Is now the right time to go off-grid?

By Noel Barton on 18 January 2013

A friend and fellow inventor suggested I should try to answer this question – is it the right time to go off-grid?

We all know that the price of PV systems and battery storage is coming down, at the same time that the cost of grid-provided electricity is going up. At some point there will be a crossover. Notice I’m not talking about socket parity at peak output when PV power is already cheaper than grid-provided electricity.

So when will this crossover point for PV with battery storage be reached? Or has it been reached already?

As you might imagine, to formulate a model to answer the question involves many considerations such as your location, your particular domestic circumstances and your expectations about the future cost of PV systems and battery storage. In the post below, I give my modest contribution to the debate.

Here are my assumptions:

As an investor, you can make 3% per year after tax and inflation.
You live in a mythical location with an excellent solar resource such that you receive the average amount of sunshine each day.
The Capacity Factor of your PV system is 0.18.
PV panels will last for 25 years at rated output, so that a 1 kW system would deliver 24 × 365 × 0.18 / 365 = 4.32 kWhr/day each day for 25 years.
Your daily electricity requirement is 8.64 kWhr/day, which is exactly the output of a 2 kW system at your mythical location. Further, half of this is required when the sun is not shining, so you need to store 4.32 kWhr/day.
Battery storage costs $1,000 per kWhr, and the batteries are capable of a complete charge/discharge cycle every day for 25 years. This is a heroic assumption, but hopefully covered by assigning a high price to the cost of storage.
After government incentives, the specific cost of an installed PV system is $2/W.
Your annual electricity bill today is $1,000 and will not increase in real terms after inflation.
To disconnect from the grid, the cost to you of PV panels and storage will be $2 × 2,000 + 4.32 × 1,000 = $8,320, which let’s say you have available for investment.

Now we formulate two options.

Option 1: Stay connected to the grid.

After 25 years of compounding at 3% after tax and inflation, your $8,320 becomes $8,320 × (1.03)^25 = $17,420.

Option 2: Disconnect from the grid

If you invest $1,000 each year (your annual electricity bill) for 25 years at 3% after tax and inflation, it compounds to $1,000 × (1.03^25 – 1)/0.03 = $36,459. By that stage the PV panels and batteries would need replacement, a cost of $8,320, which leaves a balance of $36,459 – 8,320 = $28,139.

On this grossly simplified calculation, Option 2 is 62% superior to Option 1.

Weaknesses in the assumptions can easily be pinpointed. For example, I live in Sydney in an all-electric dwelling, and my peak electricity demand is in winter when the daily output of PV panels is below the annual average. I would need to buy a generator set, which would get substantial use in winter, and I’d have spare power for sale in summer when the utilities wouldn’t pay much for it. I’d need additional assumptions and/or data about demand, output, the cost of a generator set and the future cost of fuel. Those calculations are for another day!

Conclusion

My conclusion is that to justify going off the grid for financial reasons, you‘d need to live in an exceptionally favourable location and in an accommodative lifestyle. That’s my conclusion today, but it would be worth repeating the calculation in a few years when circumstances will surely have changed.

Acknowledgement: Thanks to Anthony Kitchener for the interesting suggestion.

Addendum: In comments below, Derek points out that it is not correct to subtract the cost of a new system after 25 years. So the advantage of Option 2 over Option 1 is 109%, rather than 62%. This strengthens the case to go off-grid, but doesn’t cause me to change my overall conclusion, particularly in light of other comments about the suitability of battery storage.

Noel Barton is Managing Director of Sunoba Pty Ltd and is developing new concepts for solar thermal power with storage. He blogs at www.sunoba.blogspot.com. Republished with permission.

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http://www.bboxx.co.uk Ed Skinner

I would be interested to see this calculation using a Hybrid Wind/Solar Package.
- Robert Johnston
  
  Its worse, small scale wind is a joke commercially (would be very pleased to see a supplier present a business case that improves the economics of the exercise with a sensible production estimate) – and impossible to get approved for use on a normal house anyway due to noise and shadow flicker.
James Fisher

I don’t believe you can do this calculation with the belief that you purchase the storage system and get 25 years of use. Today the only practical and available technology is Lead Acid based. These batteries are not well suited to install and forget and can be extremely hazardous if not maintained correctly.

