By embracing rooftop solar panels, Australian homeowners and businesses have helped to make the country a renewable energy powerhouse on a global scale.
- What’s driving the uptake of rooftop solar in Australia?
- What could slow the growth of rooftop solar uptake in Australia?
Australia set rooftop solar records for the fifth year in a row in 2021, with approximately 380,000 new systems installed across the nation with a combined capacity of 3.2 gigawatts (GW).
Of those, 1.7 GW were on residential roofs and 1.3 GW were on commercial and industrial roofs, with more than a quarter of Australian households now using rooftop solar panels to generate electricity.
By year’s end, Australia had reached an installed solar capacity of 26 GW – a world-leading installation rate of over 1 kilowatt (kW) of solar for every person in the country. With 16.5 GW on rooftops, Australia has seen more than a ten-fold increase over the last 10 years, from a total installed capacity of 1.3 GW in 2011.
As a result of this rapid take-up, about 17 per cent of Australia’s electricity was generated outside the electricity sector by industry and households in 2020-21.
Australia’s world-leading uptake of rooftop solar has recently led to new lows for minimum operational demand in the National Electricity Market (NEM). Operational demand refers to consumer demand for generation from the grid – low levels of demand are usually driven by consumer-owned generation, such as rooftop solar, minimising the demand for grid-scale generation from centralised generators.
On 28 August 2022, the Australian Energy Market Operator (AEMO) said high levels of rooftop solar penetration helped set a new NEM winter minimum operational demand record of 14,159 megawatts, down 34 MW from the previous winter record set just six days earlier. The all-time minimum operational demand record remains at 12,936 MW, set on 17 October 2021.
At the time that record was set, grid-scale and rooftop solar provided roughly 50 per cent of the generation in the NEM, exceeding coal-fired generation – a sign of a fundamental shift in the generation mix.
What’s driving the uptake of rooftop solar in Australia?
A number of factors have contributed to the uptake of rooftop solar in Australia – the most obvious being that Australia is one of the sunniest places on the planet.
Australia has the highest solar radiation per square metre of any continent on Earth. Although the areas with the highest levels of solar radiation are the desert regions in the northwest and centre of the continent, there’s still plenty of sun in the more densely populated areas where rooftop solar installations are common.
The most recent State of the Energy Market report released by the Australian Energy Regulator (AER) noted that community concerns about the impact of fossil fuel generation on carbon emissions have also been a major catalyst for rooftop solar take-up, driving policy initiatives by governments and behavioural change by energy consumers.
This is in line with Finder’s Consumer Sentiment Tracker, which shows that two in three Australians (65 per cent) are concerned about their personal carbon footprint, and a McKinsey report that found sustainability is playing a larger role in purchasing decisions for Australian consumers, leading to the rise of ‘a more ethical consumer’.
But while there’s no doubt consumers are increasingly aware of environmental concerns, the top reason for buying solar is to reduce bills and save money, according to an Energy Consumers Australia report on community attitudes to rooftop solar.
The report found that 75 per cent of solar customers chose eliminating or reducing their electricity bills as one of the most important reasons they invested in solar panels, with just 43 per cent prioritising a desire to reduce carbon pollution by using clean energy.
The International Renewable Energy Agency (IRENA) recently reported that Australia now has some of the lowest cost rooftop solar systems in the world. In 2010, the cost of a rooftop solar system in Australia was about 50 per cent higher than Germany, another worldwide solar leader, but by 2020, Australian systems were found to cost around 25 per cent less than German systems.
The IRENA report found the cost of residential rooftop photovoltaic (PV) electricity – known as the levelised cost of electricity, or LCOE – dropped by 58 per cent between 2010 and 2020. The report attributed the drop in price to the Australian market’s long-established suppliers, experienced installers and consistent demand.
Globally, declining solar prices have been driven primarily by declines in wholesale PV module prices, which fell by 93 per cent between 2010 and 2020 as module efficiency improved and manufacturing scaled up.
