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Why Australian battery storage costs may fall 40% in two years

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It is the key question being asked by almost every household with rooftop solar, or thinking about installing it: When, and should I, install battery storage?

For some households on premium solar tariffs that last another decade, the question is kicked along way down the road – although some people are proposing that governments seize the initiative and swap the anticipated income from those tariffs to use as a subsidy for battery storage.

For the rest, and particularly those in NSW, Victoria and South Australia who come off premium solar tariffs at the end of this year – more than 200,000 households – the question is whether they should order battery now, or wait a while for costs to fall.

It is one of the big conundrums of the market. Most expect battery storage to be propelled by the “early adopter” market in the next year or so, but there is great debate over when storage costs will fall to fit in with “payback times” considered short enough to create a “mass market.”

That, of course, depends on whether you think that battery storage is going to be an “economically rational” decision, as the incumbent utilities like to paint the issue, or one of desire. Not that many people think of payback times when buying a fancy BBQ, a pool, a lounge suite or a car.

Investment bank Morgan Stanley has added some more fuel for thought with its predictions that battery storage costs could fall 40 per cent in two years, largely as a result of an increase in scale in global manufacturing and the local industry.

morgan stanley battery storageMorgan Stanley analyst Rob Koh says he expects the average cost of an installed 7kWh battery storage system can fall from nearly $10,000 now to just over $5,000 in 2018.

The actual battery pack, he estimates costs around $4,200 now, but will cost less than one third of that price within two years.

Shipping, mounting and inverter costs will also fall. The only element to rise, he suggests, is the cost of labour. (See graph to the right and please click to enlarge. Koh says the figures are based on his and company estimates and are based on a “generic” system. Individual prices may vary considerably).

“We estimate that Australian battery installation costs can feasibly fall by around 40% over the next two years, incorporating battery unit estimates from our global colleagues approaching US$150/kWh (largely a function of manufacturing scale in the electric vehicle market), and moderate estimates for reductions in BoS (balance of system) costs,” Koh writes.

He note that the commodity inputs into the battery contribute  (such as lithium) only around 10-30 per cent of total unit cost, so are not a large driver of end user prices.

The weakest part of the equation is the cost of the inverter, which may not fall as fast, and “other additional installation costs could include a smart meter (with unit costs now around ~$100-200) and a control system and/or software (such as a Reposit Box that retails for around $600). But he also notes that these additional costs may also facilitate increased benefits.

What is interesting about Koh’s analysis is where the battery storage business model works, and where revenue can be obtained.

morgan stanley storage revenueKoh says the important factor in battery storage is the amount paid per kWh.

As battery costs fall from around 100c/kWh delivered to around 50c/kWh, these costs could be outweighed by the revenue gained from the battery itself.

The biggest, Morgan Stanley notes, is from network services, something that many network companies are working on.

The next biggest is solar self consumption, followed by tariff arbitrage (load shifting between high and low tariffs) and then virtual power plants, where the output of solar and storage installations is pooled.

Morgan Stanley also notes the attractiveness of modular installation, particularly with the likes of Enphase, which is offering a 1.2kWh Lithium-Ion battery product, which the company claims can be installed in 40-60 minutes by one person, for an installed cost of $2,000-2,500.

The relatively small unit can reduce demand tariff charges (if available), and incremental battery capacity can be added down the track, when battery and installation costs can be expected to be lower.

battery cost outlookLithium-ion, of course, are not the only battery storage options, but it is the technology that is expected to have the greatest price drop in the coming years, as this graph above illustrates. It is, however, interesting to see the anticipated cost falls in flow batteries, of which Australia’s Redflow is one of the major developers.  

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  • MaxG

    As for the Enphase product, this equates to 2,000$/kWh… ridiculous at best.

    My 20kWh LiFePO4 battery would have cost me 40,000, instead of 10,000. Also, what good does a 1.2kWh battery do? Really? The average fridge/freezer is rated at close to 200W… that is 6 hours to empty… add another PC and bits, and you’re flat in three… useless. I mean this kWh needs to be charged for free and used at a value of 25 Cents/kWh, to break even in 8,000 days or 22 years. Ludicrous.