The average life expectancy for an individual battery in a PV storage application that is well maintained would be ~ 5 years (some would say that is optimistic.) Some will fail earlier. This will lead to reduced storage capacity as you can’t replace a failed battery with a new battery. You need to replace the entire battery bank which would need to happen every 5 years if you are to maintain storage capacity.

Lead Acid chemistry will last longer if the depth of discharge is reduced, however this means a larger nameplate storage capacity and higher initial Capex.

Another downside is that Lead Acid technology can fail spectacularly very quickly. I am an engineer involved in the development of renewable energy and we use Lead Acid battery storage in our pilot plant. Over Xmas our charging system over heated and correctly shutdown. With everyone on holidays the system was unmonitored for a few days. When we got back we had some very expensive batteries purchase only 6 weeks earlier that had been fully discharged and allowed to sit in this state for a couple of days which destroyed them. Of course we should have had a system shut the batteries down which would have saved us many thousands of dollars, but even then protective systems fail.
- J Morganlowe
  
  Hi James
  
  Just couldn’t let your claim of 5 year turn over for lead acid batteries go unchallenged.
  
  In 1992 I installed a 24volt bank consisting of 12×2 volt 750 amp hr lead acid cells in a stand alone system, comprising of 2KW solar PV and diesel generator backup for overcast periods.
  
  These batteries, with what one may call casual maintenance, provided uninterrupted service for our household of of two adults and 4 children growing to adulthood, low energy lights, washing machine, TV, electric fridge, ceiling fans, computers etc. The batteries failed in mid 2010 and have been replaced with a set 1025 2 volt cells.
  
  Working on this experience and the fact that the load factor has dropped markedly, (children left), I feel confident of a repeat performance, though that would put me at the age of 90 so I’m a little unsure who will go first.
  
  Also as the electricity company originally quoted me in excess of $80k to run the line to my property I am extremely happy with my investment.
  - http://www.energyforthepeople.net Tosh
    
    Hi James, that is a great story.
    Can we talk more?
    Feel free to email me direct at tosh@energyforthepeople.net and we can go from there
    
    cheers
    tosh
bill parker

I think 8.64kWh/day is a pretty ambitious usage level for most householders. In WA the average across the south west integrated system is at least twice that. As a former owner of a low energy passive solar home, the electricity consumption was around 6.5 – 7kWh/day with a gas boosted solar water heater and the only major demand (fridge/freezer) at about 3kWh/day depending on season. I could have reduced that with better heat disposal.
Alistair

But James , why use lead acid batteries given all the problems stated above ….. It would be interesting to see a similar equation for households who run gas cooking/hot water , don’t have central heating or air conditioning and are prepared to use lifepo4 as storage ……. Intuitively I think the costs will be a fraction of the above … If we take it that many humble households would only need power for lighting, a fridge, a tv, and a washing machine …. It may be that those with less need for power consumption might be comparatively better off – off grid , not paying for their neighbors air conditioner ……… The real question is how many low and middle income households like mine exist … And what would that do to the grid if we exited!
Graeme Dennis

Interesting article. Obviously, more details needed on gen set etc. Perhaps consider alternative heating sources in winter (gas, heat pump) to flatten the load profile by reducing electrical demand in winter.

Also, when I plug 8.64kwh/day into IPART’s tariff comparator, I come up with a grid bill of $675pa (rather than $1,000pa) for a Sydney 2000 residence (and as low as $512 from some retailers). So the $1,000pa grid assumption may need revision.

http://www.myenergyoffers.nsw.gov.au/search-offers.aspx
Chris Fraser

A 25 year life for all components is more palatable for home consumers. Then all the parts wear out at the same time and it saves inconvenience.

LiFePO4 batteries may be better in the long run. They are supposed to be very stable and easy maintenance. Lifetime studies have been done which alludes to a 25 year + (10,000 cycle) service life ;-

http://upcommons.upc.edu/e-prints/bitstream/2117/15119/1/Lifetime.pdf

The down side of long life is that the depth of discharge is limited to only 25%. Therefore, Noel’s 8.64 kWh needed capacity would become 34.56 kWh minimum storage.

Did Noel factor in battery efficiency round trip losses ? (such as charging losses, discharge losses) and finally inverter losses between DC and AC ? I’m not sure if they are huge but still they must be counted.
Derek

I’m unconvinced by the maths.
a) I have $8,320 today; invested for 25 years gives me $17,420 and no PV system.
b) I spend $8,320 today on a PV system; after 25 years I have $36,459 and write off the system.
Benefit of (b) over (a) is over 100%. Subtracting the cost of a replacement system after 25 years in (b) is double-dipping.
- http://www.sunoba.com.au Sunoba
  
  Yes Derek, I think you’re right. I only realised the error you pointed out after the article had been republished, and I then wondered if anyone would spot it. You win a prize!
  
