Distributed Solar Market Reaches Critical Coordination Phase as Energy Storage Expansion Looms

Australia’s distributed solar market has entered a pivotal coordination stage, setting the groundwork for the upcoming energy storage transformation. According to Q2 2025 installation data, this shift will have a profound impact on grid planning, market design, and the integration of distributed energy resources (DER) into the national electricity system.

During Q2 2025, 656,388 kW of sub-100 kW solar systems were installed across 64,564 projects, marking a 17.32% year-over-year decline. Rather than signaling weakness, this trend is widely seen as a sign of market maturity with significant implications for policymakers and system operators.

Regional Divergence Reshapes DER Integration

One of the most striking findings is the sharp regional divergence in solar deployment. New South Wales saw a 30.9% year-over-year decline, while Tasmania recorded only a 3.64% decrease. This suggests that local factors—such as grid constraints and regional economic conditions—are becoming more influential than national policy in shaping distributed solar adoption.

Queensland and New South Wales recorded nearly identical installation volumes of 181,761 kW and 180,154 kW, respectively, indicating a geographic rebalancing that grid operators must consider in their long-term plans.

These patterns, when compared with Q1 2025 data, confirm that differences in grid integration capacity, connection processes, and voltage management are now key drivers of state-level installation rates.

System Size Distribution Reveals Flexibility Potential

Small residential systems remain dominant, with 74% of installations nationwide in the 0–15 kW range. However, regional differences are substantial. In the Northern Territory, 62% of new installations exceed 15 kW, driven largely by commercial and industrial projects.

States dominated by small-scale residential systems, such as Queensland and Tasmania, face unique integration challenges compared to regions with a higher proportion of larger systems. Larger systems typically offer advanced inverter functionalities and greater controllability, providing untapped flexibility for grid support and energy storage integration.

This data suggests that targeted policy mechanisms encouraging commercial and industrial adoption could unlock significant flexibility and improve overall DER management.

Market Structure Poses Coordination Challenges

The distributed solar market is highly fragmented, with the largest installer holding just 3.54% market share, while certificate trading is highly concentrated. This imbalance complicates efforts to standardize technical requirements and ensure consistent grid integration practices across the sector.

Consolidation in customer acquisition and the growing dominance of standardized design platforms may also limit system diversity, creating new challenges for innovation in grid integration and energy storage readiness.

Energy Storage Integration Will Transform the Market

The inclusion of battery installation data from Q3 2025 is expected to mark a major shift in the role of DER. Incentives for battery systems are anticipated to accelerate energy storage deployment, reshaping load profiles, ramping requirements, and the delivery of essential grid services.

Battery-enabled systems can provide synthetic inertia, frequency response, and voltage support—functions historically supplied by traditional generators. Unlocking these capabilities will require coordinated technical standards, market mechanisms, and advanced orchestration tools to fully integrate storage into the grid.

This transition will also require improved consumer protection measures, as the complexity of combined solar-plus-storage solutions grows beyond what many households and businesses can evaluate on their own.

Policy and Strategic Imperatives

The Q2 2025 data makes it clear that Australia’s DER market has evolved beyond the point where simple feed-in tariffs can guide deployment. Policymakers and planners must now:

• Address regional disparities in grid hosting capacity.
• Incentivize commercial and industrial adoption to enhance system flexibility.
• Reform market structures to balance installation fragmentation with trading concentration.
• Develop energy storage-ready frameworks for future grid needs.
• Leverage data-driven planning to optimize distributed solar integration.

As distributed solar matures and battery storage enters the market at scale, effective coordination of these technologies will be critical. The upcoming inclusion of battery installation data will provide the insight needed for more advanced grid modeling, supporting strategies that maximize value for both consumers and the energy system.

Australia’s energy transition will depend on the ability to align distributed solar growth and energy storage adoption, ensuring a reliable, cost-effective, and sustainable electricity network for the future.