Careful policy design could unlock a massive rooftop solar market around the world

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The report “Realizing the potential of solar energy on the customer side” notes that the rapidly falling costs of solar technology have already made it economical for homes and businesses to generate their own electricity in some markets. In Australia, for example, the payback period for households investing in solar has been favorable, less than 10 years, since 2013. As a result, adoption has already taken off, with over 2.5 gigawatts of residential solar added in 2020 alone.

These solar installations can generate economic returns for homes and hospitality businesses, as well as broader benefits in terms of reduced carbon emissions, reduced peak loads and employment opportunities.

“Solar energy at the customer’s premises is a huge opportunity that is often completely overlooked. Thanks to lower costs and political measures, it is already rapidly being deployed in some markets. Its massive scaling is very likely, ”said Vincent Petit, Director of the Schneider Electric TM Sustainability Research Institute and Senior Vice President of Global Strategy, Foresight and External Affairs at Schneider Electric. “This is vital for decarbonizing the electricity sector and offers huge additional benefits to consumers. It’s time to embrace this transformation. “

Launch the market

Experience shows that adoption of solar energy occurs primarily when there are economic arguments for households and businesses investing in the technology, usually in the form of high internal rates of return (IRR) or high internal rates of return (IRR). short recovery periods. In regions where the economy has not yet reached such tipping points, policymakers introduce targeted incentives to create favorable market conditions and accelerate deployment.

One such example is France, where existing incentives mean residential solar can generate internal rates of return of around 18.5% (a return on investment in five years), and commercial installations achieve an IRR of 10.4% (or a return on investment in nine years). This has spurred a gradual growth of the market, to around 500 megawatts of installations in 2020.

A key consideration at the start of market development is to avoid an unsustainable boom. Policy designs should take into account that solar energy costs will continue to decline over time, and moderate support to reflect these changing dynamics.

Solar for new homes and businesses

The economic case for adding solar power when constructing new buildings is particularly strong. This is because “indirect costs”, such as marketing and sales costs, as well as labor and construction costs, can be reduced, while the benefits remain the same. In California, the economic case for adding residential solar power to existing homes is already good at 20% IRR, but the new report estimates that this figure is twice as high, at 40% IRR, when the energy is solar is added at the construction point. In France, the IRR for residential solar could be increased to 28% when it is added during a new construction.

Overview of energy storage and flexibility

As solar markets develop and mature, policymakers and regulators must gradually focus on unlocking flexibility and encouraging adoption of energy storage. This is because high levels of solar energy adoption can lead to excessive energy production during the day, while potentially destabilizing the power grid. At this point, adding energy storage becomes valuable, as it helps store renewable electricity for use during the evening hours.

“The evolution of solar power at the customer’s home is about adding some form of flexibility, which has the ability to unlock a much higher penetration of solar power,” said Yayoi Sekine, responsible for decentralized energy at BNEF. “The most obvious form of flexibility is in batteries, but energy storage will take many forms, including changing demand and the use of electric vehicles. ”

Tools to encourage energy storage include adjusted export tariffs (the payments offered to solar power owners when they export power to the grid), hourly retail electricity tariffs usage (which reflect the lower daytime solar generation costs), enabling storage payment to provide grid services (sometimes referred to as aggregation payments), and implementation of demand charges ( mainly for business customers). These levers generally aim to make tariffs more representative of production and network costs, but are also likely to encourage energy storage.

In California, for example, reducing export rates to 35% of retail tariffs, while hurting the solar economy as a whole, would shift the focus to solar systems associated with storage, which would still generate an IRR of 13%. For commercial and industrial facilities, adding so-called aggregation payments for batteries would increase IRRs to 22.8%, making solar storage more of a more attractive option than solar alone.

The report studies these mechanisms in depth and provides individual use case analysis for France, Spain, Australia, California (United States) and New Jersey (United States), as an example of markets at different stages of maturity. The full report is available through the following link.

About BloombergNEF

BloombergNEF (BNEF) is a provider of strategic research covering global commodity markets and disruptive technologies leading to the transition to a low carbon economy. Our expert coverage assesses ways of adapting the electricity, transport, industry, construction and agriculture sectors to the energy transition. We help professionals in commodities trading, corporate strategy, finance and policy navigate change and generate opportunity.

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About Schneider Electric

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SOURCE Schneider Electric Canada inc.

For more information: Schneider Electric Media Relations – E-mail: [email protected], 587-880-8821; BloombergNEF Contact – Veronika Henze, + 1-646324-1596, [email protected]

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