at all.

The reality is that, for the majority of people, funding the feed-in tariff is not a huge cost impost, and most people would think it is reasonable to keep adding a little more money to the scheme for a few years so that we can all look forward to a cleaner future. To that end, I look forward to the committee stage, particularly looking at the government and Liberal amendments, which have been tabled just this morning. I look forward to progressing this bill and this fantastic scheme.

The Hon. G.E. GAGO (Minister for Regional Development, Minister for Public Sector Management, Minister for the Status of Women, Minister for Consumer Affairs, Minister for Government Enterprises, Minister for Gambling) (11:27): There being no further second reading contributions, I would like to thank honourable members for their contributions thus far. This is an important bill that we are putting forward. It is about improving South Australia's feed-in scheme by providing greater reward to the owners of solar generators, and it makes changes to ensure that benefits can be adopted by as many South Australians as possible while, obviously, trying to balance the cost of the scheme.

There were a number of questions asked during the second reading stage, and I have some answers to those questions. The Hon. Mark Parnell asked whether, when someone sells the house and the power is disconnected between the change of ownership, the new occupier will be eligible for the feed-in tariff. I have been advised that, yes, the new occupier will be eligible for the feed-in tariff. The intention of that particular clause disqualifying generators is for customers who undertake a substantive disconnection on or after 1 October 2011 to lose eligibility to receive the feed-in tariff.

This provision is not intended to apply to routine disconnections that arise as a consequence of changes of property ownership, repairs, maintenance and renovations, default on electricity payments or power outages, or from actions by ETSA Utilities and other power suppliers. A substantive disconnection may occur where a solar system is moved from one point on the network to another. I was asked: if a person's house is damaged, such as by an earthquake or fire, and the solar system remains intact but disconnected for a while due to the damage and needs time for repairs, would they remain eligible for the feed-in tariff? I have been advised that, yes, the house occupier would continue to be eligible for the feed-in tariff.

I was asked whether customers will receive a time of use mandated minimum retail payment. I have been advised that South Australian customers are not paying time of use tariffs for the electricity they use. There are no plans to have the mandated minimum retailer payment change rates based on time of use. I was asked whether a person who upgrades their solar system between 1 September 2010 and 11 September 2011 is still eligible for the feed-in tariff. I have been advised that, yes, they will be eligible for the feed-in tariff; however, they will be subject to the new eligibility criteria.

Another question was: when will panels become economic in their own right? I have been advised based on the available information that solar panels may become economic in six years. I was asked the question: who polices the upgrades of generators? I have been advised ETSA Utilities. It is the condition of connection to the distribution network that solar generator owners notify ETSA Utilities of alterations to the generator. I was asked: is it possible to exempt energy concession holders from paying the cost of the solar feed-in scheme? I have been advised that ESCOSA has indicated that there may be practical and administrative costs arising from a proposal to exempt concession holders from paying the costs of the solar feed-in scheme.

Were concession card holders to be excluded from contributing to the fund, the costs of the scheme and the number of customers funding the scheme would fall by approximately one quarter, so the costs to remaining customers would increase by approximately one third. To successfully implement the proposal, it is also likely the administrative costs of the scheme, which will increase, would then be passed on to the remaining customers. If I have neglected to answer all of the questions posed during the second reading, I will gladly take the opportunity during the committee stage to answer those or provide further information. Again, thank you to those members who have made a second reading contribution. I commend the bill to the house.

Bill read a second time.

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