Solar power in Australia makes sense – Australia has plenty of sunshine. Electricity generated by solar photovoltaics (PV) can directly offset electricity purchased from the grid, an established method of reducing energy costs.
The downward trend in the cost of solar panels and the increased cost of electricity means that solar PV systems are now more economical than ever. However, the benefits of solar PV are limited by the simple fact that the sun is only available during daytime and is most effective around midday.
The electrical demand profile of a business will not exactly match the production profile of solar power throughout a day. For example, in the middle of the day (particularly in an Australian summer) solar production may exceed electrical consumption and excess solar power is supplied to the grid. On the other hand, early and late in the day (particularly in winter), or in periods of cloud cover, solar production may be less than consumption and electricity must be sourced from the grid. Batteries circumvent this problem by enabling excess energy from solar power to be stored for later use.
Battery storage, in combination with solar PV, enables homeowners and businesses to increase self-sufficiency by enabling solar PV systems with excess energy to meet energy needs outside solar PV generation periods. This also increases the overall amount of energy that is consumed from renewable sources, which in turn decreases carbon output from fossil fuels.
Larger solar PV systems that produce surplus energy during the day can offset a greater component of total daily usage instead of feeding excess power into the grid for a relatively low return. Battery storage makes it possible for businesses to deploy larger PV systems to maximise the environmental benefits of renewable energy in addition to a better financial return through self-consuming more solar power.
Is battery storage a new concept?
The use of batteries for energy storage is not a new concept. Storage systems featuring lead acid batteries have been implemented for over a century in applications that include submarines, telephone exchanges, uninterruptible power supply (UPS) systems and off-grid solar power systems.
In recent years consumer interest in battery storage has significantly increased.
Large-scale investment in the development of this technology by several well-known manufacturers improved the technical performance of batteries, and through extensive marketing transformed a relatively small industry into a highly competitive multi-billion-dollar international market.
What has changed lately is the rapid improvement of lithium-ion based battery technology for mass consumption in personal devices like smartphones and tablets. This has led to investments in increased production of batteries for electric vehicles and stationary battery storage for homes and businesses.
Indirectly, the improvements and adoption of solar PV have increased consumer awareness of renewable energy and provided an incentive to store excess energy rather than feed it to the grid.
This widespread adoption creates economies of scale for a dramatic reduction in per-unit costs, not just in lithium-ion, but also for other battery technologies including incumbent (lead-acid) technologies and other options (flow, advanced lead-acid and others).
Lithium batteries are shaping up to be the most popular battery chemistry for residential applications, with about 80% of the emerging products on the market using some lithium variation. Most of the (good quality) lithium battery banks have a 10-year warranty, and when we talk about batteries here that’s generally what we’re referring to: a lithium battery with a 10-year warranty. (For reference, solar panels usually have 25-year performance warranty, and warranties for solar inverters are typically 10 years.)
Interest in battery storage remains high in Australia
Batteries are in high demand thanks to the promise of energy self-sufficiency and back-up power in the event of blackouts. Battery storage system prices are coming down quickly and the number of households opting to install battery storage has risen dramatically compared to just a few years ago. Accordingly, 2018 ended up being the best year ever for home battery storage in Australia – and there are widespread expectations that 2019 into 2020 will continue this trend.
If we assume that the batteries are charged only with the sun, by our estimates battery storage pricing needs to come down to about $200-$300 per kilowatt-hour (kWh) of storage capacity (for a lithium battery with a 10-year warranty) for it to make sense purely from an investment standpoint. Paybacks could be faster if tactics like tariff arbitrage, selective energy export and spot price trading are implemented. Currently, the lowest prices we’re seeing are about $500-$600/kWh of storage capacity.
Being ‘worth it’ vs ‘breaking even’
We’re getting closer to this much anticipated price milestone, so for the time being we’re mainly looking at whether a solar and battery system will pay for itself before the battery warranty expires, therefore breaking even.
Please note that throughout this blog we refer to solar and battery storage systems as ‘whole’ or ‘battery only’ systems. In fact, the vast majority of the value delivered comes from the solar PV portion of the system, not the batteries. Solar PV systems (without batteries) generally have payback periods as low as 2-5 years depending on the situation; because batteries deliver less value and cost more, adding them to a solar system will inevitably lengthen the payback period for the system as a whole. If your primary goals are greater energy independence and reduced electricity bills, then batteries can help you achieve them – but batteries on their own may not always be fantastic from an investment point of view.
While the batteries will almost definitely continue to perform after the warranty has expired, there are no concrete assurances that they will. Also keep in mind that a battery’s performance may be diminished at the end of the warranty term (read about battery ‘end of life’). Anyone intent on getting batteries should at least aim for a system that will break even over its 10-year warranty period – or better yet, offer an attractive return.
Whether simply breaking even within the warranty term is ‘worth it’ is a subjective question, but the growing uptake of home battery storage systems indicates that – for many people – it is.