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Morgan Stanley sees 2.4m Australia homes with battery storage

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Investment bank Morgan Stanley has painted a bullish outlook for the home battery storage market in Australia, saying it could be worth $24 billion, with half of all households likely to install batteries to store the output from their solar panels.

That will mean around 2.4 million households in the National Electricity Market (all states except WA and Northern Territory and off-grid areas), more than the double the 1.1 million households that already have solar in the NEM.

That, the investment bank says, is likely to impact the incumbent electricity utilities, particularly AGL and Origin Energy, cutting earnings and forcing asset write-downs. So much so that Morgan Stanley has slapped a “cautious” tag on its outlook for the industry, suggesting they could be badly hit by lost revenue in coming years.

Morgan Stanley’s conclusions came about from a survey it commissioned from 1,600 households, and the subsequent release of pricing by the new Tesla Powerwall battery storage offering.

The survey – conducted in March before the Tesla release at the end of April – found half of all households had a strong interest in household solar and battery product, with a clear $A10k price point and 10-year pay-back period.

“Battery adoption should follow solar adoption patterns (literally and figuratively) which, in our view, suggests a market of about 2.4m NEM households,” the analysts write, noting that around 1.1m households in NEM already have solar panels.

“We think there will be strong interest in household solar and battery products, which transfer value away from the incumbent merchant utilities,” they write.

“We think household battery take-up will follow a similar pattern to household solar take-up, especially seeing as around 1.1m households in the NEM could ‘retrofit’ their existing solar systems with batteries, especially where legacy Feed-in-Tariff schemes are set to expire.”

morgan survey

These are the results of the survey that Morgan Stanley undertook. Most people, naturally, are going to take up battery storage at a certain price-point, a ten-year payback. Many, though, will buy even at a higher price point.

It’s interesting to note that the “retrofit” market accounts for one-half of current solar households. That takes into account that fact that many households in Queensland, Victoria South Australia, where a total of around 400,000 homes have generous export tariffs until the mid- to late 2020s, have no incentive to store their output in batteries.

But there is also potential interest from the 160,000 homes in NSW, 60,000 households in Victoria and 30,000 households in South Australia that will see their tariffs expire next year.

Those tariffs are important to note in this next graph, which shows the estimated return on investment and payback times for households adding battery storage.

morgan hotspots

The excellent returns in Queensland and South Australia are for those who do not have those premium tariffs. They both pretty much accord with the UBS estimates we published on Tuesday, and which were considered – by the analysts and many readers – as quite optimistic.

Morgan Stanley says its analysis is based on estimated installation costs for a Tesla 7kWh daily cycle battery system paired with a 3kW solar PV system.

Morgan Stanley says the preference for most Australian households suggests a pay-back period of 10 years or less is preferable, but doesn’t really matter when the product becomes ‘mainstream’ and the upfront cost drops to ‘appliance’ levels of around $A5,000, which is comparable to a large television.

“We think the ‘retrofit’ market, i.e. the ~1.1m households with solar panels already installed, will be among the first households to adopt the new battery products, potentially combined with the upsizing of older 1.5-2kW systems,” it says.

So, who are the winners from all this? Morgan Stanley says it is hard to say. It does rank the potential players in the market, from utilities, product developers and the real “disruptors” such as Tesla – and maybe even Google and Apple down the track.

morgan stanley contenders

Morgan Stanley says the arrival of Tesla’s PowerWall product in Australia, expected in early 2016, will catalyse the sector and lead to rapid take-up of battery storage, with fast-follower installers and competing products entering the market over time.

“Just as Australia does not have the venture capital, labour and supply chain to compete with global electronic brands such as Apple and Samsung, we think Australian incumbents are at risk of losing market share to new entrant disruptors.”

But it does suggest that the utilities could take advantage of what it calls the “easy adopters”, those that want to install battery storage without thinking about it too hard. It even suggests that the likes of AGL and Origin could invest back up the supply chain

As for the utilities, Morgan Stanley estimates that Origin and AGL could see reductions in earnings before interest and tax of up to $100 million in 2020, as consumers choose to store the output from their solar arrays in battery storage.

This so-called “load shedding” will cut around 800GWh for each utility, and about 3 TWh for the NEM. Morgan Stanley expects as big an impact from battery storage as the first wave of household solar and energy efficiency between 2009 and 2013.

Interestingly, Morgan Stanley notes that while the utilities may be able to erect defensive walls with tariffs (and higher fixed charges) and the help of pricing and policy regulators, that may not cut much ice with their consumers, who then face higher bills.

“Put simply, we think that energy retailers will struggle to explain the changes to their customers, especially where bills are going up despite usage going down.

“Our AlphaWise survey supports this view, with customers displaying very low awareness of tariff structures, and a strong belief that reducing consumption is the best way to reduce cost.”

