From Feed-in Tariffs to Batteries: Why Solar Consumers Must Rethink Their Energy Strategy

It’s no secret that solar power has fundamentally transformed the Australian energy landscape. Once heralded as the beacon of a sustainable future, rooftop solar systems were introduced to reduce greenhouse gas emissions and alleviate reliance on fossil fuels. Solar’s shining promise came packaged with feed-in tariffs (FiTs), a generous financial incentive to encourage early adopters to feed their excess electricity back into the grid. These tariffs allowed homeowners to sell surplus energy to the grid, essentially earning money while reducing their carbon footprint.

Fast forward to today, and the solar industry has evolved. Feed-in tariffs, once a major selling point, have plummeted to historic lows, making solar prosumers rethink their energy-saving strategies. If you're still relying on those FiTs to bring in extra income, it's time to shift gears. With declining FiTs, increasing solar adoption, and evolving grid needs, the focus for solar owners needs to move from selling electricity back to the grid to maximising self-consumption and leveraging battery storage.

Let's break down why feed-in tariffs are no longer the golden ticket they once were, how wholesale electricity pricing plays into this shift, and how battery storage will be a critical asset for solar owners moving forward.

The Decline of Feed-in Tariffs: From High Rewards to Pennies on the Dollar

Feed-in tariffs (FiTs) were introduced when solar was still an emerging technology. In Australia, tariffs as high as 60-70 cents per kWh were offered in some states. At that time, solar panels were significantly more expensive, and this incentive helped balance the high upfront cost, making solar installations more appealing to early adopters. But today, those once-generous payments have been reduced to between 1- 5 cents per kWh in most regions. Why? Because the solar landscape has changed dramatically.

The reason for this reduction isn’t arbitrary, it’s tied directly to supply and demand dynamics in the wholesale electricity market. Solar systems are incredibly productive during the middle of the day, which is when energy consumption is typically low, people are out working, the house is empty, and appliances aren’t running. As a result, the market becomes saturated with surplus energy during daylight hours, creating an imbalance that drives wholesale electricity prices down.

Supply, Demand, and Negative Prices

Think of the grid like a huge reservoir. During the day, it fills up with excess solar energy that isn't immediately needed. If too much energy flows into this reservoir without enough being consumed, it spills over. In the electricity market, that "spillover" leads to negative pricing, where producers (including solar homeowners) might actually have to pay to keep their electricity flowing into the grid (don't worry your inverter can be programmed to stop feed in). It's like going to a farmers market to sell oranges when every other stall is also overflowing with oranges, suddenly, no one wants to pay top dollar for your fruit because they already have enough!

This oversupply and resulting negative pricing make it financially unfeasible for energy retailers to continue paying high feed-in tariffs to solar owners. After all, why would a retailer want to pay homeowners for electricity when there’s no demand for it and it's already dirt cheap or, worse, costing them money?

This brings us to the harsh reality, paying solar prosumers during periods of oversupply no longer makes sense in the current energy market. The same incentives that drove solar's success have ironically contributed to its reduced profitability. The more solar systems there are feeding power into the grid, the less valuable each kilowatt-hour of electricity becomes.

The Reality of Wholesale Electricity Pricing: Why It Impacts Feed-in Tariffs

A critical component of understanding the decline in feed-in tariffs (FiTs) is tied to how wholesale electricity prices fluctuate throughout the day. When you export solar energy back to the grid, its value is determined by wholesale prices at the time of export. In Australia, particularly in the National Electricity Market (NEM), wholesale electricity prices can vary wildly due to supply and demand conditions, prices typically average around $A80/MWh (per megawatt hour), but can vary between -$1000/MWh (-10c kWh) (where generators actually pay to stay online) and $15,100/MWh ($15.10 kWh) this will always lead AEMO to trigger a pricing “safety net” and capping prices. All historical data can be found by clicking here.

The Shift to Self-Consumption: Using Your Own Solar Energy

So, what does this mean for you as a solar owner? Should you pack up your panels and call it a day? Absolutely not. Instead, it’s time to shift your focus to self-consumption, using as much of your solar-generated energy at home as possible. Here's the simple math:

- Every kilowatt-hour of solar energy that you use directly in your home is effectively free. It offsets the electricity you'd otherwise have to purchase from the grid at retail rates, which can be upwards of 30 cents per kWh.
- Compare that to the measly 1-5 cents per kWh you'd get by exporting that same energy to the grid via a feed-in tariff. Suddenly, using the energy yourself becomes far more valuable than selling it.

But if you're not home during peak solar hours, how can you make sure you're getting the most out of your system?

