Potential threat to electricity: Solar panels will decrease the demand for electricity.

Delicate balance: tinkering with electricity tariffs. Photo: Justin McManus

The rapid spread of solar panels and the prospect of plunging costs of storage batteries pose unprecedented challenges for utilities, according to new research by a senior AGL executive.

The dilemma is that owners of solar panels get a relatively free ride on the network – estimated last year at about $241 a year in lower network charges than other users – but efforts to address the issue will probably run into political opposition, AGL's head of economics, policy and sustainability, Tim Nelson, writes in a new book.

Lost revenue will total about $1.25 billion over five years from the 1 million or so households, he says in Distributed Generation and its Implications for the Utility Industry, to be launched on Thursday.

Tim Nelson.

AGL's head of economics, policy and sustainability, Tim Nelson. Photo: Michele Mossop

Worse, moves to curb the appeal of solar panels – such as introducing peak-demand tariffs – ''may bring forward investments in batteries that allow consumers to shift their output from the middle of the day to the time in which their peak demand occurs'', Mr Nelson said.

The report notes the wide scale take-up of storage is not far off, with one study finding the solar panel and battery combination ''cost-effective'' for German residential consumers from this year.

In Australia, a 3-kilowatt solar photovoltaic, or PV, system and storage now costs about $21,900 – beyond the reach of most households. But if battery costs were to halve, the system would cost about $14,000, providing a payback period of 10 years.

''This is not too dissimilar to the economics of current stand-alone solar PV investments in Australia – which are occurring at significant numbers,'' Mr Nelson said.

Joel Gilmore, principal of ROAM Consulting, said solar PV is not quite competitive without support, such as the Small-scale Renewable Energy Scheme, ''but it's got to be close''.

Dr Gilmore agreed with Mr Nelson's analysis that utilities had to be careful in how they approached changes to tariff structures that might spark a faster take-up of solar PV and even a rush to exit the grid.

''People are looking for alternatives,'' Dr Gilmore said. ''There's as much psychology as finance in any decision.''

While some consumers would carefully assess the payback periods, ''most people are saying it sounds like a pretty good deal and I'd rather be shot of my electricity company''.

Ric Brazzale, president of the REC Agents Association representing firms trading in renewable energy certificates, said utilities were ''still fighting a rearguard action'' to hold back solar PV.

Analysis should take fuller account of the benefits PV offered during heatwaves to lower peak prices and push the spike in demand to later in the day. Mr Brazzale said that during last summer's hot spell in January wholesale prices reached only $509 a megawatt-hour. This compared with $4600 a MWh during a comparable day just before the Black Saturday bushfires in February 2009.

Mr Brazzale said utilities were also providing an incentive to households to buy storage by offering meagre feed-in tariffs of about 6 cents a kilowatt-hour while charging as much as 30 cents a kWh for the power they supply.

Mr Nelson said utilities had to come up with schemes that encouraged solar and storage where it made sense but also priced in social benefits such as the availability of reliable grid power.

''For many customers, they will still need the network to provide their energy needs because they're so much greater relative to any self-production capability that they've got,'' Mr Nelson said.