Large Scale and Rooftop Solar Generation in the NEM: A Tale of Two Renewables Strategies

104 Pages Posted: 10 Nov 2021 Last revised: 3 Nov 2022

See all articles by Muthe Mathias Mwampashi

Muthe Mathias Mwampashi

University of Technology Sydney

Christina Sklibosios Nikitopoulos

University of Technology Sydney - Business School; Financial Research Network (FIRN)

Otto Konstandatos

University of Technology Sydney; University of Technology Sydney (UTS) - Quantitative Finance Research Centre; Financial Research Network (FIRN)

Alan Rai

University of Technology Sydney (UTS) - UTS Business School; Financial Research Network (FIRN)

Date Written: November 10, 2021

Abstract

Solar generation has increased dramatically over recent years, breaking world records for meeting 100\% of the electricity demand on occasion in Australia’s National Electricity Market (NEM). Solar output variability coupled with the 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, solar generation tends to increase electricity prices in the early morning and the evening due to the high cost of traditional fossil fuel generators required to meet the lost output when the sun is down. 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's impact on electricity prices differs substantially across seasons. These 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.

Keywords: large-scale solar generation, rooftop solar generation, electricity spot price volatility, merit order effect, variable renewable energy curtailment

JEL Classification: C22, C58, Q40, Q42

Suggested Citation

Mwampashi, Muthe Mathias and Sklibosios Nikitopoulos, Christina and Konstandatos, Otto and Rai, Alan, Large Scale and Rooftop Solar Generation in the NEM: A Tale of Two Renewables Strategies (November 10, 2021). Published by Elsevier, Energy Economics, Year – 2022, Volume - 115, pages - 106372, ISSN - 0140-9883, doi: https://doi.org/10.1016/j.eneco.2022.106372. url: https://www.sciencedirect.com/science/article/pii/S0140988322005011 , Available at SSRN: https://ssrn.com/abstract=3960422 or http://dx.doi.org/10.2139/ssrn.3960422

Muthe Mathias Mwampashi (Contact Author)

University of Technology Sydney ( email )

Sydney
Australia
0295147777 (Phone)

Christina Sklibosios Nikitopoulos

University of Technology Sydney - Business School ( email )

15 Broadway, Ultimo
Sydney 2007, New South Wales
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Otto Konstandatos

University of Technology Sydney ( email )

15 Broadway, Ultimo
PO Box 123
Sydney, NSW 2007
Australia
+6195147758 (Phone)

University of Technology Sydney (UTS) - Quantitative Finance Research Centre ( email )

P.O. Box 123
Sydney
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Alan Rai

University of Technology Sydney (UTS) - UTS Business School ( email )

Sydney
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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