OFGEM, the regulator of the UK energy markets, has seen the future and it’s worried. The era of solar powered homes, offices and factories generating their own energy and storing it in low cost batteries, will apparently create havoc in the way we pay for the running, maintenance and upgrade of the electricity grid (network costs). So OFGEM has launched a consultation about how might be the fairest way to apply network charges to energy bills in future. Here’s their latest update on their thinking.
The current model is that the network costs are spread across every unit of energy delivered to an end user. OFGEM estimates the average network charges to be in the region of £120 for domestic electricity customers, or around a quarter of a typical domestic electricity bill.
A house that installs solar energy needs less electricity units from the grid each year. The problem is that as more and more households and businesses install solar energy, the network costs get spread across an ever-smaller number of delivered units of electricity.
The costs of the network don’t get smaller though, because the solar homes still need to draw electricity from the grid at certain times. Even when you combine solar with battery storage, there will still be parts of some days when the house pulls from the grid. All that infrastructure still needs to be there and it still needs to be maintained.
So the network costs charged against each unit of electricity used need to rise and OFGEM is fretting that this is unfair to people who don’t have solar panels as they pay more of the increase due to their higher consumption.
But how big a problem is this really? What do these extra costs that are borne by the non-solar homes and how would they change as the level of solar penetration rises? The solarblogger has done the sums so you don’t need to.
Assuming an average system size of (say) 3kWp with a yield of 2550kWh/year and self-consumption of solar electricity at 35%, the network charges avoided by one million solar homes works out at £39.16 for each house each year (they pay £80.84 of network costs in their bill). This means that the twenty six million other homes that don’t have solar have to pay £1.51 more towards network costs than they would have if no one had solar (£121.51 for network costs).
Hardly reason for panic at OFGEM.
What about the argument that as more and more households go solar, that the problem of network costs being unfairly and disproportionately recovered from non-solar homes? What if more and more are coupled with battery storage and self consumption of solar generated electricity rises?
If we project that half of UK homes have solar and half do not, then the network costs per unit of electricity rises from 4.6pence per unit of electricity to 5.4 pence. Solar homes would then be paying £95.88 of network costs in their annual bill compared to £144.11 for non-solar homes.
Add in battery storage of electricity at this level of solar deployment and taking the self-consumption of solar generated electricity to 70% – the figures become 6.8 pence per unit of electricity as network charges. Solar/battery homes pay £59.63 per year towards network costs and non-solar homes pay £180.37. Even at this extreme scenario, the increase for non-solar homes is a modest £60.37 a year on network costs.
Of course, once everyone has solar the ‘problem’ goes away and the extra network costs provide a good incentive to install solar or find other ways to reduce your electricity consumption. OFGEM should go and find a real problem to worry about – they’ve got plenty to choose from!