Is rooftop solar the beginning of a new order?

The subsidy and power bill-driven surge in rooftop solar may have abated but falling costs, an established PV industry and still attractive economics suggest solar ain't finished yet.

This is the final article in a four-part series focusing on rooftop PV and particularly the 899,017 rooftop PV systems installed between the start of 2010 and end of 2012. The previous three available here, here and here looked at the question of windfall gains, free-riding and tariffs, respectively. This article rounds out by speculating on whether rooftop PV is a disruption on the fringe or the beginning of a new order.

The continued uptake of photovoltaic rooftop solar in Australia, even as subsidies have declined, has sparked debate on whether the centrally dispatched electricity industry model is at the beginning of a death spiral.

We estimate that the life-cycle average cost of electricity produced by the 899,017 PV systems installed between 2010 and 2012 is $162/MWh. This compares to the nation-wide average household electricity price around $320/MWh.

In other words, for households in Australia that installed PV during the period from 2010-12 it costs, on average, half as much to produce electricity from a PV system than it does to purchase electricity from the electricity grid. And since this analysis covers a period during which PV costs were typically considerably higher than they are now, the conclusion would be that the gap between grid and PV is now even wider.

This suggests significant potential for further expansion of PV and, if battery storage can be supplied for less than around $160/MWh, then it would seem to be more economic for households who have the opportunity to leave the grid altogether. Prima facie therefore, it seems reasonable to conclude that the traditional centrally dispatched industry model is now on the back foot, at least in respect of supply to smaller electricity users.

But there are many uncertainties on new developments and the rate of change. On the demand side it's still far from clear how households evaluate the economics of PV. In choosing whether to install PV do they look at marginal prices (the cents per kWh rate in their tariff) or do they look at average prices (total bill divided by total consumption) or do they just concern themselves with the total bill reductions associated with the installation of PV? Do they focus on payback period, what cost of capital do they assume, how do they value other factors associated with PV (environmental kudos, keeping up with the Jones’, greater energy independence) and so on and on?

And on the supply side: how will installation and product costs evolve, how will business models change (e.g. leasing and renting), what new product developments (e.g. integration of batteries and electric cars, Fresnel lenses) will completely change the market? In so many ways, if you will excuse the pun, the recent developments in PV have shown that the sky is the limit.

In a 2009 report we speculated that there might be 500,000 rooftop PV systems installed in Australia by the end of 2013. At the time this put us way out at the end of the spectrum: official forecasts were for less than one-tenth of this. In the end we underestimated, by a factor of two.

Premium feed-in tariffs and certificate multipliers are a thing of the past, and unlikely to return at least for the foreseeable future. And electricity prices to households, having escalated so much over the last five years, will probably revert to their long-term trend rate of change – the consumer price index. While these powerful PV-uptake drivers are now no more, other factors have become important.

Solar in Australia is now big business and with that comes the organisational capacity to hold its own in regulatory and policy debates.

Even more importantly the economics of PV, without subsidy, seems to be attractive in Australia and in many other countries. That viability stimulates supply which in turn stimulates demand, innovation and product development.

PV has long enjoyed popular support and now with 17 per cent of Australia’s registered voters also the direct beneficiaries of rooftop PV electricity there is a sizeable political constituency with a concentrated interest. It would be a brave politician that takes this on, as the recent experience in NSW and Western Australia shows.

Is rooftop PV the death knell for the traditional centrally dispatched electricity industry as we know it? For many electricity users, and almost all large energy users, surely not.  But it does bode well for those wanting a more interesting, cleaner, competitive, customer focused and dynamic electricity industry. In this sense at least, rooftop PV is perhaps the beginning of a new order.

Bruce Mountain is director of Carbon and Energy Markets.

*This article is the final in a four part series based on the chapter Australia’s million solar roofs: Disruption on the fringes or the beginning of a new order by Bruce Mountain and Paul Szuster to be published in Distributed Generation and its Implications for the Utility Industry, edited by Fereidoon P. Sioshansi, published by Academic Press.

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