Optimise Your Heat Pump Hot Water System with Solar Energy

A highly effective way to maximise your solar system's value is by timing your heat pump hot water system to run during peak solar production hours. Instead of feeding excess solar energy back to the grid at a lower return, your heat pump uses this free solar electricity to heat water, effectively acting as a thermal battery. By storing hot water for later use, you minimise the need to draw power from the grid to heat water outside solar generation periods, reducing your overall energy costs. This not only boosts self-consumption but also reduces reliance on grid electricity, enhancing the efficiency of both your solar and hot water systems.

Smart Home Practices for Maximum Self-Consumption

One answer is smart appliances and timers. Many homeowners schedule their energy-hungry devices, like dishwashers, washing machines, heat pumps and pool pumps, to run during the day when solar production is highest. It’s also becoming increasingly common to invest in smart home systems that automatically adjust energy usage based on the availability of solar energy.

For example, if you work during the day, you might not be able to run your air conditioner or electric vehicle (EV) charger when your solar panels are generating the most power. But with smart timers, you can set your appliances to turn on while you're out, ensuring you're using the energy you produce instead of exporting it for pennies.

The Role of Battery Storage: Storing Your Solar for Later

While self-consumption strategies can significantly reduce your reliance on the grid, there’s an even more powerful tool at your disposal: battery storage. Batteries allow you to store excess solar energy generated during the day and use it during the evening or overnight, when electricity demand (and prices) are higher.

How Batteries Maximise Savings

Battery storage systems let you store the surplus energy you don’t use during daylight hours. Instead of sending that energy back to the grid, you can store it and use it later when you'd normally have to pay the grid’s retail rate of 30 cents per kWh plus. This way, you’re avoiding high electricity costs while using energy you generated for free.

By using a battery, you effectively transform yourself from a solar prosumer into your own mini power station. You decide when to use your electricity and avoid paying peak electricity prices. And when electricity prices spike, you can draw from your battery rather than paying the grid's inflated rates.

Participating in Demand Response Programs

In addition to storing energy for your own use, having a battery also opens up opportunities to participate in demand response programs. In these programs, energy users agree to reduce their electricity consumption during peak times, helping to alleviate pressure on the grid. By tapping into your battery during these high-demand periods, you can avoid using costly grid electricity and even earn payments for reducing your demand.

This is where the future of solar energy lies: not in exporting excess power to the grid, but in storing it for later use and participating in innovative programs that reward smart energy management.

Transmission Grid Challenges and the Role of Battery Storage in Grid Stability

One major challenge Australia’s energy market faces is the strain placed on the grid by distributed energy resources (DERs) like rooftop solar. The current grid infrastructure was built to handle one-way energy flows, from large power stations to homes and businesses. However, with millions of small-scale solar systems feeding energy back into the grid, it’s creating a two-way flow that the existing grid struggles to manage.

This two-way flow has led to voltage fluctuations and other technical issues, particularly during peak solar production hours. The grid is simply not equipped to absorb all the excess solar energy being generated, which contributes to negative wholesale prices and grid instability. To address these challenges, grid modernization, large scale storage and transmission upgrades are essential.

Grid Modernization: A Necessary Investment

In response, governments and energy providers are investing in grid upgrades to better handle distributed energy resources. This includes reinforcing transmission lines, improving voltage control systems, and integrating smart grid technologies that can dynamically manage energy flows in real-time. These investments are crucial for ensuring that the grid can continue to accommodate more solar installations without compromising reliability.

The Victorian Government’s Emergency Backstop Mechanism is one such initiative. This program aims to control how much energy is fed into the grid during periods of low demand, ensuring that the grid remains stable and preventing overloads caused by excessive solar generation. 

Batteries play a crucial role in this grid stability equation. By storing excess energy that might otherwise contribute to grid overloads, batteries help ease pressure on the system and support the integration of more renewable energy sources. This makes battery storage not only a smart financial investment for homeowners but also a critical asset for the broader energy market.

As feed-in tariffs continue to decline and the energy market grapples with the challenges of integrating solar power, solar consumers must rethink how they maximise the value of their systems. Relying on FiTs as a primary source of income is no longer viable in a market where wholesale electricity prices can turn negative and energy retailers can’t afford to pay for surplus electricity that no one is using.

Instead, the future of solar lies in self-consumption, battery storage, and supporting ongoing efforts to modernise the grid. By using your solar energy during the day, storing excess power in a battery, and participating in demand response programs, you can continue to save money while contributing to a more sustainable and resilient energy future.