Rooftop photovoltaics have become an important part of Australia’s energy transition

Lumi Adisa, director of energy market analysis at NEOM and former investment director of energy markets at Australian Octopus Investment Company, discussed in depth the unprecedented impact of rooftop photovoltaic systems on the Australian National Electricity Market (NEM) in a recently released analysis article. As the rooftop PV market continues to drive changes in intra-day demand and price trends in Australia, customers will remain an important part of the country’s energy transition in the coming years. 

From an electricity demand perspective, Australia’s spring electricity demand is typically mid-range and many of the lowest operational demand records are broken during this season as the weather is mild and no additional heating or cooling is required. However, a key factor in achieving minimum operating requirements is the growth in installed capacity of rooftop PV systems. This article from Adisa delves into the unprecedented impact rooftop photovoltaic systems are having on the new energy market.

Rooftop photovoltaic systems become a hedge against rising electricity prices

On a per capita basis, Australia is currently the global leader in rooftop PV, with approximately one-third of households having rooftop PV systems installed. In 2022, rooftop photovoltaic power generation will account for 26% of Australia’s total renewable energy generation, and the country’s cumulative installed capacity of rooftop photovoltaic systems currently reaches 16.3GW, which is almost twice that of grid-scale photovoltaic systems (8.7GW). The phenomenal growth of the rooftop PV market began more than a decade ago, when generous policies and rebate programs introduced by the Australian federal and local governments helped many home users overcome the hurdle of upfront installation costs for rooftop PV systems. With breakthroughs in technology causing the cost of photovoltaic modules to fall rapidly, many Australian households see the technology as a hedge against years of rising electricity prices.

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Figure 1. Comparison of installed capacity and peak demand of rooftop photovoltaic systems installed in Australia

Rooftop PV market developments in Australia have had significant impacts on Australia’s National Electricity Market (NEM), including changing intraday demand, reducing revenues from large-scale PV systems, changing intraday operations of thermal power assets, and increasing demand for flexible generation. As shown in Figure 1, over the past six years, the installed capacity of rooftop PV systems in Australia has increased by 3 to 4 times, which is an astonishing result. New South Wales, in particular, has seen huge growth over the past six years, recently overtaking Queensland to become the leading state in Australia for the installation of rooftop PV systems. Yet electricity demand in other states has remained relatively flat over the same period.

As mentioned above, Australia’s operational demand is total electricity demand minus rooftop PV generation. Therefore, assuming total electricity demand in Australia remains constant, as rooftop PV generation increases, daytime operating demand decreases. Given that operational power peaks occur after sunset, this means rooftop PV is a key driver of daytime generation demand from renewable energy across Australian states.

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Figure 2. Rooftop photovoltaic power generation by time in New South Wales and operational demand at different times of the day

As shown in Figure 2, daytime electricity demand has been increasing for many years, driven by the growth of rooftop PV capacity, particularly in New South Wales (but also in other states). This is expected to continue to drive investment in flexible resources such as battery storage systems. New South Wales’ trough-to-peak power demand is currently around 3GW. As the state faces a huge capacity gap from the retirement of coal-fired power plants (approximately 6GW over the next decade), it remains to be seen how natural gas power plants and storage systems will meet this growth trend. Recently, the state announced plans to deploy a number of large-scale battery storage projects, such as the Riverina Battery Storage System and the Darlington Point Battery Storage System. Another key development worthy of attention in the energy storage field is the 2GW Snowy 2 pumped hydro power generation project. It’s unclear how quickly the project developers can bring the project online to help manage the state’s growing daytime demand.

On the positive side, growth in rooftop PV capacity installed in NSW has (somewhat) made up for the supply gap left by the retirement of the Liddell coal-fired power station last year. Perhaps these two events (the retirement of the Liddell coal-fired power plant and the growth of rooftop photovoltaic system capacity) are related and to be expected as consumers try to protect themselves from high electricity bills left behind by capacity shortages — — although this is a question that requires further analysis.

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Figure 3. Difference in intraday operational demand in Australia from 2017 to 2023

As mentioned above, this upward trend can be seen across Australia’s states, along with new energy policies to phase out coal-fired power plants, and is a challenge that must be addressed by Australia’s state and federal governments, as well as other policymakers. Figure 3 depicts the variation in average intraday operational demand across Australian states from 2017 to 2023. While peak electricity demand has changed little in these states, daytime demand trends have shifted, driven primarily by rooftop PV systems. A common trend across Australian states is a drop in power demand during midday and an increase in demand during non-daylight hours, highlighting the ongoing impact of rooftop PV over the years.

In Queensland, average midday demand has fallen by more than 1GW over six years, while peak evening demand has increased by more than 250MW. Victoria has seen a similar daytime demand curve over the same period, with midday demand falling by around 1GW and evening peak demand increasing by more than 200MW. New South Wales, which has the largest peak load, has seen the largest changes in daytime generation, with power demand falling by almost 2GW at midday, while peak demand increased by about 100MW in the evening. These trends raise questions about states’ changing flexibility needs and what the future generation mix from renewable energy should be given the retirement of coal-fired power plants that dominate those states. Although we have seen many final investment decision (FID) announcements for battery energy storage systems, deploying distributed energy storage systems remains a challenge. In view of the current trend of increasing installed capacity of rooftop photovoltaic systems, it is only a matter of time before policymakers will pay attention to the construction of distribution networks and seek some mechanisms to alleviate power supply shortages.

Taken together, the unprecedented growth in installed capacity of rooftop PV systems in Australia demonstrates that grids around the world are evolving through the rapid growth of distributed generation facilities and that global electricity service providers will utilize rooftop PV systems to deliver services and address related challenges. Have some flexibility.

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