These technology and manufacturing improvements are likely to have contributed to an increase in the average size of rooftop installation – in 2021, the average size of a small-scale rooftop installation in Australia was 8.8 kW, up from 8.0 kW in 2020.
According to the AER, attractive feed-in tariffs – payments for excess electricity that households and businesses generate from small-scale solar power, which is fed back into the grid – offered by state governments also helped drive the growth in rooftop solar installations.
Although those state government incentive schemes have closed, subsidies are still available through the Australian Government’s Small-scale Renewable Energy Scheme. In effect, the small-scale technology certificates (STCs) available under this scheme act as a point-of-sale discount off the cost of solar installation, based on the number of panels you’re getting installed.
This rebate is set to be reduced by one-ninth of its current value every January, until it’s removed entirely in 2031.
What could slow the growth of rooftop solar uptake in Australia?
While Australia is leading the world in rooftop solar, it’s worth noting that installation rates have taken a step backwards in 2022.
According to the Clean Energy Regulator’s latest Quarterly Carbon Market Report, there was only 1.14 GW of rooftop solar capacity installed in the first half of 2022 – a 27 per cent drop from the same period in 2021.
The Regulator notes there’s been a recent increase in enquiries about rooftop solar, but if those enquiries don’t translate into sales growth, then the small-scale rooftop solar market is on track for 2.3 GW of new capacity this year, compared to 3.2 GW last year.
This is despite significant increases in wholesale electricity prices throughout the year that flowed through to retail prices on 1 July. The Regulator suggests that, rather than installing solar panels to reduce their energy bills, some consumers are taking a ‘wait and see’ approach to home improvements in the wake of interest rate rises, especially with further rate rises expected.
There’s also the larger issue that the grid wasn’t designed and built with rooftop solar in mind. Traditionally, AEMO has actively managed the dispatch of energy from centralised generators, and the rise of distributed energy resources like rooftop solar systems is changing the supply and demand mechanics of the NEM.
This is most evident in the rise of the ‘duck curve’ first identified by researchers at the California Independent System Operator.
During the day, as rooftop solar generates excess power, demand for dispatchable generation – electricity provided by generators that can produce on demand and vary their power output up and down according to market needs, such as coal-fired power plants – decreases. As sunset approaches, dispatchable generation has to be rapidly ramped up, creating a duck-like shape in the power curve.
As rooftop solar penetration increases and operational demand during the day falls to increasingly low levels, AEMO says it will become increasingly challenging to operate the power system securely.
This has led to authorities in some parts of Australia introducing measures that allow rooftop solar exports to the grid to be curtailed when necessary, to ensure the stability of the network.
In August 2021, the Australian Energy Market Commission (AEMC) introduced rules that will prevent blanket bans on rooftop solar exports, but will allow power companies to charge customers with rooftop solar panels for exporting electricity when there’s congestion on the grid from 2025 onwards.
On the other hand, rooftop solar panel owners with batteries will have the option of storing energy and sending it to the grid when the price is higher, and power providers will still need to offer a ‘free basic service’ for households who don’t want to change their generation and consumption behaviour. But it remains to be seen how export tariffs will impact rooftop solar uptake.
The new AEMC rules could contribute to an increase in household battery installations, which haven’t been as quick to take off in Australia as rooftop solar installations, but will have an important role to play in firming an energy grid that’s increasingly reliant on renewables.
IRENA reports that a downward trend in battery prices is improving the economics of residential systems that combine rooftop solar with storage, while the Clean Energy Council says falling battery prices led to a 45 per cent increase in household battery installations in Australia in 2021, with the caveat that these installation numbers are ‘incomplete and highly uncertain’.
Large-scale batteries – such as the $8 million battery that was recently connected to the grid at Tanby, south of Yeppoon in Central Queensland – also help to capture renewable energy generated on sunny days and store it for use during peak demand periods in the evening, increasing the capacity for renewables.
Whether or not rooftop solar uptake continues at the prodigious pace of the last decade, it’s clear that the solar panels that already adorn more than a quarter of the nation’s rooftops are here to stay – and that Australia’s generation mix will continue to evolve in the years and decades to come.