UBS: Solar + storage is cost effective already in Australia

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A new study from investment bank UBS says solar plus storage already make economic sense for Australian households, a finding that could dramatically reshape the nature of the energy industry in the country.

The new report suggests that one million households could invest $20 billion in storage systems in current years – nearly equal to the investment required for a new LNG export plant.

According to UBS would be relatively low risk. More importantly, it would herald a revolution in the domestic electricity industry.

UBS says the arrival of cost-competitive solar plus storage will have major impacts on utilities, depending on how they react. They could see it as an opportunity – and provide zero-down installations of battery storage and solar to their customers and help the costs come down even quicker for Australian households.

Or they could see it as a threat, and leave the way open for others to do the same.

The UBS analysis looked at the price of current solar plus storage offerings in Australia. It estimates that such systems – which allow households to use all the electricity produced by their solar array by storing it in a box (battery) for later use – are already offering a return of capital of 10 per cent a year or more compared to buying power from the grid.

It commissioned consulting firm GSES to look at systems that comprised 5kW of rooftop solar and 5kWh of battery storage. At $18,000, some of these systems were already economic.

“The cheapest system looked at is already capable of earning its cost of capital,” the team led by UBS utilities analyst David Leitch says.

More significantly, there is clear potential for dramatic cost reductions in coming years, in much the same way that the cost of solar panels plunged so dramatically over the last five years.

UBS says this will happen just by bringing the battery sales price down to those that are already available in the US, scaling production of battery housings, battery management systems and energy monitoring (Australians currently pay four times the price in the US for some battery management systems), and integrated manufacturing of components including inverters.

It suggested that Australian consumers were being overcharged compared to the US. And offered this comparison as an example.

The study is a follow-up to a report in May, where UBS predicted that households in the major cities of Australia could find it cheaper to go off-grid rather than stay connected. Another report in August suggested the time was right for a solar plus storage plus electric vehicle revolution.

Those reports sparked a huge reaction, and prompted UBS to look a what technologies are available now, not necessarily to go off-grid, but to maximise the amount of self-consumption.

The Australian Energy regulator recently flagged that Australia will likely be witness to the rise of “prosumers” who will create an “energy revolution” who will generate their own electricity and store for use at a later time. This so-called “democratisation” of the grid will have a major impact on the decades-old centralised business models based around large coal fired power stations and huge networks of poles and wires.

We liked this explanation from UBS as to why solar plus storage is so compelling in Australia:

“Solar’s differentiation compared to virtually all other forms of generation is that its generation costs are invariant to scale. It’s just as cost-effective whether it’s scaled to run a torch or a city. In addition the fuel source is mostly available at the point of consumption. This means the only real constraint on where solar is situated is having enough space for the panels.

There is no noise, no moving parts to wear out. These attributes are why it so well suited to Australian detached housing, or for that matter, the commercial and government sectors. Virtually the only disadvantage of solar is that the sun only hits the panels for a limited number of hours per day.

That’s where the storage comes in. The battery’s function is to ensure most of the solar power can be used in the house and nothing is sold back to the grid.

Until recently, and even today, storage has neither been consumer friendly (lead acid batteries are heavy and require relatively large amounts of space) and relatively expensive. However Lithium Ion batteries are changing that; their costs are falling sharply, maybe 10% or more per year in $US terms. Li-Ion batteries have other consumer friendly advantages, they are much lighter, take up less space, can be virtually fully discharged at a constant voltage, and hold charge for extended periods of time. “

UBS suggests that Australians are currently paying around double for the same battery storage than in the US. “Australians are paying around a 100% premium on this basis even for a “do it yourself system”,” it says. It says that’s partly to blame on the “cottage industry” nature of the business in Australia.

ubs storage differenceAustralians are paying around $780/kWh for storage compared to $US360/kWh for comparable systems in the US. In some instances, such as the Sony system, the premium is four times the price of automotive battery packs in the US, which it notes are heading down towards $100/kWh within 10 years.

“In our view the higher prices in Australia reflect the relative bargaining power of buyers and sellers. If a major electricity retailer or new entrant was to move aggressively into this space we think that Australian prices for household storage would fall to or below international auto battery prices.

“Ultimately household storage requires a lower materials cost LiFePO4 battery so all up cost should be less.

For time being as the volume of devices sold into the household storage market is tiny, and because there is no large scale retailer actively promoting the products, then neither is there the catalyst to bring costs down to even the present global level.

So how does it work? Basically, the battery storage allows households to store their output from solar systems in a box for use later. That means that they don’t export back into the grid at the desultory offer of around 6c/kWh (only to see the retailer sell the same electrons to the neighbour for up to 9 times the price), and can avoid buying electricity at peak times.

