Globally, utility-scale solar installations strongly outpace rooftop ones: more than 60% of current installed capacity consists of ground-mounted projects greater than 5MW, feeding directly to the grid. No matter which major market one looks at, utility-scale projects take the lead: over 90% of the market in India, 70% in the U.S., and 90% in China is made up of utility-scale, ground mounted projects. In relatively early-stage markets in Latin America (led by Brazil, Chile and Mexico) and Southeast Asia (led by the Philippines and Thailand) too, utility-scale solar is taking the lead early on pushed by large capacity sought by governments through auctions. Despite expectations of relatively lower growth rates for utility-scale solar compared to rooftop, the segment will likely retain its majority share of the market until the end of the decade if business remains as usual.
The reasons for this are easy to see and very compelling: utility-scale solar offers significant economies of scale, making it the most competitive on a Levelized Cost of Energy (LCOE) basis, with the potential to bring the quickest cost reductions. Additionally, policies for utility-scale solar are typically easy to structure and implement due to the relatively small number of projects that need to be administered. For energy hungry developing markets in Asia, Latin America and Africa, this can be the fastest way to increase power capacity. The large ticket sizes of projects are also more attractive to banks that look for the largest deals at the lowest transaction costs, making financing more easily available. Such projects are especially a big plus to leverage large amounts of financing available through multilateral institutions that are typically structured to support large infrastructure projects. Utility-scale solar is also best suited to fit right into and sustain the current utility-based electricity provisioning business model, which suits the status quo.
So, has rooftop solar lost out to its bigger cousin? Is the romantic vision of millions of customers in control of their own energy consumption – the idea of true energy democracy, lost? While current solar trends suggest this might be the case, the answer is not entirely clear.
There is a strong chance that utility-scale solar could become a victim of its own success. Quick, large-scale solar deployments have improved economies of scale in the PV industry bringing down PV costs low enough to make rooftop solar viable even without incentives like the U.S. investment tax credit. Utility-scale solar’s widespread adoption and large news worthy sizes have also done a great job of marketing the technology across end-consumers who were in any case attracted to its green credentials and are increasingly willing to act on their desire for energy independence.
There are also two key external drivers that could unexpectedly accelerate rooftop solar adoption: digital technologies and storage. A key bottleneck for rooftop solar is aggregation – the fact that decentralized systems are too small to be attractive for large institutional investors that instead need projects to be combined to larger sizes (this problem is tied more to an infrastructure finance approach to distributed solar rather than a consumer finance one). An additional challenge is customer acquisition. These, however, are business model challenges and not a fundamental technology challenge that is already being addressed in many ways through digitalization. Another bottleneck is the limitation on solar’s power generation to daylight hours. Here, energy storage, the cost of which by some estimates could drop a further 90% in just 5 years (and possibly more), could drive the market much further, faster.
Perhaps the greatest push for the shift to rooftop solar could come from the significant advantages that it creates for the very foundation of utility-scale solar – the grid. As investments into the expansion and maintenance of the grid increase, there can be significant cost advantages of decentralized generation. Additionally, as current centralized grid infrastructure becomes more vulnerable to the effects of climate change, decentralized, consumer sited solar generation can be an asset to ensure electricity supply security for end-customers. Importantly, as the energy transition becomes broader with electric vehicles and customers’ demand-side management becoming more common, utilities can benefit from the load management opportunities that solar combined with storage can offer.
Exactly what direction the energy transition takes depends on how digital technologies and storage evolve over the next years. There is, however, little doubt that solar will be a key part of the solution. In the short-term (next 3-5 year time horizon), especially with business as usual, it is unlikely that the tables will turn on utility-scale solar. But, digitalization and storage have the potential to develop quickly and unlock dormant business models. This then creates a strong chance that decentralized solar might eventually drive the global energy transition.
Mohit is a Project Leader at TFE Consulting GmbH, a consultancy transforming companies’ business models and operations to prepare them for growth, new opportunities and major industry shifts in the energy, buildings and digitalization industries. At TFE Consulting, Mohit helps international companies, investors and multilateral organizations accelerate the energy transition in emerging markets taking place globally today.