The Great Solar Paradox: The Cheaper Solar Energy Becomes, the More It Collapses Global Power Grids

In 1812, German inventor Frederick Winsor founded the Gas Light and Coke Company in London. His proposal aimed to supply gas to multiple households from a central source, eliminating the need for each household to purchase and burn their own coal or firewood. This marked the birth of utilities. These public services are currently undergoing their most significant transformation in two centuries due to the rise of renewable energy sources.

The electricity grid. According to the International Energy Agency, there are currently 50 million miles of electricity grids worldwide. By 2040, an additional 30 million miles will be needed, along with the urgent modernization of another 30 million kilometers of the existing grid.

However, the challenge extends beyond mere quantity. It isn’t enough to simply increase the number of power lines. The integration of wind and solar power necessitates the digitization of the entire infrastructure. Improved control systems and enhanced flexibility are required to manage the intermittent nature of renewable energy.

The paradox of solar energy. As photovoltaic panels become more affordable, more users are opting to partially disconnect from the grid. This situation raises costs for those who remain connected. It also jeopardizes the stability of the system, which is already in need of significant modernization.

In wealthy, sunny regions such as California and Australia, the surge in self-consumption of solar energy has nearly overwhelmed the grid on days of high solar generation. However, this issue isn’t limited to the most developed areas.

The Economist reports three unexpected cases:

• Pakistan: According to 2023 data, Pakistan was the third-largest importer of Chinese solar panels. As such, the country is witnessing businesses, farmers, and large consumers installing photovoltaic systems to achieve self-sufficiency and avoid exorbitant electricity bills. Pakistan remains reliant on outdated coal-fired power plants, which has driven electricity prices to be very high. As a result, many users have chosen to invest in solar power.
• South Africa: There, the situation presents a different variant of the solar paradox. Due to frequent power outages caused by the state-owned utility Eskom, many users are installing solar panels and batteries to shield themselves from interruptions. Municipalities that purchase power from Eskom and then resell it are compelled to pay rising prices to the company. In turn, this leads them to charge less to customers who switch to self-consumption. As a result, Eskom has a debt amounting to around 1.2% of the country’s GDP. While solar adoption reduces dependency on the grid, it simultaneously threatens the revenues needed to sustain the infrastructure.
• Lebanon: Since 2019, the Lebanese state-owned utility only provides electricity for a few hours each day. As a result, rooftop photovoltaic installations have surged from 100 to 1,300 MW in just three years. Although this trend partially addresses the electricity shortage, it ultimately creates a self-defeating cycle due to the lack of stability and investment in the grid.

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An open gap. As private solar installations increase, the fixed costs of the electricity grid are distributed among a smaller base of connected users. This situation disproportionately affects those who can’t afford to install solar panels, typically the poorest households. They end up facing even higher tariffs to cover the overall costs of the system, which generally aims for profitability.

The American grid. According to a 2024 report from the Department of Energy, there’s a significant number of renewable energy projects ready to be connected to the power grid. However, substantial federal investment is necessary to modernize the grid and make these projects a reality. The report states that the government will need to expand transmission systems by 60% by 2030.

In October 2023, the Department of Energy announced it would invest $3.5 billion across 58 projects in 44 states to enhance the resiliency of the power grid. These projects aim to prevent wildfires, reduce energy bills, increase the use of clean energy, and provide support to poorer communities.

Cross-border connections. Solar energy itself doesn’t directly cause blackouts. However, it disrupts the financial and operational structure of the electricity grid. This has unavoidable fixed maintenance costs. Several factors contribute to this disruption, including the declining user base and the tendency to use the grid as a backup at minimal cost. Supply and demand mismatches due to the intermittency of renewable energy sources are also responsible for those costs.

In addition to utilizing batteries and pumped storage plants to stabilize the grid, international projects are needed to share renewable energy surpluses between continents and alleviate demand peaks. One example is the proposed transatlantic cable between North America and Europe. However, the development of these projects is complex, controversial, and quite costly.

Image | Markus Spiske

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