Australia’s biggest battery subsidy scheme that will help pay the installation of a home battery system in South Australia has been officially opened by the state government today.
Under the Home Battery Scheme, the subsidies of up to $6,000 will be available to 40,000 South Australian households and scaled in line with the size of the system being installed.
This means that a household with a large battery providing 10kWh of storage would be in line for a $5,000 or $6,000 subsidy, the latter one being reserved for concession holders – such as pensioners and low-income homes.
The $100 million in state government subsidies have been matched by $100 million in low-interest loans from the Clean Energy Finance Corporation (CEFC) for the balance of the battery and new solar if required.
These loans will be delivered through U.K.-based RateSetter’s new South Australia-specific renewable energy lending market, in cases when the upfront costs of the home battery system installations are not met by the South Australia government subsidies
The market of renewable batteries in Australia demonstrates its marginal social benefit (MSB) curve being higher than the marginal private benefit (MPB) curve, creating the positive externalities of consumption in between. Since the market under-allocates the solar panels, the quantity does not meet the socially optimum level (Qopt), thus creating a market failure.
Subsidising the renewable batteries is a method of correcting the positive externalities, under-provision and under-consumption.
When batteries are subsidised, the supply curve (S=MPC=MSC) shifts outward (to MPC–subsidy), increasing the total supply by the market and thus correcting under-provision, assuming that the subsidy is equal to the external benefit. The shift of the supply curve causes the price fall on demand curve from Pm to Pc, and this increases the quantity demanded, due to the law of demand, and thus allocative efficiency is achieved. As a merit good, the renewable betteries create positive externalities of consumption when consumed. That is, the consumption of batteries does not only benefit the consumers (due to the lower electricity fees), but also the third-parties. Renewable Batteries reduce the use of electricity, and is a more environmentally friendly and efficient source of energy. This helps to curb the energy consumption and pollution level in Australia, which improves the standards of living.
However, there are downsides too, to subsidise batteries. The subsidies come from the tax paid by the citizens, including non-owners of renewable betteries. Not only is this unfair and may cause discontent among the people, but it also has an opportunity cost. The tax expenditure on battery subsidies could be spent on other things instead, such as education, which is for all children in the state that the future depends on, and may potentially increase total output and reduce crime rate, improving the standards of living.