Large scale and rooftop solar generation in the NEM: a tale of two renewables strategies

Abstract

Solar generation has increased dramatically over recent years, breaking world records of meeting 100% of the electricity demand on occasion in Australia’s National Electricity Market (NEM). Solar output variability coupled with rooftop solar impact on demand as a behind-the-meter resource poses challenges to electricity price stability. Using 30-minute intraday data, we investigate how electricity spot prices are impacted by the rapid uptake of large-scale and rooftop solar generation in the NEM. We find that, on average, both large-scale and rooftop solar generation depress the level of spot prices and positively impact price volatility. However, over 30-minute intervals, we find that solar generation tends to increase electricity prices in the early morning and in the evening due to the high cost of traditional fossil-fuelled generators required to meet the lost output when the sun is below the horizon. While large-scale solar generation typically smooths spot price volatility, rooftop solar tends to increase it, reflecting the dominance of axis-tracking systems in the former and north-facing systems in the latter. The increasing incidences of variable renewable energy curtailment undermine the merit order effect in the middle of the day but with the benefit of reducing price variability. Moreover, solar generation impact on electricity prices differs substantially across seasons. Our results stress the need for policy adjustment to increase the correlation between solar output and electricity demand through small-scale renewable energy schemes and state-based policies, rooftop solar curtailment, dynamic feed-in tariffs, and two-sided market reform.