Ignoring fixed network charges – the wild card in these equations, as we noted here in our Solar Shocker story – this could deliver big savings. This graph is based on a 4kW solar system and 5kWh of battery storage.

UBS solar battery demand

“Based on this set of parameters the daily electricity bill without solar and battery and also ignoring the fixed annual connection charge is around $5.60 or $2044 per year,” the UBS analysts say. “By contrast with the solar and battery the net revenue is around $0.43 per day or $157 per year for a net gain of $2200 per year. “

UBS says that even if 1 million battery storage systems are solar in Australia – there are already 1.4 million rooftop solar systems – that would represent a $20 billion investment, equal to 2/3 of an LNG plant’s cost.

“The investment is relatively low risk because the investment tap can be turned up or down quickly. An Australian utility might build up its own branded systems, and sell them “zero down-payment”,” it suggests.

“If our numbers are correct someone will likely do it. For the time being we think that incumbent utility management will likely see this as more of an Annual Report photo opportunity rather than a potentially major P&L (profit and loss) line item. As such for incumbents it’s arguably more of a threat than an opportunity.”

For this interested in the UBS cost estimates. It says the lowest cost system for 5KW + 5KWh LiIo battery is $18,000 with SREC benefit and provides about a 10 per cent internal rate of return compared to buying power from the grid.

ubs storage costs

“Analysis of the lowest cost system shows that large cost reductions seem possible. The battery itself is about twice the US cost for EV batteries. The battery balance of system [BOS] costs range from $2500 to $5500. We can see scope for taking $100s if not $1000s out of that cost. EG the cheapest battery management system is over $600 in Australia, and in the USA it’s $150. Suppliers such as Bosch are charging large premiums for integrated systems when the underlying costs should be substantially less.

It says global cost reductions offer further opportunities. Battery costs could fall from 2014 levels of US$360/KWh (capacity) to US$200/KWh by 2020. “By comparison the cheapest quote we received in Australia was $784 KWh. Solar costs are expected to fall around 20-25 per cent over the next few years based on a 20 per cent reduction for a doubling of volumes. Systems integration and mass production should see other costs fall as well. The outlook for inverters is less clear, partly due to a technology fork in the road.”

And here is one graph that shows how the high and Bosch system could fall in price over coming years, mostly through a reduction in battery and hybrid systems.

storage bosch costs  

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  • john

    So at $750 kwh for a 8 KwH system used for 350 days and only at 80% the figure for power comes out at 18c KwH over 15 years.
    paying for itself in 8 years with power at 35c KwH
    The savings during the day with the $8k 5 Kw PV with 20% home use and .063c FIT is 9 years for the $14k investment.
    Pretty convincing figures to me.

    • jayrodc

      Hi John,

      What’s the current service life of the battery storage technology?

      • john

        The flow battery companies are talking 15 years for more information go to

        I have personally rung a company here in Au and for $8k they assure for a 8 KwH output it lasts 10 years then needs a refit which is only $2k however on extended fast track life test by USA research company it is showing 15 year as expected.
        The test is fast drain and fast charge 24/7.

        • jayrodc

          Great, I’ll check it out. Good to hear you’ll only need a refit at a substantially lower price

          • john

            For remote this is the most cost effective way to go and frankly I would expect it is about time that remote NSW and QLD also went this way as it will be far more cost effective for each state due to the cost of transmission loss in each state being a huge impost for city people who subsidise the power to the regions.

  • Alberto

    Seems like excellent news, but is there a link to the article?
    Or at least a citation with data such as the title and the authors of the study?

    • john

      Alberto do the maths your self using my figures.
      possibly just go to UBS

  • john

    I expect inverters to fall in price just remember; Google was it not; are holding a world wide reward of $1m for the best small size small cost innovation for this item.

  • Motorshack

    The figure that caught my eye was the 10% internal rate of return.

    This would be a very respectable return on any sort of investment in stocks and bonds, and especially so given that this rate of return is all but guaranteed.

    The really nice thing, however, is not mentioned at all, which is that this return on investment would be free of taxes and commissions.

    That is because the payoff comes in the form of savings (i.e. money not spent), and not in the form of a cash income or capital gains. So far as I know, no one taxes such savings, so this is equivalent to an after-tax return of 10%, not a pre-tax return.

    In short, you can hardly find a better investment, much less one with such a small risk attached to it.

    • john

      Very true and this is why investment companies are willing to lend you the money

      • Motorshack

        Indeed, I have thought for some time that people should be looking at the rate of return and not just the raw cost of capital. The question here is not the absolute price of the battery system, but rather that price versus the very high price of grid power in Australia.

