DRAMATIC growth in households installing rooftop solar panels is driving energy retailers to demand higher electricity prices.
Consumers have rushed to install photovoltaic panels to take advantage of the government's incentives - worth about $6200 for a typical household - and state government subsidies.
The nation's biggest energy retailer, AGL Energy, this week applied to South Australia's pricing regulator to increase power bills by $7.58 per megawatt hour next year - translating to an average of 3 per cent per bill - just to pass on the costs associated with the government's scheme to encourage household-level renewables. The development will put further pressure on the Gillard government over its handling of climate change policy, with warnings that power prices are surging because of the extension of "very expensive" renewables and state-based schemes in the absence of a carbon price.
Earlier this year, the government overhauled its renewable energy target by splitting it into two from January 1 next year: a scheme for small-scale generators such as household solar panels and a scheme for commercial-scale systems.
But AGL has told regulators that the costs associated with the small part of the scheme next year "will be significantly higher than previously thought"- and that these costs will have to be passed on to customers.
In Queensland, AGL, Origin Energy, EnergyAustralia and Integral Energy this month told the state pricing regulator that costs associated with the household-level scheme would have to be passed on to customers next year.
The Energy Users Association of Australia - with members including Rio Tinto and BHP Billiton - estimates the government's renewables target will cost $1.2 billion next year.
"It's certainly going to increase power prices and that cost is going to escalate over time as the target gets bigger," EUAA executive director Roman Domanski said. On top of this, there would be other add-on costs to provide conventional electricity generation as a back-up for when the sun was not shining, Mr Domanski said. Renewables were a "very expensive" way of reducing carbon emissions.
Because of soaring energy costs, businesses "could end up having to make unpleasant decisions about future investment, about how many people they employ and about continuing their existing operations".
But the Minister for Climate Change, Greg Combet, defended the scheme. "Along with greater energy efficiency and the introduction of a carbon price, strong support for renewable energy is essential if we are to tackle climate change" he said.
It was "strong consumer demand for small-scale renewable items, particularly rooftop solar panels" and not the existence of the scheme itself that was driving the retailers' submissions to pricing regulators.
He said the government was monitoring the impact of the target and also revealed that by 2020, renewable energy was now expected to comprise 22 per cent - exceeding the government's own target of 20 per cent. The government axed its means-tested solar rebate scheme of $8000 last year as applications soared from 420 a week in May 2008 to about 6043 a week a year later.
That has been replaced by a new subsidy known as solar credits, which is not means-tested and initially gives the owners of the small-scale generators five renewable energy certificates (RECs) for each certificate they create from their solar panels. (These certificates are usually purchased by energy retailers, who pass the costs on in their power bills; from next year, RECs in the household-level scheme would be fixed at $40.)
AGL has told pricing regulators this new subsidy, coupled with increased marketing by solar PV suppliers, would likely lead to increasing solar installations.
Energy Supply Association of Australia chief executive Brad Page was concerned that energy retailers would have to buy certificates but "nobody really knows how many of these certificates will come into being".
Costs were "passed on to other electricity customers who don't have solar systems on their roofs".
Mr Combet said the independent Renewable Energy Regulator was currently analysing how many small-scale RECs retailers would need to purchase and the government's move to split the scheme in two had reduced the number of large-scale RECS retailers would need to purchase in 2011.
Mr Page was concerned that cost rises were inflated by state-based incentives such as the NSW government's solar bonus that pays owners 60c per kilowatt hour for all the electricity they generate even if they use it themselves.
By contrast, power costs about 5c per kilowatt hour to produce, using coal.
"The real tragedy is that these arrangements cost about $450 per tonne of greenhouse gas saved, an extraordinary amount with vastly cheaper alternatives available. The community is paying far more than it should to reduce emissions," Mr Page said.
Nationals senator Ron Boswell said the quality of the policy on the RET "puts it in the same family as the insulation debacle, and the Building the Education Revolution scandal".
"It's been carried through with one flawed assumption after another, and all at great and ballooning cost to the taxpayer," Senator Boswell said.
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