What is a solar feed-in tariff?
As a home solar owner, your solar feed-in tariff (FiT) is the rate your electricity retailer pays you for the solar energy you export back into the electricity grid.
In the same way large electricity generators are paid for the electricity they produce and feed into the grid, household solar owners are rewarded for their electricity exports.
However, one of the biggest questions consumers tend to have about feed-in tariffs is why they’re so much lower than they were a decade ago.
Why are feed-in tariff rates lower today?
When solar was first coming into the residential market around 15 years ago, like with most new technology, uptake was reasonably slow. So state governments across Australia incentivised households to install solar by offering them a premium feed-in tariff.
A premium feed-in tariff was an extra high feed-in tariff subsidised by the government, added on top of the standard feed-in tariff paid by electricity retailers. Depending on where you lived, it could have been up to 60 cents or more per kilowatt hour exported to the grid.
These feed-in tariff subsidies lasted for a number of years before being phased out as solar uptake took off across the country.
Today, new solar owners receive the standard feed-in tariff as paid by your electricity retailer. Most states have a regulated or recommended minimum feed-in tariff that retailers can offer, but otherwise it’s up to the retailers to set their feed-in tariff rate.
Why is your feed-in tariff less than your electricity rate?
As solar owners will know, standard feed-in tariffs today are much lower than the rate you pay for electricity.
There are a couple of reasons for this. Firstly, your electricity rate is made up of a number of components including generation costs (the cost of generating the electricity), transportation costs (the costs associated with transporting it to your home or business) and risk protection costs (this is a bit like insurance the retailer takes out to ensure you don’t have to pay an exorbitant price when demand is really high – think of those hot days when everyone is using their air conditioners at the same time).
These charges are always paid for by the end consumer at the point of consumption (that is, at your house or business). So when you buy electricity, you pay for all of these costs but when you export your solar power, you only get paid for the generation portion.
The other reason feed-in tariffs might seem low is simply a case of supply and demand.
There are over 2 million solar households across Australia now and they all generate electricity at the same time – in the middle of the day. This means there’s plenty of electricity being fed into the grid at that time which tends to coincide with when people are generally not using much electricity. As a result, the market values it lower at that time than, for example, in the evening.
So how do you maximise your solar panel savings?
Just because feed-in tariffs are lower than they used to be doesn’t mean solar is no longer a good investment, in fact payback periods are shorter now compared to the days of the premium feed-in tariff.
The key to getting more value out of your system is to use as much solar power in your home as possible. While you might be paid for your solar exports, it makes more financial sense to use that solar energy yourself and minimise the amount of electricity you have to buy back from your power company.
RACV Solar’s in-house solar experts can walk you through your options and show you what solar panels, a battery or efficient hot water system could do for you. Give us a call on 1300 447 765 or today to get started.