        Plus, anyone with any sort of DIY skills can knock something off the capital costs, by doing some of the work themselves. There are lots of simple tasks that an electrical contractor will normally delegate to a well-paid helper, while doing only the most technical tasks himself.

        I did this myself some years ago when remodeling a house, and the only trick is to find a contractor who is willing to work such a deal.

        Paying for as much as possible out of personal savings is another way to improve the rate of return. After all, interest on a loan is just profit that you are sharing with a bank. In the long run, every dollar that you finance yourself creates a significant gain in your ultimate profit.

        • john

          The LCOE is the way to look at this situation just remember that there is at least 80% loss in the system from battery to AC power so 8 KwH will for instance yield 6.4 KwH AC

          • Bob_Wallace

            Best to check those numbers. Modern inverters are extremely efficient. Here’s a whole list of inverters with >95% efficiency.


          • john

            Bob true however best to use conservative figures so you know the worst case and not over estimate for instance I use 8000 kw as output for a 5 kw system where as 8500 is achievable.
            Yes I know lower for Tasmania in the 7000’s region.
            I use 80% to allow for losses in the whole system.
            Use 80% so you do have figures that can be used for financial decisions, if in real life it works out better then your ahead.

          • Bob_Wallace

            I assume the “80% loss” is a mistake. That you mean a 20% loss.

            If you’re talking panel through batteries to AC then a 20% loss isn’t out of range for the stored portion. Some slight loss unless the cable are sized large (or panels are wired in a high voltage configuration). Perhaps a 10% loss charging batteries. Then a small loss converting from DC to AC.

            15% or a bit less overall would be my guesstimate.

            I don’t know what you mean by “8000 kw as output for a 5 kw system”. Do you mean 8,000 kWh per year?

            That would be about 22 kWh per day and not out of line if one has an average of ~5.5 solar hours per day. (5.5 hr x 5 kW x 365 = 10,378 kWh. With a 20% loss that would be 8,030 kWh.)

          • john

            Yes Bob I mean 20% loss or as I put it 80% assuming people may understand and I did word it very poorly and in fact wrongly.
            Yes I do mean 8000 Kw per year as output for a 5 Kw system before storage or home use or export.
            I should have realised my mistake but typical I wrote half of one thing and forgot the latter.
            Anyhow the basic fact is that at 80% utilisation of output of a 5 Kw system with a 8 KwH storage system, it is a pretty compelling set of figures in the Au situation.

          • Bob_Wallace

            (8,000 kW-hours. 5 kW of panels times a bunch of hours.)

  • Ron Winton

    Here’s a new storage device that’s based Sodium Ion technology (salt water) that revolutionizing storage applications. It’s not only more affordable than Lithium Ion but much safer as well. So safe in fact that you can actually drink the battery’s electrolyte.

    • john

      They are not the only ones going down this path.
      As I posted before go to

      and you will find many new companies getting into flow batteries mind I have a bit of caution with regard to Alevo Group as I feel they will be way over capitalised for a start-up.
      Best to have a good financial balance sheet before raising capital.

  • john

    The Safeion solution looks very much like Aquion Energy battery to me.
    In fact is the same picture of the salt water battery.
    This has been covered in the battery storage news a while ago.

  • patrickg

    Giles, do you have a link to the report? I’m intrigued to see the pricing at 18k, experience on whirlpool forums etc suggests that 18k is at the very low end of the spectrum for a system like this.

    Of course, most recommend oversizing beyond 5 kilowatt of panels to do this – and experience suggests that for a day to day living experience, that’s a better idea.

    • BarleySinger

      I was quoted $24,5000 for a larger one… 10Kw solar PV and 10Kw of battery

  • Matthew Dawes

    One thing that isn’t included is avoiding connection cost for new houses.

  • finn

    Yes – for this particular scenario a hybrid system gives a 10% IRR. But I’ll bet that if they run the same scenario for a boring old 5kW grid connect without storage at $6k, the IRR is much higher than 10%. So why spend 3x more for a lower IRR?

    • Ronald Brakels

      Because it’s better than having money in the bank. Or in the stock market. And it’s also worth it if one can take out a home equity loan or if one is simply ahead on the mortage payments. And then there’s the fact that many Australians are already limited to only 5 kilowatt systems, apparently in order to protect the coal industry, so energy storage is a way of getting more value out of a bureaucratically constrained system.

  • Ian

    10 to 15 years pay back on an investment is too long. I would say 5 years would be the maximum people would generally be willing to accept. Life circumstances change and a large proportion of people move, technology becomes outdated rapidly and fails, batteries are unlikely to last 10 to 15 years. New and cheaper solar plus storage systems are likely to emerge. The price gouging on equipment compared to the USA you mentioned in the article all encourage a wait and see approach. Any company wanting to create a market has got to get prices down to achieve a payback period of about 5 years.

