Battery subsidies are more reverse Robin Hood energy policy

The taxation arrangements around electric vehicles (EVs) are a reverse Robin Hood arrangement that extracts taxes from ordinary Australians to distribute to the rich.

A case in point is the EV fringe benefits tax (FBT) exemption, which was introduced in 2022 to make EVs more affordable for employees through salary packaging and novated leases.

Treasury expected the FBT exemption to cost around $200 million annually but now estimates the scheme to cost over $1 billion a year in forgone revenue.

Nearly half of the tax benefits have gone to those earning more than $150,000, raising equity concerns.

The total cost is forecast to rise to $9.7 billion between 2026-27 and 2029-30, as the number of EVs increases.

EVs are also exempt from road user fees, including the fuel excise.

The federal government’s home battery subsidy scheme is another example of reverse Robin Hood.

The scheme was originally budgeted to cost $2.3 billion over four years. However, the Department of Climate Change & Energy has advised that the subsidy is now expected to cost $8.5 billion over the life of the program.

The department has also revealed that the cost of the subsidy averaged $7,910 per household during its first six months, well above expectations of about $4,500.

The department says consumers have been opting for batteries with a larger storage capacity than anticipated. It has also disclosed that there are 136 companies on the Clean Energy Regulator’s list of approved battery makers, but only three of them are Australian.

The wealthy are most likely to install solar and battery storage because they can afford the high upfront costs. This leaves poorer households and renters facing steep increases in their power bills as fixed network costs are spread across a shrinking pool of customers.

Various green energy schemes have been regressive wealth transfers, leaving those unable to afford upfront solar investments to bear the escalating costs of the grid.

The Australian Energy Market Commission (AEMC) has proposed replacing variable electricity network charges with fixed charges from 2030.

The AEMC argues that the existing network charges regime, based heavily on electricity usage, benefits households that have invested in rooftop solar panels and storage batteries, at the expense of households that cannot afford to do so.

The AEMC proposes to replace variable network charges (based on grid usage) with fixed charges from 2030.

The rationale behind the change is that households with solar and batteries use less grid electricity and therefore avoid paying their share of network upkeep.

Network costs can account for up to 50% of a normal household’s electrical bill. The charges are collected to repay private operators of the poles and wires network, and they vary with the amount of power used. This means that homes with batteries and solar panels that use less grid electricity pay lower network prices.

According to the commission’s plan, network prices will be fixed beginning in 2030, ensuring that all consumers pay a fair share for network upkeep, regardless of whether they have reduced their grid usage through solar and battery systems.

AEMC chair Anna Collyer argues the current system is outdated and inequitable:

“Inaction is not a neutral option. The longer we wait, the more costly and more complex this system becomes, and the heaviest burden falls on those least able to carry it”, Collyer said.

Tony Wood, senior fellow at the Grattan Institute, argued that the proposed reform aimed to address a growing problem: households with the means to afford solar and batteries were no longer paying an equitable share of the cost of a network built for everyone.

“The AEMC is not resiling from its position that the people with solar and batteries are avoiding paying for the network and that’s got to be fixed”, Wood said. “Just because the financial attractiveness of rooftop solar and batteries may be less, that doesn’t mean we shouldn’t do it”.

As expected, the AEMC’s proposed changes are opposed by Climate Change & Energy Minister Chris Bowen.

A shift to higher fixed charges is a sensible move, as it will spread the costs of the electricity network more fairly among those who benefit from it.

Everyone benefits from the electricity grid, so policy must ensure that fixed network costs reflect the actual cost of running the grid and are recovered efficiently and fairly.

If solar and battery owners are unhappy, they can disconnect completely and try living “off grid”. Best of luck with that.