Why are feed-in tariffs falling?
Victoria’s minimum solar feed-in tariff (FiT) is set to drop again. The Essential Services Commission (ESC) has released a draft decision reducing the minimum FiT from 3.3 cents per kilowatt-hour (kWh) down to just 0.04 cents from 1 July 2025.
Important note: Indigo Power does not necessarily follow the ESC minimum FiT and is yet to set its own FiT pricing for the next financial year.
The primary reason for falling FiTs is the surplus of solar power flooding the grid during peak daylight hours. As a result, wholesale electricity prices often drop—and sometimes even turn negative—in the middle of the day. Under the ESC’s “avoided cost” methodology, retailers pay less for excess solar, leading to lower FiTs.
This latest reduction comes just after the end of Victoria’s Premium Feed-in Tariff (PFIT) on 1 November 2024. The PFIT once provided 60+ cents per kWh to early solar adopters, but as solar adoption has grown, these high returns have phased out.
Is it fair that FiTs are dropping?
We understand that lower FiTs may feel unfair to solar owners. So, we’ve prepared a response to some of the arguments we commonly hear in the community to try and explain why the change is happening and how this shift can still be equitable.
“Solar owners contributed to the renewable transition and deserve higher returns”
Argument: Homeowners who invested thousands of dollars in solar systems played a key role in the renewable transition and feel they should be rewarded with high FiTs—especially since they took on the risk of installing solar in the early days.
Our response:
- High FiTs were a temporary incentive to boost early solar adoption. Now that solar is mainstream and installation costs are lower, these subsidies are no longer needed.
- Self-consumption remains the best way to save. Even with lower (or near-zero) export rates, self-consuming your solar saves significantly more than any feed-in tariff ever could (by offsetting high retail prices).
- Market dynamics have changed. More solar means lower daytime electricity prices—this isn’t a penalty for early adopters but a natural result of supply and demand dynamics in the wholesale electricity market.
“Without high FiTs, solar is no longer a good investment”
Argument: If feed-in tariffs decrease, homeowners won’t recover their solar investment.
Our response:
- Solar is more affordable than ever. The capital cost of solar has dropped dramatically since early FiT schemes began, making the payback period shorter—even with lower FiTs.
- Most savings come from avoiding retail electricity costs, not FiT earnings. High export tariffs were always a bonus, not the core of solar’s value.
- Other incentives remain. There are government rebates, interest-free loans, and other programs that reduce upfront costs or incentivise complementary technologies like batteries and heat pump hot water systems.
“It’s unfair that retailers benefit while solar owners lose out”
Argument: Some see the drop in FiTs as favouring big energy companies or networks, claiming they pay less for solar but still charge high retail rates.
Our response:
- Limited retailer margins for daytime solar: When wholesale prices are negative or extremely low, retailers and networks aren’t making a windfall on daytime solar; sometimes they actually lose money on those excess exports. This is why Indigo Power is setting up the Energy Shapers Plan. The more we can incentivise customers to consume power at times of high solar production, the less Indigo Power loses on exporting power to the National Electricity Market at times of negative prices.
- Innovation and pricing plans: Many retailers (including Indigo Power) are introducing daytime rebates, time-of-use plans, and community batteries to help share benefits with customers—solar-owning or not.
- Encouraging new consumption patterns: Lower FiTs can be a catalyst for new technology adoption (batteries, EVs, heat pumps), which empowers solar households to store and self-use energy instead of exporting it at a rock-bottom rate.
“Dropping FiTs punishes people who can’t use their solar during the day”
Argument: Homeowners who are away during the day can’t self-consume their solar, so lower FiTs disadvantage them.
Our response:
- Battery storage and smart appliances can help shift solar usage to evenings and nights (e.g., EV charging, preheating water, running appliances on timers). Battery costs are rapidly decreasing, making this technology increasingly affordable.
- Community battery projects are growing. Rapidly expanding community battery projects allow surplus solar to be stored locally and used by residents later—often at better rates than the broader market offers.
- Flexible tariffs are emerging. We’re seeing the rise of innovative tariff structures that reward flexible usage and accommodate working-from-home lifestyles or families that can schedule usage to align with solar peaks.
Energy Sharing: Shared benefits for the whole community
Indigo Power’s Energy Shapers Plan ensures that lower FiTs benefit everyone. Instead of surplus solar being exported at rock-bottom rates to the National Electricity Market, it is shared within local energy hubs. This means everyone in the community gains access to cleaner energy at a better rate, not just those with panels on their roofs.
Lower FiTs aren’t about punishing solar owners; they reflect the next stage of the energy transition. At the community level, this stage will be marked by increased daytime energy sharing, smart appliances, and community scale clean energy storage solutions.
Ben is Indigo Power’s Managing Director. He has a passion for collaborative initiatives that positively impact our communities. Ben leads our skilled and committed projects team, driving the uptake of community-scale clean energy technologies in communities around Australia.