The impact of rooftop solar on demand

Australia leads the world with small-scale solar installations (rooftop solar) on a per capita basis.

Across the country, almost 20% of households have a rooftop solar system installed. The vast uptake of these system since 2009 was initially driven by significant subsidies from Government, both in terms of savings related to upfront costs for installation through renewable certificates and premium feed in tariffs for energy exported to the grid.

However, even with the closure of most solar incentive schemes, the total amount of rooftop solar installed is still increasing, due largely to the decreasing cost of panels and the increased desire by households to offset some of their energy costs. Despite peaks in installations to maximise the benefit of incentive schemes that were closing, installations have continued at a regular rate in recent times.

Growth in Solar PV in Australia over 10 years

Source: Australian PV Institute, Australian PV market since April 2001, available at: http://pv-map.apvi.org.au/analyses

“Across the National Energy Market (NEM), rooftop solar installations have reached a cumulative capacity of 7500MW, which represents around 15% of total available generation capacity in the NEM.”

This trend is likely to continue for some time. According to a 2018 report from AEMO, by 2038 the total capacity of PV systems is likely to be close to 20,000MW, which could be over a quarter of total NEM capacity.

Impact of rooftop solar on demand

For an individual customer, rooftop solar can help to offset electricity usage during the day, or, when electricity use is small, energy can be exported to the grid at the rate of the customer’s feed in tariff.

In aggregate, the impact of rooftop solar is significant in reducing the need for other generation during the day. However, rooftop solar has done little to reduce peak system demand, which in most Australian regions occurs at times when solar generation is minimal. With a hot summer climate, Australia’s peak electricity demand occurs on hot summer evenings – when temperatures are at their highest and people are at home using their air-conditioners and other appliances.

Indicative load chart of South Australia showing impact of rooftop solar

Source: AGL data

What this shows is that solar panels are useful for customers in reducing their own energy usage but can be problematic for the design of the NEM as they significantly affect the ‘load shape’ of electricity demand during the day, by generating most of their electricity when the sun is shining and not during periods of peak load.

With increased rooftop solar, demand becomes ’peakier’. While the minimum amount of generation that is required during the day is reduced (i.e. that which would have traditionally been provided by ‘baseload’ generation), the evening peak is not significantly reduced as rooftop solar is no longer generating energy.

In practice, this means that just as much generation needs to remain in the NEM to be available to meet peak demand, but that this generation is being run less often during the day when demand is low.

This leads to traditional baseload generation facilities being underutilised and stressed, as they cannot turn off when demand is low and are not designed to be run up hard every day to meet the evening peak.

“It is for this reason that AGL and other energy market commentators have spoken about the need for more ‘flexible’ generation in the future (such as peaking gas, hydro, and batteries) to complement the increasing amount of renewables.”

Projected impacts

Within a few years, the increase of rooftop solar will have even more dramatic impact, as some states within the NEM are forecast to become net exporters of energy during the middle of the day. This means that rooftop solar and other renewables will meet the generation needs of an entire region.

In its most recent report on future demand, AEMO forecasts negative minimum demand for South Australia under certain conditions in the 2020s. For some low-demand days (such as a sunny weekend day in the winter), rooftop solar will meet 100% of generation needs during the day, but again, will do little to assist in lowering the evening peak.

Indicative load chart of South Australia showing impact of rooftop solar in the future

Source: AGL data

Financing electricity infrastructure such as poles, wires, and generation facilities that can meet peak demand in the context of declining overall volumes and negative demand periods is problematic under the current design of the electricity market.

Electricity generators operate in an ‘energy-only market’, and so must be efficiently utilised and regularly dispatched to recover their costs. Similarly, network prices and retail products in Australia are generally based on volumetric (the total amount used) rather than demand characteristics (the maximum amount used at the peak), which means that network costs must be increased per unit of electricity to be recovered through less volume.

The continued growth in rooftop solar and the consequential shift in load shape is therefore likely to have significant implications for customers who do not have access to solar. To address these issues, AGL have advocated for changes to the make prices more reflective of contribution to peak demand rather than overall electricity usage. This type of pricing is called cost-reflective pricing, or demand pricing.

Other changes to consider

The inability of rooftop solar to help address evening peak demand is an ongoing concern, and changes to the way electricity is priced may help address this issue. However, one of the more obvious ways of directly addressing the issue is through utilising electricity storage and small scale-batteries.

“While battery storage uptake has begun slowly, with only around 20 thousand battery systems installed nationally in 2017, it is forecast that uptake will accelerate sharply as costs decline and more cost-reflective pricing structures incentivise load-shifting to help the evening peak.”

As well as residential and commercial battery uptake storage systems, substantial increases in the uptake of electric vehicles (EVs) are also forecast. EVs plugged into the grid operate effectively like portable batteries, interacting with the electricity grid to provide services at the right location and time.

Automation and the ability to integrate rooftop solar, batteries, and EVs into the grid will enable further opportunities to solve the problems associated with the broad uptake of solar.

This transition will require long-term vision – with careful consideration and design of our regulatory environment by policy makers, ensuring consumers are happy and above all, the delivery of affordable, safe, reliable energy and we transition towards a decarbonised future.