And the utilities face write-downs too. If battery capacity reached around 10 per cent of NEM generation capacity in the early 2020s, that would replace the need for much of the gas-fired peaking plant installed today.

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  • Miles Harding

    That’s a useful chart: Exhibit 4.

    I remember talking to one of the solar importers some years back, he remarked that the GFC and its consequences had served to expose the importers margins and force them to become a lot more honest in their pricing. It would seem that the Tesla battery is going to do the same, even if not too many are sold here. They will destroy the capacity of those high (over the top) priced suppliers to gouge their customers.

    We should be looking for prices in the $750 per kwh range now.

    • nakedChimp

      That’s for sure, will be interesting to read the RE parts of the whirlpool forums during the next couple of months.. :-)
      The LFPs I had in mind for my installation (never had time to get to do it) did actually rise in price..

      • Miles Harding

        Igniting debate is one of the best features of the Tesla battery. Times have finally become interesting.

        The Thundersky and CALB prices must be due for a downward change in the next couple of years. So far no sign of movement beyond our exchange rate :(

        There is a huge amount of research in batteries at present, so we should be thinking of the Tesla pricing as being the high mark, which may be overtaken by a new technology.

  • Jacob

    Exhibit 4.

    So they reckon the cost of storing electrons in the Powerwall is A$0.13/kwh.

    LG Chem RESU comes close at A$0.16/kwh?

    • juxx0r

      That’s going to make for some interesting conversations with Utilities customer service staff.

      “Yes we know you can make your own power for 5 cents a kWh and yes we know you can store it for 13 cents a kilowatt hour, and yes we know that we charge you 25 cents for it plus fees.”

      I can see a future where utilities don’t have retail clients.

      • Miles Harding

        Those dark days are still an issue. Considerable excess PV and battery capacity is needed to allow for runs of these, although it may not be as bad as first impressions would indicate if we allow the weather to modify our behavior.

        It will be an interesting problem if customers only want the utilities for a few days or weeks during the cloudy and cool season.

        • JonathanMaddox

          I’ve seen a 1kW diesel generator in the supermarket for $350. Purists may use biodiesel.

          • Mike Dill

            You are right, Johnathan.

            You can easily cover about 98% of the time using solar and storage. For the other 2% of the year (about 175 hours a year), using the grid might make sense if the connection cost was reasonable.

            Looking at next year, the cost of running a generator for that 2% of the time looks to be lower than the cost of having a connection to the grid.

            They will need to do a lot of explaining…

      • Jacob

        You would think the grid would preemptively cut prices this year. But no, there is no talk of them cutting prices this year.

        • nakedChimp

          Every supermarket slashes prices for stuff that is close to the BB/UBD to get at least some money out of it, before it’s spoiled.

          On the other hand, we might not be quite there (demand still big enough, not enough competition).

    • Aaron S

      Where can you buy the LG Chem RESU in Australia?
      I cant find it on the web

      • Jacob

        Should be available soon.

        But I fear that nobody will do an independent tear down and test of the cells in the Powerwall.

        • nakedChimp

          iSupply will do it I’m sure.. and if just for publicity 😉

  • Cooma Doug

    Lets do what has been done for 100 years and compare electricity supply to water supply. The battery is the tank. This reduces the need for water from the mains and the bill is reduced.
    The battery is more then the tank. The battery can push supply back onto the mains. Just imagine your tank with a powerful pump that can push water back to the mains at double the mains pressure. Not needed in the water analogy. But on the electrical grid this is a very powerful holistic asset.

    If we had a million customers with 7 kwh storage dispersed across the grid,
    the impact on the grid is virtually making the whole thing a totally different animal.
    7 million kilowatt hrs of battery storage on the grid load side could eliminate the need for at least 10 giggawatts of peaking plant.
    Wind generators could effectively perform the same role as they do now but also in combination with the storage aid in the elimination of gas and coal, gaining in capacity factor effectiveness….

  • Rockne O’Bannon

    Morgan Stanley invests in Tesla. Morgan Stanley does underwriting for Tesla. Is this really proper? Should a conflict of interest be cited somewhere? Disclaimer?

    Could anyone reasonably say that the timing of Morgan Stanley announcing this “research” is coincidental? And although they give some other data, all of their comparisons point to their client, Tesla.

    Does anyone care? This kind of stuff used to be illegal. Underwriters and analysts at investment banks had to keep their activities separate. Does Australia have these securities laws?

  • Liv

    Hi Giles, the costing of the powerwall is grossly inaccurate — the table says “installed pricing”, but Morgan Stanley has simply taken Tesla’s manufacturer pricing in AUD, put no margin on it and thrown the installation in for free. They have also not included the cost of a battery-ready inverter ($3-4k alone), metering, software, cabling (power + data), and many other things. The installation will be a good $1k given certification requirements etc. The powerwall cost shown is far from an apples to apples comparison with the batteries above.