Three hours of free power sounds great – but it could raise other costs and hamstring rooftop solar
- Written by: Bruce Mountain, Professor and Director, Victoria Energy Policy Centre, Victoria University
It was the news that rippled around the nation – and then the world: at least three hours of free grid-supplied electricity for Australian households, every day.
The new Solar Sharer program announced by Federal Minister for Energy Chris Bowen would require retailers to offer at least three hours of free power daily during the sunniest period to homes with smart meters. It would begin next year in New South Wales, south-east Queensland and South Australia.
On the surface, this seems like a win. Australia now has so much solar that wholesale power prices are often very cheap or even negative during the sunniest periods with abundant supply.
But there’s a problem. Wholesale supply is only part of the cost. Mandating free retail power during some hours will require cross-subsidy of these other costs. Under Bowen’s plan this will inevitably raise prices for other customers and it is likely to destroy the rooftop solar market. There’s no such thing as a free lunch.
What’s wrong with free power?
Minister Bowen’s plan borrows heavily from energy offers in the market now, which include three free hours of power.
Bowen’s policy will be delivered through the Default Market Offer, a unique regulated retail plan which retailers in Queensland, NSW and South Australia are obliged to offer. If you don’t choose a market offer, you will be placed on the default offer.
There’s nothing new about free electricity from the grid. Consumers can choose their electricity retailer in NSW, Victoria, South Australia and much of Queensland. In these states, it’s been possible for over a decade to find offers with free electricity at certain times. These deals typically offered free power for an hour a week, and usually on the weekend. Few customers chose them.
But in 2023, OVO Energy started offering a “three for free” deal with free power from 11am to 2pm daily. I was one of their first customers, and I calculated OVO would make a loss on me given I used the free power to charge my electric vehicle. Other retailers such as Globird and Red Energy have followed suit since AGL bought OVO’s Australian arm in 2024.
Power prices outside the free hours have roughly doubled since I took up OVO’s offer two years ago. But it’s still worthwhile for me as a way to charge my EV for nothing.
These offers make most sense for EV owners, as few customers can shift most of their consumption to the free period.
From market to regulation
Minister Bowen’s move might be seen as a form of mandatory expansion of these niche retail offers. But changing a niche to a mainstream offer will bring drastic change.
In the electricity market, retailers offering “three for free” deals recoup the costs of supplying “free” electricity by increasing prices charged in the “non-free” hours. These costs include the network use, renewable energy subsidies, generation costs and internal costs and margins which make up about 75% of the average bill.
To make his offer widely attractive, Bowen will pressure the Australian Energy Regulator to avoid significantly increasing power prices at other times in the default market offer. Otherwise, substantially higher prices outside the sunny period would discourage consumers and mean Solar Sharer would remain a niche product, just like existing three-for-free offers.
If retailers have to offer free power and keep their prices down at other hours, they will have to make up the difference in higher prices paid by all their other customers. Someone has to pay for the free lunch.
Bowen has form here, as he previously intervened in the regulator’s determination of default offer prices.
Hobbling rooftop solar?
Over the past 20 years, solar feed-in tariffs have fallen off a cliff as millions of Australians have added panels and solar system costs have collapsed.
This means the main reason to go solar is no longer exporting power to the grid, but rather to consume as much produced power as possible to avoid buying from the grid.
If Bowen’s policy comes into effect, it will hobble the market for the installation of rooftop solar. There’s little point installing solar if grid-supplied power is free at the times when most of the rooftop solar production occurs.
Will Australia’s four million existing solar homes be worse off? Not necessarily. Existing panels are a sunk cost, so households will likely continue using them as before.
But existing solar home owners may see this as a breach of trust, having spent thousands of dollars going solar to avoid pricey power from the grid – encouraged by ministers, including Bowen, to do this.
Will more Australians install household batteries to soak up free power? That’s unlikely. The government’s home battery subsidy only applies when paired with rooftop solar. If regulation undermines the economics of rooftop solar, battery-backed solar will be less attractive too.
Out of the blue
It’s not clear the government considered the wider effects of the policy before announcing it. Last week’s announcement took the industry by surprise. Australian Energy Council CEO Louisa Kinnear said retailers were “disappointed the Government didn’t consult with us ahead of time”.
The move is a sharp reversal of the retail pricing policies put in place when the energy market was created almost 30 years ago. These longstanding policies sought to ensure prices reflect costs, at least in regulated retail offers.
Australians love rooftop solar. It’s now the biggest source of clean electricity in Australia, growing even as fewer wind and solar farms proceed. The last time a politician tried to undermine rooftop solar was over a decade ago. Now we have a federal Labor minister who is an avowed fan of rooftop solar putting forward a policy which will effectively strangle it.
Bowen has backed himself into a corner. Making free electricity widely available will undercut the economics of rooftop solar and raise prices for other customers. Is this really what he intends?
Authors: Bruce Mountain, Professor and Director, Victoria Energy Policy Centre, Victoria University
Daily Bulletin
