Rooftop Solar Systems and Utility-Scale Solar Farms: How Do They Differ?

20th Aug 18

Written by James Doyle

At a glance, a utility-scale solar farm may seem just like a larger version of the photovoltaic systems used in the rooftops of homes and businesses. The most notable difference is scale: solar farms use thousands of PV modules to reach a capacity in the megawatts. They also have larger inverters, and their output is fed to the power network with transformers similar to those found in conventional power stations.

Physically, there is not much difference between both project types other than scale and equipment capacities. In both cases, the basic building blocks are solar panels mounted on a racking system, wired together in string circuits and connected to inverters. However, the business conditions are very different for rooftop solar systems and solar farms – you can consider them as two separate businesses where the same technology is used.

Large-scale solar farms and rooftop systems do not target the same market. While large installations typically sell electricity to power retailers in the wholesale market, rooftop systems target home and business owners. Although a small solar installation can also sell surplus electricity to power retailers, doing so is not very lucrative because the feed-in tariff is low.

Market Differences Between Rooftop and Utility Solar Power

Rooftop solar systems compete against power retailers, and their main value proposition is lowering your electricity expenses. Solar providers who focus on residential and business clients normally offer the two following options:

 

  • Selling you a fully-operational solar photovoltaic system. You pay for the solar array and its electricity output is deducted from your power bills. You have to wait some time while electricity savings offset your initial investment, but after this point you get free electricity… as long as the installation gets proper maintenance.
  • Selling you the energy output, not the solar system itself. This approach is best-known as a solar power purchase agreement (PPA). The system provider assumes the upfront cost and all maintenance expenses, and you agree to purchase the electricity output at a price below your normal tariff. This option is attractive because you can avoid the initial investment, while delegating maintenance responsibilities to the provider.

 

In both cases, rooftop solar power is competing against the electricity plans available from local power retailers. In the case of a solar PPA, the system provider beats the kWh price in your electricity bill by generating power locally – there is no power grid in between, and no retailers making profits. On the other hand, if you purchase a solar system, the purpose is to achieve electricity savings that are many times higher than your initial investment.

Utility-scale solar farms compete in the wholesale electricity market, which is very different from the retail market. Instead of selling electricity to homes and businesses, solar farms sell it to power retailers, who then resell electricity to their own customers.

  • Achieving the lowest possible cost is vital, since these solar farms are competing with other renewable and non-renewable power stations. Some examples are wind farms, hydroelectric dams and conventional power stations fired by coal or natural gas.
  • As a result, the sales prices is lower for utility-scale solar farms: while a rooftop solar PPA may have a price range of 15-25 cents per kWh, a solar farm will typically sell its output for less than 10 cents/kWh.

Note that many large-scale solar arrays do not participate in the wholesale market. If you read about a project in the megawatt scale, do not assume its electricity is being resold by power retailers. For example, industrial sectors such as mining and metalworking have a huge demand for electricity, and a large facility can easily consume the output of a solar farm by itself.

There are also cases where solar PPAs are negotiated between large energy consumers and solar farm owners, and there is a significant distance between the photovoltaic array and the corresponding industrial facility. In these cases, a transmission fee is paid for use of the power network, but the electricity itself is not sold in the wholesale market.

How Economies of Scale Influence Solar Costs

Electricity prices from solar farms are typically lower than those found in small-scale PPA contracts, but large-scale systems compensate for this with economies of scale. Most small- and medium-scale solar systems achieve an installed cost below $2,000 per kW, but utility-scale installations can easily go below $1,000 per kW.

Large solar developers also take advantage of their business size to get low-interest financing. The combination of economies of scale and low interest allows kilowatt-hour costs that are not possible in a small-scale system. For example, solar farms have already achieved electricity prices below 0.02 USD per kWh in Saudi Arabia, Mexico, and the USA.

Australia has the advantage of being very close to China, the global manufacturing hub of solar system components – other markets such as the Americas, Europe and Africa do not have this advantage. In addition, Australia is not a major solar manufacturer and the government has not created “protection tariffs” for imported photovoltaic equipment, like those found in the USA. With the combination of these factors, solar power is cost-effective in Australia at all project scales.

Conclusion

Selling solar power to homeowners and private companies is a very different business than selling to power retailers in the wholesale market. Large solar installations achieve lower costs per kilowatt, in great part thanks to economies of scale, but they also compete in a market where electricity prices are lower. On the other hand, rooftop solar systems compete with electricity tariffs – prices are higher, but costs per watt are increased due to the smaller project scale.

Regardless of project scale, a key limitation of photovoltaic systems is the inability to provide electricity at night. However, the cost of energy storage systems is decreasing rapidly, and they are already competitive in places with expensive electricity, such as Australia. In addition, batteries have a modular design that provides scale flexibility, making them the ideal complement for solar arrays of all capacities.

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