Recently, as a reaction to the announcements from various electricity retailers that they were reducing feed-in tariffs (mostly down to 6.7 cents/kWh), there was a 16% spike in enquiries for home battery installations. People with solar systems were obviously angry about having the value of their electricity exports downgraded and thought that it was time to install a home battery as a means of storing their generated power instead of feeding it into the grid. So, has the time arrived for home batteries to finally play an economic part of the average householder’s attempts at electricity self-sufficiency?
The economics of home batteries is quite simple. The “revenue” from the battery can be characterised as the difference between the feed-in tariff and the cost of purchasing electricity from the grid. In other words, if excess power from your solar panels is stored in the battery for later use at night, this offsets the cost of power that would be taken from the grid. Alternatively, if the solar excess is sent to the grid and paid at the feed-in tariff then the value of the battery is the difference between the feed-in tariff and the grid price.
When we divide the cost of the battery installation by the delta of the grid and feed-in tariff (the battery revenue), then we get a simple payback expressed in years. Most solar systems have a payback of about 4 years (or about a 20% rate of return on investment) so we should be looking for a payback of at least 6 years or better to justify the battery investment.
Let’s take a simple example. Fred has a 6.6 kW system that gives him an average generation over the year of 25 kWh per day. His daily consumption is 16 kWh during the daylight hours and 9 kWh during the night, so his average solar generation exactly matches his average consumption. Fred still has a quarterly bill from his retailer because he still must pay for the supply charge from his distributor ($1.00 per day) and the difference between his feed-in volume of 9 kWh during the day and his grid tariff for the 9 kWh he uses at night. The feed-in tariff is 6.7 cents while his night-time grid tariff is 21 cents per kWh. His daily electricity cost is therefore $1.00 + ((21- 6.7) * 9) or $2.29 per day.
Fred is not too happy about the retailer reducing his feed-in tariff from 10 cents to 6.7 cents so he contacts three suppliers of home batteries. He receives the same advice from each that he needs a 10 kWh battery that can deliver his average night time consumption of 9 kWh. He receives 3 quotes for a fully installed battery of 10 kWh- one for $12,000, one for $10,000 and one for $6,000. These quotes are after the state government battery rebate of $4,000.
Fred calculates his preferred battery option based on the $10,000 quote because he wants to go with a Korean brand rather than a Chinese one. He knows that his “revenue” from the battery works out at $1.29 per day on average so his $10,000 investment will take 7,752 days (21.2 years) to reach a simple payback. The warranty on the battery is 8 years so he concludes that, even if he went for the cheaper battery he was quoted (it has a payback of 12.7 years), he is not even close to being satisfied that a battery investment is the way to go.
In fact, because Fred has done the numbers, he realises that even if his retailer did not give him anything for his exported power, his preferred battery option would still take 14.5 years to payback!
It is hard to come up with a scenario that provides an economic case for installing a home battery. We should expect that battery costs will come down with time but that will depend on volumes increasing significantly. The cost of producing a home battery is in the order of $200 per kW whereas the installed cost works out to be about $1,000 per kW. So, with large margins available to battery companies, no-one is showing the mettle to lead the market down the cost curve. And while prices stay so high, very few people will be willing to make such an uneconomic investment.
So, what situation would lead to someone shelling out so much money for a home battery with such little reward? One circumstance is where the chances of power cuts are a common risk. This may be the case in a small number of areas subject to trees falling on power lines or less than robust distribution systems in remote areas. The power cuts in the Dandenongs lasting 3 weeks early in 2021 is a case in point.
However, if one is worried about power cut risks, then a better option may be a back-up generator which can provide enough power to keep the refrigerators going and provide power for the internet and TV to ensure communications keep open. Regardless of the timeframe of the blackout, the petrol powered generator will be available assuming there is fuel supply. Back-up generators capable of running essential appliances in the home (rated 5.8 KVA) will cost you between $1,500-$2,000. While a Lithium-Ion battery will be much more convenient given that it automatically takes up the load, it will only cover 1-2 days of power outage and probably not cover the worst-case scenarios that many people are concerned about. This is particularly true of remote rural areas where the chances of longer-term power cuts are greatest.
The only other scenario that one might consider a home battery is to keep ahead of the curve as far as the transition to renewable power is concerned. Many early adopters may be attracted to the thought of being independent from the grid but again, the economic efficiency of this route is highly questionable. In the medium term, retailers and distribution companies are likely to get together to promote community battery storage. This could take the form of large batteries to back up a small neighbourhood or even install batteries in some houses producing a lot of excess power to be later distributed to other houses in the street at night. Scale is the key to making back-up power supply economic rather than individual householders taking on this high-cost task.
One emerging option however is the ability of the new electric cars that are coming onto the market that have V2L (Vehicle to Load) capability. This essentially means that your car battery, which will have at least a 50 kWh, capacity will be able to power your home either fully or partially. Hyundai’s Ioniq 5 has an output of 3.6 kWh which is enough to run the lighting, refrigerator, TV and other small appliances in the home at any one time. Of course, running air conditioning would require more input but if the battery is used for back-up, why buy a $10,000 home battery when your car brings one for free. As this option becomes more well known the car manufacturers will increase the power output to better match the entire home (SONO Motors already have 11 kWh output in their soon to be released electric car).
The home battery market has few places to go in the transition to renewable energy over the next 20 years and as electricity prices continue to fall overtime, the economics only get worse. The fact that people are currently buying into the idea is probably more to do with the government failing to roll out a vision for how the future electricity system needs to work than anything else. Australia has been asleep when it comes to the evolution of the power system that will take us towards net zero in 2050 and it is about time that both political parties got serious and explain exactly what they intend to do.
In the meantime, when you next think about installing a home battery, don’t call your friendly solar and battery supplier, call your state and federal member of parliament and remind them what you expect from them on a future energy plan for your area.
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