    • Harvey Wilson

      Agree. Most people wouldn’t stay in their home long enough to pay it off. We as usual get the prices with added “Australia Tax”.

  • Megs

    A 10% rate of return is as good as the share market over the long term ,but without the timing risk. As it is a saving vs taxable income it is even better. For those on a means tested pension it is not income, it is not an investment with deemed income and as part of the home it is not an “asset”.

    • Ant..

      Makes sense to invest in solar and solar storage. We use on average about 17kwh per day even with 1.5 solar on the roof. That’s about $1,200 per annum deeming on $18,000 [the cost of a system plus storage] is about $630 taking the cost to 1,830 or 10 years to pay back the capital. On an investment of $18,000 where can you get a return of $1,830 net of tax.

  • Paul Wittwer

    This 18kW-hr Nickel Iron battery pack at $9,900 with a 40+year life has got to be well below the current cost of Lithium ion even with an efficiency of only 80%. No battery management system required either apparently.
    I thought the labour costs in fig 3 very high. It took 3 blokes only 3 hours to install my 1.5kw system. Even at 2 full days to fully install the 5×5 system the figure cited is very high.

    • BarleySinger

      You will have to get it to you. There are 10 batteries and they weigh 54KG each. That’s 540KG of batteries I would need shipped from Victoria to country SA. It costs about $1500 just to ship a fridge to my house from Adelaide “Good Guys” (so add probably $5000 extra in shipping)

  • GreenGenie

    Real-World Modelling?

    This is all heading in the right direction with battery price being the key, but the modelling seems to be courageously optimal and far from real-life by using the solar input of what looks like a summer solstice and then multiplying it by 365?

    ie; ( “Based on this set of parameters the daily electricity bill … is around $5.60 or $2044 per year,” )

    Also, the house consumption (trending at just under 20 kwh/day) is given the same annualized assumption but we know that winter/spring energy use jumps about 20% while usable solar input drops by more than 50%.

    You’d probably end up needing to buy grid electricity to charge a 5kwh battery which makes little sense to me (just makes a stranded asset of the battery bank).

    Given those parameters I feel that the modelling would struggle to make the predicted return on investment, by a long way.

    • Ronald Brakels

      I think we may be in a different part of the real world than you are in. This is the bit with kangaroos. Here our peak electricity use is definitely in the summer and in Brisbane an optimally aligned solar panel will receive an average about 72% of the sunshine in the worst month as in the sunniest. And because the efficiency of our solar panels goes up in the cooler months the panel is likely to be generate about 74% as much electricity in the worst month as in the best.

      • Guest

        Still Kangaroos down here but more latitude and less winter celsius in the far SEst NSW 🙂

        • BarleySinger

          because Australia has about the worst feed in payment around…it is in our best interest to KEEP the power that we produce and use it ourselves. Otherwise you get paid 7 to 8 cents for a Kw that your panels made at 2pm… and then you “Buy it Back” after sunset…at between 26.72 and 32.51 cents a Kw (more than likely) – those are the two most common tiers of the winter AGL prices.

  • Macgregor

    The comments on this article are not very well informed. Lithium chemistry’s have round-trip energy efficiency approaching 95%, not 80%. 80% is the figure used for Lead-Acids. In regards to the article itself, there is a comment about how lithium’s can be “virtually fully discharged,” and later it is shown in the GSES numbers that the batteries need to last 10 – 13 years to pay themselves off. This isn’t very accurate and is missing the crucial analysis of depth of discharge and lifetimes of batteries. Lithium’s will not last 10 years if you are cycling them to the bottom each day.

    • BarleySinger

      …which is why a properly vetted out lithium battery bank has to be larger (to not kill your bank in the grey winter days)… although… the better smarter hybrid inverters have software and I would HOPE (as a senior sofware guy) that a hybrid (on gird with battery) system would MEASURE the temp and the current depth of charge and stop the battery bank off from discharging (back to the grid power) to keep from screwing your up.

      Hell I would…that just two sensors and a weeks total programming effort (that is including testing) to not destroy your batteries? God I hope so. It isn’t rocket surgery or brain science.

  • Bernie Masters

    For high energy using households, a 10 to 12 year payback may be acceptable. But our house is passive solar designed and, prior to installing our 3.0 kilowatt PV system, our annual electricity bill was about $700, not $2000 which is the basis of this article. The mathematics are a bit complicated but my back of the envelope assessment suggests that, for a well designed, low energy using house, the payback period extends out to at least double – 20+ years. This then becomes a less attractive investment.

    • Ant..

      The $700 saving is tax free so you need to rework your payback figures