This persistent myth about solar energy is that it raises electricity prices for those who cannot afford or access solar panels. It often leads to concerns about the fairness and effectiveness of solar energy policies. In reality, though, adoption of solar energy, far from increasing electricity prices, contributes to lower costs for all consumers, whether they have solar panels installed or not.

The Merit Order Effect

Another leading effect on the downward spiral of electricity prices is due to solar power: the merit order effect. In economic theory, it means the introduction of relatively cheap renewable generation means that some of the more expensive forms of generation that rely on fossil fuels are pushed out of the electricity mix. The merit order effect pushes wholesale electricity prices lower, where the wider customer base benefits – not necessarily customers who have solar installations.

During high solar generation, such as on sunny days, solar power floods the market in Australia, which pushes the wholesale price of electricity to lower levels. This is because solar energy is one of the cheapest forms of electricity generation, and when it enters the market, it displaces more expensive sources like coal and gas. Thus, everyone benefits from lower electricity prices, not just those who have installed solar panels.

A Clear Benefit for Consumers

It can be said that the National Electricity Market of Australia has experienced massive changes due to the increasing portion of renewable energy in the mix. Wholesale prices for electricity fall drastically on sunny days when it peaks in its generation, sometimes even reaching zero. This will imply that it becomes negative; thus, traditional power plants must pay to produce electricity in such an oversupplied market.

These fluctuations in the wholesale market immediately affect electricity prices for households and businesses with or without solar power. However, the overall trend is that higher penetration of solar energy helps stabilize or lower the cost of electricity in the long term. Occasional spikes in price happen during high-demand periods or times of grid instability, but overall, the average price of electricity has trended downward as more renewable energy has come online.

Solar Radiation in Different States

While solar power benefits all consumers on a national scale, the impact can vary depending on the region. States like Victoria, which have higher levels of solar adoption, often see lower wholesale prices compared to other states with less renewable energy integration. For example, in the fourth quarter of 2024, Victoria’s average wholesale electricity price was $45 per megawatt-hour, while the national average was $88/MWh.

This difference in pricing is primarily because of the higher concentration of solar and other renewables in the state. With more and more solar panels installed across rooftops, their increased output means that less reliance happens on more expensive fossil-fuel plants, especially in sunny periods. This trend is expected to continue as more and more people increase their adoption of solar.

Backup Power and Grid Reliability

Critics of solar energy argue that increased reliance on renewables will raise electricity prices because backup power and investment in grid infrastructure will be necessary. In theory, the more intermittent solar generation becomes-whether it’s cloudy days or nighttime-additional backup capacity in the form of gas or battery storage would be necessary to ensure supply. Those costs could push prices higher.

However, evidence is showing that the additional costs are offset by long-term savings provided by solar energy. Technologies like battery storage and the smart grid are helping mitigate the intermittency of solar power, allowing excess energy generated during the day to be stored and used when demand is high or when the sun isn’t shining. In addition, as the cost of solar and storage technologies continues to fall, these solutions become more economically viable.

The use of solar energy also cuts the budget on expensive fuel imports and stabilizes electricity prices by lowering the volatility issues associated with fossil fuels. Since fuel prices fluctuate greatly, renewable energy leads to more stable and predictable pricing for consumers in the long run.

Reduce Bills Despite Criticisms

Although there are misgivings over high electricity prices in some parts, examples now already show that the adoption of solar energy reduces cost. According to a report from Energy Victoria, examples have also shown that with reduced dependence on coal and gas, reliance on solar energy lessens the ever-rising electricity prices, while regions with the strongest solar penetration do so remarkably. According to national studies on renewable energy, future savings for Australia are sure things since more will be covered by the future deployment of solar and wind energy.

There have been a few concerns from sectors such as food that consume more energy and see higher costs to power affecting operations. Again, though, this does not undermine the benefits that solar will have in general for reducing electricity cost for all users. Further, with improvements in storage, as well as with grid stability improving, the swings should even out over time.

Solar Energy Saves Everyone, Not Just the Panel Owners

The false myth that solar energy increases electricity prices for those who cannot install it can be eradicated through a better understanding of how electricity markets work. By the merit order effect, in reality, solar energy lowers the average cost of electricity by displacing expensive fossil fuels. Such benefits of solar power lead to wholesale price reduction and stabilizing the grid and, subsequently, cost reduction for everybody, even those without solar panels.

All things being equal, and as more solar energy sources become integrated into the grid, these impacts are expected to be much more vividly pronounced in Australia. There are certainly challenges to be overcome with respect to grid reliability and backup power, but the evidence is pretty unequivocal; solar energy will drive lower electricity prices over time.