Large-Scale vs. Small-Scale: A Solar PV Debate

The Australian continent has some of the best solar resources in the world, i.e. lots of sunshine and space to deploy them, which is why the cost of solar is among the lowest in the world. When it comes to solar PV electricity generation there are two paths to take - large-scale solar fed into the National Energy Market (NEM) from PV solar farms or a decentralised approach with rooftop solar panels adorning households and businesses. Naturally, there will always be a hybrid deployment but one approach should dominate the other. 

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Large-scale (or utility-scale) solar projects have a lot of advantages over rooftop solar. The power generated is cheaper due to the scale of the projects, they’re located in prime solar locations to maximise generation, they have better reliability, and are generally financed at attractive rates. 

Everything is working in large-scale solar’s favour.

What’s interesting though, is that a recent report by the Australian Clean Energy Council showed evidence to the contrary. In 2020, a record 27.7% of all electricity generation in Australia came from renewable sources. Of that 27.7%, wind is firmly the leading source of renewable energy contributing 35.9% but in 2nd place was small-scale solar with 23.5% market share after adding 3GW of new capacity in 2020. Hydro was the 3rd largest contributor with 23.3% and large-scale solar came in 4th at 10.9%.

Australian households have the highest rooftop solar penetration in the world, not just on a per capita basis but on an absolute basis as well. At the end of 2020, more than 2.66m homes and businesses had rooftop solar which is about 25% of all homes. While this is great news for cutting emissions, it is causing problems with the energy grid due to the intermittent nature of solar. In 2019, only 8% of new rooftop solar systems also installed a battery which is resulting in extremely low demand during the day, pushing wholesale NEM prices negative, and extremely high prices during the evening peak, pushing prices to the maximum wholesale spot price of $15,000 per MWh. 

If large-scale solar is cheaper then why is rooftop solar so popular?

The obvious reason for Australian adoption of rooftop solar is it’s a great way to fight climate change given our heavy dependency on coal power generation. However, I don’t believe Australians are all that altruistic and the determining factor is cost. Since 2007, Australia has seen a large increase in household electricity prices due to a need to increase investment in the network which hadn’t been adequately funded in the past. Couple these rising power prices with state-based government subsidies, low barriers for permit approval, and a country that gets through heat waves with electricity guzzling air conditioners, and you have the perfect recipe for adoption of rooftop PV solar.

All this results in a potential death spiral for large-scale solar.

This scenario is enacting a death spiral for large-scale solar generation in Australia. Due to high energy prices, households/businesses have installed their own decentralised solar network which is having the effect of low power prices during the day and making current baseload coal power generators unprofitable, causing early retirement of assets. This is leading to higher energy prices which are spurring the uptake of household solar assets further putting pressure on baseload generators and so on until all coal generators have been decommissioned - more than half of the 24 coal fired power stations operating in Australia are set to be retired within 15 years. 

This spiral is hard to reverse and is making utility-scale solar uneconomical in Australia for energy sales into the NEM. New projects are having trouble finding funding and existing solar farms are having to switch off during peak generation due to the negative prices experienced in certain regions. Moreover, it is creating the need for new investment in peak-load power generation such as open cycle gas turbines to cover evening-peak demand when the sun is not shining. The Federal government recently announced the construction of a $600m gas power plant in the NSW Hunter Valley to assist the grid during the peak demand.

Storage is the Solution

The adoption of solar assets in Australia is great for the environment but this enthusiasm for rooftop solar is creating new challenges for governments and the energy network. The solution for these problems appears to be storage. Traditionally, batteries have been extremely expensive which is why the uptake in conjunction with a rooftop system has been low. However, battery prices are falling at an exponential rate, with prices expected to fall 10-15% this year alone. State governments are recognising the issue and enacting subsidies to battery purchases. For example, the Northern Territory government has a “Home & Business Battery Scheme” providing a grant of up to $6,000. Furthermore, large-scale battery projects are starting to work economically which has resulted in a pipeline of 7GW of battery energy storage projects around Australia. All these actions should result in less dependency on the grid during the evening peak and help to smooth out the transition from fossil fuels to renewable energy. 

1-Minute Podcast Episode 10: Large- Scale vs Small- Scale Solar


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