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January 2010



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Me interviewed by Sharon Firebrace on Razor Sharp on Tuesday 18 February. (0)

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Solar panel subsidies: it seemed like a good idea at the time

It must have seemed like a good idea at the time.  Subsidise those individuals who put solar panels on their roofs.

The Rudd Labor Government paid up to $8,000 to those who did. It was so successful (or in revenue terms, costly,) that Peter Garrett, the Minister for Environment, Heritage and the Arts in the Rudd Government, cancelled it.

Here in the ACT, the local Government passed a backbencher’s bill to introduce a feed-in tariff which pays individuals and small businesses who provide electricity from their solar panels 50.5 cents per kilowatt hour generated. This is almost four times the normal rate.

With a new scheme in place in New South Wales from 1 January the pressure will be on the ACT Government to at least match them and increase its feed-in tariff to their 60 cents per kWh.

The general community will subsidise the feed-in tariff through electricity price increases.

According to figures in the Canberra Times, in the first six months of the scheme almost 1000 providers were paid $261,000 in total. This will cost all electricity consumers an extra $2.70.

The subsidy will increase both because this is a six month figure over the shorter days and because the Government is considering extending the scheme to cover businesses who can produce more than 50 kWh.

And given the generosity of the scheme, the number of people in Canberra taking advantage of the feed-in tariff (currently about one percent of all households) is likely to increase exponentially from its low base and will continue to do so over the next few years, so the cost of the subsidy (and hence the price of electricity to all households) will rise rapidly.

With upfront costs of between about $12,000 and $25,000 to install cells on residential roofs (depending on size, quality and the like) the people who can afford these solar panels will not be poor or, as a generalisation, average income earners.

In other words the local Territory feed in tariff redistributes wealth (currently at a small scale but likely to grow) from those who can’t afford solar panels on their roofs to those who can.  This will be from the less well off (and others like myself who think individualising responses to climate change is bad policy per se) to the well off.

The Government has in place some mechanisms for ensuring some of the less well off don’t pay the increase but this misses the point that those on average wages will not covered by such schemes.

Further it appears to be extremely costly in reducing greenhouse gases – about $500 a tonne.

No doubt these inequitable redistributive impacts and costs were part of the advice package that went to Government before it adopted the scheme.

The feed-in tariff reflects a very common ‘common sense’ view. Climate change threatens us all, so we should all pay for it. We should all do our bit so the argument goes.

Greenhouse gas emission flow from the way production is organised under capitalism. It is the polluting companies who should pay for their pollution through lower profits, not ordinary working Australians through higher prices.

Imagine that approach, together with a government or governments which actually had a vision and action plan for massive renewable energy production through solar and wind farms, geothermal and tidal energy, and the outlines of a real solution become clearer.

The feed-in tariff in the Territory highlights the complexity associated with dealing with climate change in a policy vacuum and one dominated by the erroneous idea that the solution to the problems the market creates is the market.

Take for example the increased charge on all consumers to subsidise the well off to put solar panels on their roofs. There may be an argument (I put it no higher than that) that such a surcharge is an excise and as such is only something that the Commonwealth can impose.

The benefits of the feed-in tariff go to the occupier, not the owner, of the property. Often they will be the same person, but in rental situations (both private and public) they will not be.

The courts have held that an income stream in certain circumstances is property and able to be sold. Is the owner of the solar panels which produce the electricity giving rise to the right to the feed-in tariff the owner of that income stream?

If so, then the redirection of the income coming out of the feed-in tariff from the private owners to the occupants may be the acquisition of property without just compensation to those owners. The Self-Government Act prevents such action by the ACT Government.

Of course, most private landlords would have factored the cost of the panels and the loss of the income stream into their rents. These are increases the landlord friendly Residential Tenancies Act would in all probability allow.

ACT Housing might also be making the same calculations if it moved to put solar panels on public housing roofs.

The feed-in tariff raises income tax issues too.  In a private ruling the ATO has said the amount paid under a gross feed-in tariff is not income because there is no intention to make a profit.

This is wrong.  The intention to make a profit does not apply to income from property (such as rent, dividends and interest).

