Solar scarer

Hey Reader, welcome to The Energy's weekly data newsletter. This week we explore the government's new plan to push retailers to offer "free" power in peak solar times. Plus we've added wind and solar curtailment to our regular monthly charts.

Wait, what?

Australia's energy sector appears to have been caught off guard by the government’s Solar Sharer policy, which experts say could have benefited from wider consultation.

AGL (ASX: AGL) shares closed down 3.7%, and Origin Energy (ASX: ORG) down 3.8% against a broader market fall of 0.91%.

The regulated energy offer will require retailers to offer free electricity to households for at least three hours in the middle of the day, and for retailers in the DMO-regulated regions of NSW, South-East Queensland, and South Australia, must be in place by July next year.

Retailer lobby group the Australian Energy Council said the announcement was “a surprise to the industry and did not form part of the DMO Review consultation process”. The government has kicked off a separate consultation process on the Solar Sharer Offer.

St Vincent de Paul Society energy policy director Gavin Dufty said the policy was "a shot across the bow of retailers" to force them to innovate and share the value in the system that is being delivered by households.

"I see it as a market making obligation pushing the market to adjust and innovate in response to overall changes in the energy system."

While the policy has general support from consumer groups, they warn imposing price requirements on retailers in the past has led to them recovering the cost elsewhere.

“Our expectation is that there probably can't be a free lunch even if you get free electricity while you're eating it. And so you're going to pay slightly more during other times of the day,” said Energy Consumers Australia (ECA) GM for advocacy and policy Brian Spak.

“If you're not at home during the day or you're unable to shift large parts of your energy use into the middle of the day, or you just don't want to because you don't want to think about energy that much…there should still be basic consumer protection for those households,” he added.

What will consumers do?

Solar Sharer will likely be the biggest experiment the sector has seen on incentivising household users of energy to change their behaviour.

And it clearly sends a strong message to the public that energy is now cheapest during the middle of the day, compared to the past where they were taught to associate the late evening as the cheapest time to use energy, said Monash University energy researcher Yolande Strengers.

“While it’s not a silver bullet, and while not everyone can shift their energy use to the middle of the day, it is a move towards sharing the collective benefits of the energy transition with more households,” Strengers said.

Strengers’ research looks at the social dynamics behind energy use, and helps to explain why the energy sector has often got it wrong when it comes to predicting how consumers will respond to new products and prices.

Enrolment in VPPs has disappointed to date, despite the household battery boom.

AGL already offers a “three for free” product but has not yet revealed how popular it has proved.

And solar households already save money by shifting appliance use to the middle of the day, but there’s a big question mark over the rest of the market.

A survey of more than 4,000 households by Energy Consumers Australia found of people already on time-of-use tariffs, around a third still don’t change when they use their appliances in order to save money. This is partly skewed by those customers who were put on a time-of-use tariff automatically when their household was connected to a smart meter.

*Source: Energy Consumers Australia: "Consumer knowledge of electricity pricing and responsiveness to price signals"*

Complacency and distrust remain the biggest barriers to consumers responding to price signals in a way that helps lower their bills or aids the energy system, evidence shows.

Competition regulator the ACCC has for some time been pointing out the “loyalty tax” paid by consumers for sticking with their existing plan rather than switching.

*Residential customer weighted average annual prices for newer and older offers by region, all offer types combined, assuming 100% achievement of conditional discounts, 2024 . Source: ACCC*

And yet regulation-based moves to make switching easier have in some cases ended with a worse outcome, thanks to the “regulatory arbitrage” retailers have engaged in, said ECA’s Brian Spak.

“What you see today is that retailers can switch you onto a more expensive price without your consent. But they can't put you onto a cheaper price without your consent.

That’s the bad behaviour that we’re trying to stop.”

Is this a job for retailers?

Some consumer advocates say policymakers and regulators shouldn’t be relying on retailers to shift demand, and that a simpler and less costly solution would be to lean into wholesale demand response.

In a submission to the Australian Energy Regulator on SA Power Networks, SACOSS said while time-of-use tariffs have been in place in South Australia for four years, there has been little to no increase in peak demand, and a continual downward trend of minimum distribution network demand, suggesting the tariffs are not operating to shift demand profiles.

*Source: SACOSS submission to SAPN’s revised proposal and draft decision 2025-30*

Justice and Equity Centre senior adviser for energy Craig Memery supports the government's intent with Solar Sharer but said there was a risk Solar Sharer would drive a new peak, eventually ameliorating any benefits of lower wholesale prices.

“We’re moving to a winter-peaking world with electrification and that means we’re moving to a peak which is not coincident with when those negative prices are. So the longer we do this for, the less benefit there is, and the more load is shifted to those times, the more it's going to be a problem.”

He said Solar Sharer highlighted the missed opportunity in the Australian Energy Market Commission's decision not to make the demand response mechanism “two-way” to support shifting industrial loads to when prices are negative. This would have allowed third-party aggregators to shift load dynamically to soak up daytime solar, rather than leave it to retailers to do it.