Optimising your solar returns: Navigating Feed-in Tariffs, energy market dynamics and other potential solutions
Maximise the potential of your solar investment by understanding feed-in tariffs (FiTs), avoiding common pitfalls, and leveraging the dynamics of the energy market. Learn how solar generation impacts wholesale prices and discover how Battery Energy Storage Systems (BESS) and Demand Response (DR) programs can enhance your returns. Right-size your solar system, store excess energy efficiently, and participate in energy market programs to maximise financial and sustainability benefits for your business.
Key points:
- Understand the true value of solar feed-in tariffs and avoid common pitfalls.
- Learn how solar generation impacts wholesale energy prices.
- Discover how Battery Energy Storage Systems (BESS) and Demand Response (DR) programs can maximise your solar investment.
Understanding solar Feed-in Tariffs
What are solar Feed-in Tariffs?
If you're thinking about selling the excess solar energy generated by your solar panels, it's crucial to understand how solar feed-in tariffs (FiTs) work. FiTs are the rates your energy retailer pays you for the surplus solar power you send back to the grid. These rates are determined by the agreement you negotiate with your energy retailer and are typically set in your initial electricity contract. Several factors influence FiTs, including the installation date of your solar system, the size of your installation (which indicates how much and when there may be excess solar generation), the specific terms of your contract, local state regulations, and current electricity wholesale market price conditions. Originally established to encourage the adoption of solar energy, FiTs have generally decreased as solar power becomes more prevalent. Retailers aim to balance their costs and the incentives they provide, which can fluctuate based on these factors. To avoid unexpected lower payouts, ensure you understand whether your FiT is a variable or fixed rate upfront.
The pitfalls of oversizing and transferring energy
You might be tempted to install a larger solar system to sell excess energy, but this strategy may not pay off. Standard retail agreements don't support transferring excess solar energy from one site to another, limiting the potential benefits.
>>> Transferring energy between sites isn't supported because each site is typically considered separately under retail agreements. Oversizing can lead to inefficiencies and lower than expected returns because the excess energy might not fetch a favourable rate for the retailer. This is often due to low customer demand coinciding with high solar generation, resulting in abundant solar energy and consequently low spot prices. Additionally, the retailer may already have enough energy procured or generated to meet customer demand during these periods, further reducing the value of selling excess energy back to the grid.
Solar generation and its impact on wholesale energy prices
Solar generation during peak hours
Let’s discuss a common assumption: your business’s peak operational hours during the day align with high energy market demand. While this is true, it’s also when solar generation peaks which has a zero marginal fuel cost. This can result in lower wholesale energy prices or even negative spot prices if there is a surplus of solar energy supply.
>>> Negative spot prices occur when energy supply exceeds demand, forcing generators to pay to offload their energy. This phenomenon happens because the energy grid must balance supply and demand in near real-time. During peak solar hours, excess generation can overwhelm demand, leading to prices dropping below zero to incentivise consumption or storage. Many generators, especially renewable ones, continue to bid at negative spot prices because they receive Large-scale Generation Certificates (LGCs) for generating electricity. Some generators cannot stop running at short notice, so they may absorb losses during these periods and recover them at other times of the day when solar generation decreases and prices rise.
What drives negative spot prices?
- High levels of solar generation
- Limited capacity of the grid to absorb energy
>>> The grid's infrastructure and its ability to store or redirect energy play a crucial role. When too much solar energy is produced and can't be used or stored efficiently, it drives prices down.
Retailers respond to the lower wholesale prices during solar hours by reducing FiTs, making them less lucrative for businesses receiving payments for exporting excess solar power.
Maximising your solar investment without exporting
Right-sizing your solar system
Ensure your solar system is appropriately sized for your business’s energy needs. Oversizing with the intent to export excess energy might not yield the best financial returns.
>>> An oversized system can lead to increased initial costs and potential energy waste. Proper sizing aligns generation with actual consumption, ensuring maximum efficiency and cost-effectiveness.
Conducting an energy audit can help you determine the optimal size for your solar installation, ensuring it matches your consumption patterns and business operations.
Leveraging Battery Energy Storage Systems (BESS)
A BESS allows you to store excess solar energy for later use. This can be particularly beneficial during periods of low solar generation or when energy prices are high.
Stored energy may also reduce peak network demand charges and provide energy security during network outages.
>>> BESS can smooth out the inconsistencies in solar generation, providing a reliable energy source even when the sun isn't shining. This stability can be crucial for operational efficiency and cost management.
Participating in Demand Response (DR) programs
DR programs reward businesses for reducing their energy use during peak demand periods by tapping into stored energy from your BESS. This not only provides financial benefits but also helps relieve grid stress and supports your sustainability goals.
>>> DR programs offer payments or incentives for reducing load during critical times, helping balance the grid and prevent blackouts. Participating in these programs can turn energy management into a revenue stream.
Achieving optimal energy value for your business
Crafting a holistic energy strategy
Your solar FiT is just one aspect of your overall energy strategy. To maximise the benefits of your solar investment, consider:
- Your energy consumption patterns
- Integrating renewable energy solutions
- Participating in energy market programs
Work with energy consultants to develop a comprehensive strategy that includes energy efficiency measures, advanced management systems, and additional revenue streams like demand response.
>>> A holistic approach ensures that all aspects of energy use and generation are optimized. This can lead to significant cost savings and improved sustainability performance.
By implementing these strategies, you can optimise your solar energy investments, ensuring they meet your business needs and contribute to a sustainable energy future.
Realistic energy solutions for your business
We’re empowering switched on businesses on Australia’s East Coast to make smarter energy choices. As an agile, asset-light energy retailer and trader, we specialise in facilitating contracts such as Power Purchase Agreements (PPAs) and battery tolling agreements, while offering a diverse range of renewable energy products and services to commercial and industrial businesses across the National Electricity Market (NEM). Beyond retailing energy, we foster genuine, inclusive connections within communities, bridging independent generation, commercial and industrial consumers, and energy services businesses.
Get in touch: Our SmartestEnergy team of experts is here to support your green energy targets with realistic renewable energy solutions. Contact our team today to discover how SmartestEnergy can help and empower you to make smart decisions for your business.