Using the logic of the private ruling, negative gearing on rental properties should be disallowed.

Indeed it is likely that some owners who are occupiers may have borrowed to put the solar panels on their roofs.  They will in all likelihood be negatively geared on this investment and want to claim the payments are income so they can deduct the larger expenditures against the solar panel income and then other income.

The Tax Office should issue a public ruling on the issue to clarify the matter for all investors.

The ACT Government is considering expanding the scheme to in effect cover more and larger businesses.  This will increase the cost of the subsidy those without solar panels pay to those with solar panels.

Leaving aside the owner versus occupier issue, businesses receiving the feed-in tariff will be subject to income tax on the amount. There will be the usual GST issues too.

If my analysis that the feed-in tariff is income is correct, this will have an impact on those occupiers (often of public housing) receiving the feed –in tariff who are also receiving pensions, student allowances and other government welfare payments from Centrelink.  

Since the feed-in tariff income stream under the ACT legislation belongs to the occupier, this means that the occupiers will need to declare the income to Centrelink with a possible reduction in benefits and perhaps an increase in the rent paid (according to a percentage of income formula).

So tenants with solar panels on their roofs are likely to pay 3 times – the solar panel income stream will be (or, under current law, should be) taxed, the landlord will increase the rent to cover his or her cost of the panels and loss of the income stream, and the occupiers’ Centrelink benefits if they exist may be cut.

Inequitable redistributive results; extremely costly greenhouse gas emission reductions; possible excise, GST and income tax implications; acquisition of property on just terms concerns; penalising Centrelink clients. These surely couldn’t be the outcomes the ACT Government envisaged, let alone wanted, from its solar panel feed-in tariff scheme, could they?

Readers might also be interested in Stop work to stop the bosses’ war on the environment, The failure of Copenhagen: the success of environmental imperialism and Green jobs: not uranium and bombs



Comment from Sid
Time January 25, 2010 at 2:13 pm


I appreciate the thrust of your argument that “renters” (a word that has crept into usage during the last decade, I prefer tenants) may be subject to income tax liabilities.

What interests me more, is whether the numbers have been analysed to show the split between owner-occupants and landlords who have installed solar photo-voltaic systems in the ACT. I find it hard to believe that landlords are doing so.


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Time January 25, 2010 at 2:55 pm

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Comment from John
Time January 25, 2010 at 4:44 pm

Thanks Sid. Yes I elided from those who are renting to renters – something as the former Tenants Adviser in the ACT I should have avoided. I have changed the article to put a reference in to tenants instead of renters.

I don’t think there are any figures on landlords versus owner occupiers, but I would guess, given the ACT Labor/Greens Government is at the forefront of climate change action in the country, that Housing ACT, the public housing body here, might be considering putting solar panels on public housing roofs.

If so, I hope they have thought through the possible consequences.

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Comment from Solar panels can’t hurt
Time January 25, 2010 at 6:59 pm

I don’t see how this necessarily redistributes money from the haves to the have-nots. The feed-in subsidy doesn’t make it profitable to put up solar panels, it just makes it less expensive. These people could still make much better returns on their investment in the stock market. Now, maybe I’m wrong, but you haven’t shown any data showing what the return on investment is here.

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Comment from John
Time January 25, 2010 at 9:12 pm

Dear Solar panels can’t hurt, I was arguing it was redistribution from the have nots to the haves.

Your question about rates of return doesn’t detract from my argument about regressive distribution.

I haven’t done the figures. It would depend whether they are tax free or not and the cost of the installation, whether there is negative gearing, the marginal tax rate of the investor.

If they are (contrary to my argument) tax free and return say $1000 a year on a $15000 investment, then the return is almost seven percent. If it is tax free (and assuming a marginal tax rate of say 40%) this is an effective pre tax rate of return of about 11 percent. If it is not tax free then the return is roughly comparable to some fixed term interest rates. It is much much less than last year’s share gains, but also much much less risky. And the benefit to each individual of reducing green house gas emissions (even if costly) can’t be valued.

It seems to me the money would be better spent on large scale solar and wind farms.

