Solar Sharer – Nihil communicatum, nil magnum - Nothing shared is valued

2025Q4

An interesting policy development for the Australian electricity industry this quarter was a press release announcing the federal government’s Solar Sharer concept.  Solar Sharer is a proposal, which has been referred to the Australian Energy Regulator (AER), that would require the Default Market Offer (DMO) include a tariff arrangement where households were able to receive three hours of free electricity – during peak solar hours – each day.  The beauty of this proposal, from a retail politics perspective, was the hook of offering “free power” during solar hours regardless of whether the household had rooftop solar. 

The question is whether this is a political gimmick or actually a potential watershed?

This is an interesting proposal and has a few different elements that need to be unpacked:

-          Wholesale vs retail electricity prices

-          The role of the DMO

-          What is uptake likely to be

-          Broader implications

Wholesale vs Retail Electricity Prices

Wholesale electricity prices are what retailers and very large industrial users pay for electricity.  The wholesale price is set every five minutes and fluctuates with supply and demand.  There are a range of derivative products (and offtakes) that let retailers and larger electricity users lock in or hedge their wholesale price exposure.

The wholesale electricity price is often negative (or at least very low) in the middle of the day. 

This low price reflects the abundance of rooftop and utility solar as well as the constraints on coal plants that require them to continue generating at minimum technical levels (irrespective of price) if they want to be available for the evening peak (and take advantage of high night-time prices).  LGCs the green certificates issued to renewable generators (currently valued at circa $7.00) also incentivise renewable generators to continue to generate even if prices are slightly negative (to collect the LGC).

However, just because wholesale electricity prices are negative or near zero, doesn’t mean retail prices (or costs to retailers) should be.  Retail electricity prices need to cover wholesale electricity costs (including hedging), network charges (that is transmission and distribution costs), green scheme costs (that is the cost of LGCs, STCs and the other state based schemes that are recovered from retail customers) as well as a retail margin (eg cost of billing, administration, bad debts, etc as well as providing a return to the retailer).  Wholesale electricity costs only make up a bit over a third of retail costs.  An almost equally important component of retail costs is network costs (see pie chart below).

Thus, even if wholesale costs were zero, a retail tariff arrangement which forced retailers to provide free electricity at lunchtime would require them to run at a loss on these sales.  In particular, network charges are not zero at lunchtime.  For example, for Ausgrid (Sydney) the offpeak period volumetric charge is 5.7 cents/KWh (the equivalent of $57/MWh).

This leads to the first conclusion re the Solar Sharer tariff arrangement – if it were introduced, retailers would be incentivised to increase charges at other points of the day (or via the fixed daily supply charge) to recover losses on selling electricity below cost during the three free hours.

The Role of the Default Market Offer

The Default Market Offer (DMO) is a retail electricity tariff that is set on a distribution network by distribution network basis by the Australian Energy Regulator.  The DMO serves three main purposes:

• It is the reference point for retailers to quote the “savings” of their standing offers to new customers.  All savings need to be quoted against the DMO – to provide a standard reference point.  This is to prevent the situation, which existed prior to the introduction of the DMO, where retailers quoted savings relative to their own default offers which led to misleading (and inconsistent) savings claims.

  
  

• It is the retail electricity plan that customers are defaulted onto if they join a retailer without making a specific choice (or following a retailer insolvency) or if their previous tariff expires.   It is worth noting that relatively few customers are on the DMO (AER reported 8.1% of residential customers are on the DMO in its 2025-26 DMO determination report).

  
  

• The DMO acts as a defacto price ceiling for customers in embedded networks.

The press release for the Solar Sharer concept doesn’t make clear if all AER DMOs will be required to have three hours of free power or whether it is just an additional option that needs to be offered within the DMO.

What is the likely Uptake

The first point on uptake would be to note that the Solar Sharer tariff will only be available to residential customers with a smart meter.  Smart meter uptake is quite uneven – with 100% of Victorian residential customers on smart meters following a statewide rollout.  Other states lag, with uptake around 40-50% in most other states.

