I’ve seen some people complain, suggesting that very low feed-in tariffs for rooftop solar PV are grossly unfair. This post is my attempt to explain why low FiTs are not as unfair as it may seem.
By Richard Keech 2025-09-02
The unfairness argument. On the group My Efficient Electric Home, this comes up frequently. For example, someone recently remarked “Electricity companies are crooks in my view buy power from them 45c kwh but they only pay me 1c per kwh . Who said ned kelly is dead“. This is typical of a sentiment that views very low FiT as highly unfair because of the stark disparity between the FiT and the retail tariff.
Although it may seem counter-intuitive, my view is that the low FiTs are not the scam that some people think.
Mandatory FiT is a form of subsidy. In the early days of rooftop solar, government-mandated FiTs were generous, as part of a policy intended to drive demand. This has been very successful. As the amount of solar has increased, the need for subsidy via elevated FiTs has reduced. Someone today getting essentially zero for their FiT has the benefit of much much cheaper up-front costs for new solar PV. So lower income from FiT is offset by lower up-front costs for solar PV. Winding back the mandated FiT was always to be expected.
A good problem to have. Low FiTs are, in a way, a good problem for the energy system to have. They are a logical consequence of solar PV succeeding in driving down the daytime wholesale cost of electricity to very low levels. Lower FiTs are a sign that wholesale power is cheaper than it use to be during the day. Complaining about low FiT is complaining about low wholesale prices.
Wholesale vs retail. If you act as a generator, expect to be paid as a generator, i.e., if you sell back to the grid you should expect to be paid based on dynamic market wholesale rates at the time. Comparison with fixed retail rates are not helpful.
Variable wholesale. During daylight hours, grid wholesale prices are typically low and often negative because of abundant solar PV. The wholesale price of electricity is highly variable and is updated every five minutes. To give consumers the convenience of fixed predictable tariffs, retailers take on the price risk when price is not in their favour, which is more often than you think. The situation with low FiT is no less fair than when you turn on your AC on a hot summer evening during a price spike. You keep paying, say, 45c when the retailer pays the price spike which can be as high as $20 per kWh. Peak price events are not frequent, but need not be frequent to cost a retailer a lot of money when the spot price is so high. Isolating customers from peak-price risk comes at a real cost to the retailer.
Retail tariffs include network costs. Cost of energy is only about one quarter of the retail tariffs. You pay for the use of the network in every kWh you buy. Many people may be under the misapprehension that they pay for the network only in the daily service charge, which is incorrect. This, again, reinforces that direct comparisons between the FiT and the retail tariff is not appropriate.
Opportunistic? Embodied in the unfairness argument is the implication that the retailers are exploiting a great opportunity when they buy from home owners at the very low fit. The reality is that they don’t want to buy surplus solar even at, say, 1c. They buy from home owners only because they are required to by regulation. If it were up to them they probably would not choose to buy your surplus at all, because at very low daytime wholesale rates, retailers still frequently face an opportunity cost in buying surplus solar, even at the new lower FiTs.
Gentailers vs retailers. Yes, there are problems with the electricity market. Aspects of it are unfair. Gentailers (ie., large vertically integrated companies that do both generation and retail) have market power that other retailers do not. Gentails have been accused of exploiting their market power in sneaky ways that influence market price. I agree that this is a problem. However, for the bulk of retailers, that are not vertically integrated, the story is very different. They cannot directly influence the wholesale price.
Accessing lower wholesale rates. It is possible for individual retail customers to access dynamic wholesale electricity rates through retailers like Amber Electric and Flow Power. I am a big fan of their business model. In fact I predicted this twelve years ago in this article on Renew Economy.
FiT is a distraction. For any installation, the direct financial benefit of rooftop solar PV arises from the sum of:
- feed-in tariff income (if any), plus
- offseting grid consumption (avoided energy purchase).
The main game with solar is now, and has always been, its ability to reduce consumption from the grid in daylight hours. FiT income has been the icing on the cake. The trouble is that when retail customers look at their bill, the avoided consumption is not apparent. This means that, unfortunately, for many people, they under-estimate what solar is giving them because the savings are not shown directly.
Flat tariffs distort the market. The market is a complex dynamic system. When consumers do not have a proper dynamic price signal, it contributes to price instability, on both the down side and the up side. Retail customers export even when price is negative. This forces the price even more negative. Similarly, retail customers without a price signal consume more than they otherwise would when the market price is high. This forces prices even higher.
Low FiT is a motivator. Having lower FiTs changes incentives and encourages people to increase their self consumption of solar. This is a good thing because it helps balance supply and demand and is a stabilising influence on wholesale price.
A bigger problem. Because reduced FiT is not the problem many think it is, does not mean that retailers are off the hook. Problems I do see with how retailers behave include the so-called loyalty tax (i.e., jacking up the prices for customers who don’t shop around), and poor price transparency (a complex jumble of different tariffs). This is a far bigger problem than low FiTs. But that is a story for another time.
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