  The error does not cause me to change my conclusion, particularly in light of earlier comments about batteries.
http://energyforthepeople.net Tosh

Nice to see someone working through this publicly, though the assumptions result in the exercise not meaning much in the real world.

We are developing a range of off-grid energy projects to more fully explore and test how to make off grid or indeed micro-grid viable and are confident it will be a mainstream solution within 10 years. If anyone is interested, check out http://www.energyforthepeople.net
http://www.greensync.com.au David

Derek makes a valid point, although it isn’t double dipping, just wrong timing. Better to do the calculations on a cash flow basis, and then use a discounted cashflow/NPV calculation with a 3% discount rate for the comparison.

Scenario (a) should include all your electirity bill payments (ideally on a quarterly basis). Scenario (b) should include the upfront $8,250 payment. There may be some residual value in the system, however after discounting for 25 years, even at a low 3%, its probably not a major factor.

Perhaps someone could do a spreadsheet that people can use and customise to their own circumstances?
- http://energyforthepeople.net Tosh
  
  Homer software is the obvious choice but I’m not convinced its outputs are robust. Tends to over-use the back-up generator for some reason…
- Derek
  
  David, it is double-dipping. Scenario (b) pays for two systems, but only considers the benefits over the lifetime of one.
  - david
    
    Derek,
    Scenario (b) only has the cost of the system recognised at the end (subtracting the $8320 at the end). He doesn’t recognise the upfront cost of the system (my issue with the calculation). Hence it isn’t really double counting.
    
    If he had taken the cost of the system into account at the start, and then again subtracted it from the invested total of his $1k electricity bills, then that would be double counting.
    
    I hope this comment adds some clarity.
    - Derek
      
      In both scenarios, he starts with $8320.
      In (1) he invests it for 25 years and ends up with $17420 in total. That includes the original capital and there’s no other asset to show.
      In (2), he invests the $8320 in a PV system instead. After 25 years he has $36,459 in the bank and writes off the PV system.
      Comparison is $36,459 versus $17420, as Noel confirms.
Bill

Not sure how this fits into the calculations but, as the cost of panels goes down, it becomes more efficient to add more panels than to add more battery storage.
Graeme Dennis

Hmmm, some new maths on this page.

The present value of 25 years of grid payments of $1000pa, paid quarterly, discounted at 3%pa (the author’s assumed rate by which interest earnings outstrips grid bill inflation) is $17,543.

So, provided you spent less than $17,543 on day 1 on an off-grid system (and it lasted 25 years) you would be no worse off than on the grid.

Or, put another way, spending $8,320 up front to go off-grid has a payback point at about 38 quarters (9.5 years) if your grid cost would be $250 per quarter.

Or, very simply, whatever its size, if your system is going to last 10 years, you can’t afford to pay more than about 8.5 times your annual grid bill on its purchase.

If you make the heroic assumption that it will last 25 years without cost, then you can afford to pay 17 times your annual grid bill on its purchase.
Craig Memery

Thanks Noel et al,

Interesting discussion. ATA undertook an in depth assessment of the cost viability of going off grid, initially as an alternative to upgrades of the existing network

Check out http://www.ata.org.au/projects-and-advocacy/the-economics-of-stand-alone-power-systems/
and associated links
David

I don’t think this type of simplistic analysis is helpful to the cause of renewables. Not even the Atacama desert gets the same insolation every day.

The 99.9% renewables article just posted shows that you need very substantial amounts of excess generation capacity to approach 100% renewables even with the advantages of a mix of generation types, wide geographic distribution and smoothing of demand by a large population. Even than it still needs much more than 1 days storage.
Robert

I live in Coffs Harbour and have just moved into a rental house so I’m signing up for electricity. I will be charged 34.4c/kwh for all usage plus $1.48 per day. I have solar hot water so the controlled-load should be about zero.

I’ve concluded that I’m much better off installing an off-grid PV and battery storage system for my expected usage of 7kwh/day the average cost of electricity is about 50c/kwh which is almost double the cost of the off-grid system. I can’t understand why more people are not going off-grid.