Even though smart meters are relatively common, Time of Use (TOU) tariffs are not very popular with consumers.  There isn’t comprehensive data available, but as of 2023-24 only around 20% of customers were on TOU tariffs (source:  ACCC report on National Electricity Market 2025).   From an industry/policy perspective there is a concerted effort to push customers onto TOU tariffs, which reflects that the underlying cost to serve a customer is very dependent on when they use their electricity.  Despite this, anecdotally, there is strong customer resistance to the complexity of TOU arrangements (eg, the ABC regularly runs a negative story of some variant regarding TOU electricity tariffs).

Infradebt’s expectation is that Solar Sharer is likely to have relatively low uptake.   Thus, its direct effect on electricity retail arrangements or patterns of use are likely to be pretty low.  That said, it could presage, broader implications.

Broader Implications

In our view there are two broader implications that are worth considering:

• Implication for network charges

• Signalling impact

  
  

The first potential implication from this might be a request from retailers that network charges are changed to provide for zero network charges for three hours a day.  That is, if the underlying argument is that we are trying to shift usage to the middle of the day, and reduce demand during peak hours, then this should be reflected in network charges.  It should be noted that Transmission and Distribution networks are built based on capacity requirements (ie when demand is highest at specific points of the year), not the volume of electricity sent through the network – the regulated revenue framework reflects this, however the majority of household network charges are levied on a volumetric basis.

From our perspective, there is quite a compelling argument to reduce network charges to zero during the free electricity period.  Certainly, if the government wanted retailers to offer three free hours – and not jack up costs somewhere else – the only way this could really work would be if network charges were changed to match.  

On the surface, this doesn’t sound like a big deal (again because demand is low in the middle of the day so demand in this period is not driving the overall network cost), but it would have a few further follow-on implications.  

First, it would have a large implication for the economics of household solar.   Residential solar receives two “subsidies”.   One is small technology certificates (STC), which are granted in a single upfront issuance when a system is built based on projected generation between installation and 2030.   By definition, this subsidy will go to zero by 2030.  The second “subsidy” is that the self-consumption of solar avoids the volumetric component of network charges on the electricity consumed.  This means that solar households bear a much lower share of network charges than non-solar households (even if they put similar peak period burdens on the grid).  Given that wholesale prices are often low/negative (see above), it is this avoidance of volumetric network charges that is a key driver of the benefits of rooftop solar.  In a world where network charges are cut to zero for three hours a day, this cross subsidy goes away and there is a significant reduction in the benefits of behind the meter solar.  In particular, the economics of utility scale and behind the meter would be levelised.

Second, the Solar Sharer tariff opens up the possibility of using the free power to charge a home BESS (which would be eligible for the home battery rebate scheme) and thus deliver power that could be used at other times of day.  Given that the home battery rebate has reduced the net cost of a household BESS to approximately $300/kWh, this implies a levelised cost of storage of around $0.12/kWh per day.   Given peak retail electricity prices are circa $0.30-$0.40/kWh, this makes a home BESS a pretty compelling option.  While current BESS offerings in Australia are focused on houses, it is interesting to see offshore the emergence of plug and play BESS products for apartments.  Clearly these would require Australian specific approvals from both a safety and electricity code compliance perspective.  However, if the Solar Sharer tariff became a reality there would be significant market opportunity for home BESS to make full use of the three hours of free power.

Finally, in our view, there is a significant signalling implication of the Solar Sharer Tariff.  It is basically a signal from the government that electricity in the middle of the solar day is worthless.  This has important long-term implications.  For example, why would someone invest in a solar system on their house if the government is saying they should be able to get that power for free.  Likewise, why build a utility scale solar farm if much of the time that it is generating electricity, the government is forcing retailers to give electricity away. 

Ultimately it might be this signal that has a bigger impact than the small percentage of customers who ever sign up to such as offer.