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Comment from Ben Courtice
Time January 26, 2010 at 10:11 am

Thankyou for researching all this John. I’ll try and pass it around the climate activist movement to see if it gets any interest. It certainly has engaged mine.

Comment from John
Time January 26, 2010 at 10:44 am

Ben, the main point on my mind is what is the impact on poorer households of having this income stream come through?

Say the various public housing bodies put solar panels on public housing roofs, can they rule out any adverse impact on the tenants as a consequence benefits wise?

Sid, another consideration is the capital gains exemption for the family home. An owner occupier (who can rent it out for some time before they lose the exemption from memory) can put panels on the roof and then sell the house (including the panels) CGT exempt.

They may think that the panels increase the value of the house more than their cost although this may not in fact be the case.

If they do increase the value, then there is an added incentive to put panels on roofs, and again this exemption is a subsidy that we all pay for (especially those who are tenants and so can’t avail themselves of the exemption.)

Comment from Michaelc
Time January 26, 2010 at 11:21 am

Guaranteeing a rate the utilities will buy power from you is a much better way to leverage funds into alt energy projects. With a guaranteed rate people can get bank loans to buy the panels. They have done this in Germany with great success.

Comment from Sid
Time January 26, 2010 at 1:58 pm

Well put John. The CGT issue hasn’t been explored fully.

Comment from Zane
Time January 26, 2010 at 4:16 pm

“According to figures in the Canberra Times, in the first six months of the scheme almost 1000 providers were paid $261,000 in total. This will cost all electricity consumers an extra $27.”

wow! 261,000 divided by 27 equals 9666. So either there are less than 10,000 “electricity consumers” in the whole ACT- with its population of about 350,000- or the power company is making a buttload of money with its $27 price hike.

Or the $27 figure is wrong.

if instead of 9660 there were 96,600 electricity consumers out of that population of 350,000 -and the tariff was evenly split amongst each consumer regardless of their usage or economic means- then by my maths the bill for the tariff would be $2.70 extra per six months instead of the $27 quoted…

If you made the richest half of those 96,600 consumers pay $5.40 then the poorest half could avoid picking up any of the tab…

“Further it appears to be extremely costly in reducing greenhouse gases – about $500 a tonne.”

According to the united states EPA the average carbon emissions for one megawatt hour of delivered electricity is 1,329.35 lbs CO2.

A megawatt hour divided by a thousand equals a kilowatt hour. For this you would have emissions of 1.33lbs CO2 per kilowatt hour, or in metric terms (assuming one pound equals aboutt 450grams) 600grams of co2 per kilowatt hour.

bear in mind electricity in the US is i think slightly less carbon intensive than in australia due to their use of nuclear power. so australian emissions per kilowatt hour would likely be higher than in the US.

but, going off the EPA figures, if you were paying 50 cents for every 600grams of emissions you avoided by subsidising a kilowatt hour of solar PV power, then yes, the price per tonne of emissions avoided would be pretty bloody high- $833…

however if you are talking about a 2kilowatt installed home solar setup, worth about $8,ooo- and if it produces on average for 3.5 hours per day (taking into account cloudy days, less sun in winter, produces steadily less on either side of midday etc.) then it would produce

3.5 x 2 x 365 = 2555 kw/h per year
2555 x 50 cents = $1277.50

The 3.5 hours average could be out but i think is a semi decent ballpark figure to use.

Whilst $1277 per annum is a decent slice of money, its still going to take six years to pay off the setup at that rate.

So the fact that you are paying $500 or $800 per tonne of carbon emissions avoided isnt necessarily the problem, the problem (as your article points out) is that you need to make sure the feed in tariff is not used as a way of garnishing money off the masses’ power bill to make rich solar investors lots of cash once they have paid off their investment.

Maybe the tariff could be paid for with a carbon tax, and/or a steaming coal export tax, so that the more the feed in tariff bill goes up, the higher the tax on steam coal exports becomes!

I think the assumption that the money for a feed in tariff should all just come off working peoples domestic power bills is extremely problematic. but i think the idea of subsidising workers (and small business, schools, public buildings) to put panels on their roof is a good idea.



*apologies as this was originally sent to an email list and had html links to sources embedded in it. i havent been able to put such hyperlinks on the blog.

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