The Sun Tax – Is it Really Coming in 2025?

Feed-in tariffs were introduced back in 2008 as a one-way incentive to reward solar panel owners for exporting excess energy to the grid. In recent years, discussions about a two-way pricing structure, or a solar tax on exports to the grid, have been taking place between electricity distributors and the market operator – the Australian Energy Market Commission (AEMC). The tax on solar exports has been dubbed by many in the media as the “sun tax”.

What is the Sun Tax?

The Sun Tax is a two-way pricing mechanism for solar exports whereby, solar owners will be charged for exporting excess energy to the grid during peak generating hours, typically between 10am – 3pm.

A reward incentive is typically included in the new pricing proposals, where solar exports after 4pm receive a higher credit.

Talks of a “Sun Tax” have been ongoing since August 2021, when the Australian Energy Market Commission (AEMC) accepted a proposal to consider a two-way pricing structure for solar exports.

Since then, the Australian Energy Regulator (AER) has been assessing distributors from states and territories on a case-by-case basis to determine whether solar owners should be charged for exporting excess solar power to the grid during peak generation times.

The two-way pricing structure would change the way feed-in tariffs work and allow energy providers to charge customers for the energy they send to the grid, instead of paying them.

How the Sun Tax will work

The Sun Tax will work differently in each state in Australia. It is only being considered for states that make up the National Electricity Market (NEM): New South Wales, Victoria, Queensland, South Australia and Tasmania.

Pricing proposals are being put forward by electricity distributors in each state, though some states are not proposing a tax on solar exports.

The following table provides a summary on each state’s intent to charge a solar tax:

Sun Tax in NSW

The Sun Tax is likely to be applied to customers in NSW from July 1 2025. Electricity distributors including Ausgrid and Essential Energy, have explained how the Sun Tax will work:

• Customers charged 1.2c / kWh for exports between 10am – 3pm
• Customers rewarded 2.3c / kWh for exports between 4pm – 9pm
• Export free threshold to apply between 10am – 3pm

Importantly, not all exports between 10am – 3pm will charged. An export free threshold will apply. For example, the first 6.8 kWh exported between 10am – 3pm will be free of charge, exports above this threshold will then be charged. The threshold will likely be applied over the course of a month and not one day.

As Ausgrid explains, electricity retailers will likely apply the changes so that they impact the solar feed-in tariff in NSW and not appear as an additional charge on bills.

Ausgrid estimates that the annual cost for a “typical” 5kW residential solar panel owner will be $6.60 per year or, around 13c per week.

The Sun Tax in Queensland

In its Draft Decision document published in September 2024, The AER knocked back two-way pricing (Sun Tax) proposals from QLD distributors Energex and Ergon.

In their proposal, the QLD distributors put forward a July 2026 start date for voluntary opt-in to the solar tax and reward pricing structure. The two-way tariff structure is likely to apply to all solar owners by July 2028.

Solar owners in the sunshine state are likely to be rewarded handsomely with a high QLD feed-in tariff if they can export solar to the grid after 4pm.

It is now up to the two Queensland distributors to submit a new proposal and satisfy the AER.

Sun Tax update in Victoria

The Victorian government, in a push to meet its 2030 Renewable Energy Target, is not in favour of enforcing a mandatory tax on solar exports during peak daylight hours. It appears that no Sun Tax be applied in Victoria before July 2031.

Ausnet, the distributor to the eastern half of the state of Victoria, is not proposing a mandatory tax on solar exports before July 2031.

Likewise, United Energy is not considering a Sun Tax, but is looking to reward customers that can shift their load to export solar energy during the evening peak hours.

However, the VIC feed-in tariff is regulated each year and already has an opt-in flexible tariff. It may be that changes apply to the feed-in rates as opposed to charging a mandatory solar tax on exports.

A solar tax in South Australia

A solar tax, or ‘Sun Tax’ will apply in South Australia. SA Power Networks is the main distributor in South Australia. Although the AER did not approve SA Power Networks’ tariff structure proposal, they did endorse their two-way pricing proposal.

There is no export reward for customers with a system smaller than 30kW.

The AER will likely approve a new submission from SA Power Networks in the coming months and these charges could apply from July 1.

Once the two-way pricing structure comes into play, it will be up to the electricity retailer to pass the charges onto consumers. This may impact the SA solar feed-in rates and not appear as a separate tariff.

Sun Tax in Tasmania

TasNetworks, the sole electricity distributor in Tasmania, is not proposing a Sun Tax on excess solar exports before July 2029.

Why are states introducing a Sun Tax?

For some commentators, the notion of a Sun Tax for solar owners seems counterintuitive to Australia’s renewable energy goals. After all, the government has been rewarding and incentivising solar adoption with rebates since 2011.

It’s important to understand that the proposed solar tax is not a backflip on those incentives. In fact, the national solar panel rebate is expected to last right through until 2030.

The Sun Tax is a pricing mechanism to combat the oversupply of energy being sent to the grid during peak sunlight hours, when demand for electricity is low. The large inflows of energy being sent to the grid means that supply outstrips demand to such a degree it causes instability which, can lead to voltage issues and possible blackouts. The oversupply issue is reflected in wholesale electricity prices, which are often very low during the middle of the day.

The Victorian government is looking at alternative ways to deal with grid oversupply issues including, throttling back inverters when necessary.

How to combat the Sun Tax

The two-way pricing structure encourages solar owners to export their solar to the grid during times of peak electricity demand.

Although various distributors have prepared analysis on the minimal cost impact to solar owners, the Sun Tax is really an extension of the variable and lower daytime feed-in tariffs introduced in recent years. Going forward, solar owners need to be smarter if they are to maximise their savings.

There are three ways you can avoid the Sun Tax:

• 1. Use more electricity (e.g. EV chargers) during peak daylight hours
• 2. Invest in a solar battery
• 3. Consider an east / west panel orientation

If you can use more electricity during the middle hours of the day, then you should do so – Sun Tax or not. This is the best way to use your solar energy.

Consider installing a battery

A charge on solar exports will improve the economics of solar batteries – increasing savings and reducing payback times. Your solar system could be set up to charge the battery during peak generating hours so as to avoid the export tariffs.

East / west panel orientation

If you are considering solar, or looking to upgrade your existing system, it might be worth looking into an east / west panel orientation. East facing panels will generate electricity during the morning peak before the tariff charges apply. Likewise, west facing panels will generate electricity later in the day.

Final thoughts

The idea of a “Sun Tax” has been in conversation for nearly four years.

In 2025, New South Wales is set to become the first state to charge solar owners a two-way tax for energy exported to the grid during peak times. Ausgrid and Endeavour Energy said they will introduce the Sun Tax on July 1, 2025. South Australia may follow suit soon after.