The rooftop solar rabbit Chris Bowen could pull out of his hat

The dramatic surge in small battery installations since the federal rebate was introduced at the start of July warrants a rethink about how we are planning to decarbonise the electricity system.

The daily rate at which these batteries are being registered in the past two months is five and half times greater than what it was last year.

Of critical importance is that it shows we’ve massively underestimated what’s possible in the future, with recent rates being three times greater than the level that the Australian Energy Market Operator (AEMO) Step Change scenario had expected would be achieved in 10 years’ time.

The rapid battery scale-up over the space of just a few months stands in stark contrast to what we’ve been experiencing with transmission infrastructure. 

Proposed new transmission projects are seeing a doubling and even tripling in their budgets and timeframes. This substantially impedes the speed with which we can deploy new large-scale wind and solar farms.  

The demise of rooftop solar policy support

We absolutely need to roll out more of these large projects and associated transmission. But transmission is the tortoise of the energy transition and policy makers need to dedicate more attention to fostering some hares. 

In Green Energy Markets’ own attempts to forecast the small-scale solar and battery market on behalf of AEMO we made the very conscious decision that under the scenarios intended to cater for rapid decarbonisation – Step Change and Green Energy Exports – we should incorporate an assumption that governments would introduce additional policies to support the adoption of rooftop solar and batteries.

Not to do so would result in a distortion in planning of the power system. This is because the separate model AEMO uses for determining the evolution of large,  transmission-connected power stations incorporates an emissions budget constraint.

We reason that if governments want to constrain electricity emissions, they aren’t limited to deploying emission reduction technologies at the level of large power stations.  

Consequently, in our past projections for solar and battery uptake in the Step Change and Green Energy Exports scenarios we assumed that governments would introduce some kind of financial incentive to support the adoption of batteries.

Which is exactly what this Federal Government ended up doing (although one year earlier than we assumed). 

Also, while many seem blissfully unaware of it, the federal government’s Small Scale Renewable Energy Scheme (SRES) provides a substantial discount to upfront cost of solar systems which increases their level of uptake by consumers. 

However, each year since 2017 the level of discount the SRES provides for solar systems steps down, such that by 2031 small solar systems will receive no policy support at all. 

As shown in the Solar Choice Price Index chart below (which shows prices to the customer after deducting the SRES discount), up until 2021 the cost reductions achieved by the solar industry managed to outpace falls in the support from SRES, so the market continued to grow.

After a short COVID inflationary spike, the solar industry has continued to achieve cost reductions, but they have struggled to keep pace with falls in SRES support. 

In our modelling of the Step Change and Green Energy Exports scenarios we assumed that as the SRES was phased out, new policy would be introduced to provide a financial reward for the carbon abatement that small solar systems deliver.

After all, the Australian Energy Regulator has determined that carbon abatement should carry a significant economic value. For 2025 it puts this value at $75 per tonne of CO2 which steadily increases to $157 per tonne by 2035. 

However, this assumed policy has not been implemented by the Federal Government, at least for smaller scale systems.  Although for quite large rooftop solar systems there is a potential pathway to create Australian Carbon Credit Units, but it imposes prohibitively onerous administrative requirements.

The federal government really needs to follow the lead of the Victorian Energy Upgrades scheme which applies a better, simpler pathway for earning abatement certificates which is commonly used by large rooftop solar systems in that state.

Policy to support small and fast solar can buy us time on transmission

Given the large cost and time blow-outs involved in the roll-out of new transmission infrastructure, there is an urgent need for governments to dedicate greater attention to policy that could increase the level of rooftop solar installations (in conjunction with batteries). 

The expansion of the SRES scheme to provide a rebate for small-scale batteries was a big step in the right direction. But it too will be phased out over the next five years as the SRES expires

We recently prepared updated modelling projections for solar and batteries to correct for the fact we had substantially underestimated the level of demand for batteries and the size of battery systems being installed.

In preparing this modelling we also thought it was an opportune time to examine three ways that we could encourage further uptake of solar systems:

– Replacement of household gas appliances and petroleum vehicles with electric-powered alternatives. This increased electricity consumption then enhances the financial attractiveness of a solar system;

– Rather than phasing out the SRES, extend the scheme to at least 2035 and keep the level of the solar incentive constant at the level it will reach in 2026;

– Require that rental properties be progressively upgraded to meet a minimum energy efficiency performance standard, with solar and batteries being one of several options to meet the standard.

The chart below shows the extra renewable energy that we projected taking into account these three measures, as well as correcting for higher battery demand.

All up by 2035-36 we could expect an extra 28,000GWh of rooftop solar generation, which would increase renewable energy’s share of NEM and WA SWIS power supply by around 9 per cent. 

This clearly isn’t a full-scale replacement for the roll-out of large-scale wind and solar farms, but it could provide a vital complement. 

We should also note that we have been quite conservative about the level of extra solar adoption under a rental efficiency upgrade requirement.  And there’s further emission savings from shifting out of gas appliances and petrol vehicles into lower carbon intensity electric appliances.

For those concerned that this extra solar generation is likely to pose problems for power system management and curtailment of other renewable generators, this will be largely resolved by the high levels of adoption of household batteries now unfolding.

The surprisingly large batteries households are now installing will effectively convert rooftop solar generation into something akin to what you’d see from a baseload coal generator – except with a gas peaker also thrown into the bargain.  

Tristan Edis is Director of Analysis and Advisory at Green Energy Markets. Green Energy Markets assists clients to make better informed investment, trading and policy decisions in energy and carbon abatement markets.