While Australia leads the world in the use of rooftop solar power, some experts say there could soon be too much power coming online — and governments will have little choice but to cut subsidies.

Key points: 3.5 million solar panels were installed on Australian rooftops in 2017

3.5 million solar panels were installed on Australian rooftops in 2017 1 in 5 households saving money on power bills by selling excess electricity back to the grid

1 in 5 households saving money on power bills by selling excess electricity back to the grid Mr Wood says a shift to demand-driven power pricing could help the battery industry

Government figures show 3.5 million solar panels were installed on Australian rooftops last year, an average of almost 10,000 every day.

That is a 41 per cent increase on the previous year, driven by the twin incentives of cheaper solar panels from China and rising power bills.

Now one in five households are saving money on power bills by selling excess electricity back to the grid.

Tony Wood, the energy program director at the Grattan Institute, said a big incentive for many people to adopt solar was "simply because they want to save money".

But while the solar industry is booming, he warns there are dark clouds on the horizon.

"We're getting to the point where the amount of solar power being produced in the middle of the day is so much that it can start to have an impact on the stability of the grid," he said.

"So what do we do with all this electricity we don't need in the middle of the day?"

Mr Wood says there will soon be certain times of the day when there will be too much electricity to consume — so it will lose its value.

And that will become a problem for people being paid to produce it.

While Mr Wood cannot predict exactly when that time will come, he says it could mean an end to cheaper power for those with solar panels.

"The governments who have been happy to support solar up until now will start to say well, paying for electricity in the middle of the day when we don't need it is actually a very inefficient thing to do, maybe we'll stop doing that," he said.

"Obviously people who put in solar would be very upset, quite rightly, because they were promised they'd continue to be paid.

"So you've got to find a way out — and possibly the only way out is the use of battery storage."

Is demand-driven power pricing the next step?

When combined with home battery units, solar electricity collected during the day can be stored and used at early morning and evening peak times.

And Mr Wood says a shift to demand-driven power pricing could help supercharge the battery industry.

"You make electricity very expensive when it's scarce, and very cheap when it's in surplus — that gives people the incentive to try and address that.

"Battery storage is one of the ways to do that."

About 20,000 home batteries were installed in Australia last year, more than triple the number installed in 2016, but still well behind the uptake of solar.

Clean Energy Council chief executive Kane Thornton says in some parts of the country solar battery units are already paying for themselves.

"Batteries are quite a few years behind solar power and so obviously the cost of solar has come down dramatically over the last 10 years or so," he said.

"We're really now just starting to see that with battery technology.

"So in coming years I think we're going to see many of those 1.8 million homes with rooftop solar look very carefully at battery technology, because the cost and economics just keep getting better and better."