    • Ronald Brakels

      Don’t worry, MaxG. The Enphase battery won’t be flat in three hours. It takes over four hours to discharge.

      • MaxG

        This means you can only 300W/h out of it… what on earth is the point for this battery?

    • cagney

      Perhaps you can help me with my math.

      Our not exactly advanced 5 year old fridge claimed it would use ~400kw/h each year. 400/365/24 -> 50 w (~0.05kw/h each hour)? So that’s > 24 hours. And if we go by the smart meter the real world is more like 100-200w so that’s still 5-10 hours.

      Just like the gas BBQ, It will certainly help to make those 6 hour blackouts far more livable 🙂

      • MaxG

        all well and good, but do you really want to spent say 2,400 dollars for an UPS? If so, why now and not years ago? 🙂

  • howardpatr

    Looking forward to finding out more about the 25Kw plus Ecoult system – could be a real player in energy storage; especially when teamed up with Reposit?

  • Ronald Brakels

    People normally don’t think about the payback periods of BBQs, pools, lounges, or cars because those are consumer items and don’t have payback periods. You sit on a lounge, you drive a car, and a BBQ uses flame to cook your meat. You can’t sit on a battery system, you can’t drive it around, and if flames come out of it and cook your meat then something has gone disastrously wrong. A battery system has no utility beyond saving money or potentially providing back-up power.

    • Brunel

      That is funny!

      But there are plenty of people in RSA who would buy a Powerwall to be able to keep their laptops, modems, and TVs going during a power cut.

      In rural AUS, the grid is not so reliable.

      And in USA, plenty of people will get a Powerwall to boast that they are off-grid – even if they are not fully off-grid.

      • neroden

        I would expect outback and rural areas to be the first and most eager markets for batteries. The grid electricity is very expensive and quite unreliable. And they have plenty of space to *put* the batteries and solar panels.

        Even the utility companies want the rural and outback areas to go off-grid, because it costs so much to maintain the long transmission lines.

    • MaxG

      Agree… I didn’t care much about ROI, but in this case, we are not talking about grid-augmenting, back-up power? Well, at 4 hours to discharge as you say, you can hang 300W on it; maybe just goo enough for the fridge/freezer… so people buy a UPS now? :))

      • Mike Dill

        Right now, you buy the battery storage system for the same reason as having a UPS. Cycling the battery makes sense in some places, but not all. In the USA where the average kWh is $0.10, it will be a while.

  • neroden

    “The weakest part of the equation is the cost of the inverter, which may not fall as fast,”
    There’s massive research into cutting inverter costs. It’ll probably happen pretty quick though maybe not in two years.

    • nakedChimp

      I’d say this mostly depends on how high tech the solution(s) are and if the Chinese can make them in big numbers without a big quality loss.
      There was a company in Oz that sold a hybrid inverter from China for 200% more than it did cost to land it here (landing per 3.5kW unit in single digit counts cost AUD 750 btw).
      So there is a lot of hot air in those costs that only comes down by scale and distributor competition.

  • Michael James

    Excuse me if you have covered this issue on previous articles, but shouldn’t Flow batteries include advantages such as longer-life and much lower risk of premature failure? Perhaps I have been too susceptible to the PR but isn’t it far more robust, with imperviousness to deep discharging or the number of cycles? I seem to recall that a biggish system was installed at the UQ to store their (experimental) rooftop solar-pv system back in 2010 (ie. there must be fair performance data by now?).

    The other issue is that Flow batteries are really struggling at the small domestic size and so would be much better for a local-area solution, where it probably already would financially outperform the alternatives. It would also be more efficient in arbitraging between light and heavy users etc.

  • Ian

    I love the exhibit 16 chart. The article says the wholesale cost of lithium cells is $150/kWh or $1050 . The 7 KWH storage costs $4500. $ 3450 more than the cost of cells. Labour and shipping are each the cost of the cells, tax is also almost the cost of the cells, the inverter is twice the cost of them. The cables and mountings are 50 % of the cost.

    This reminds me very much of my shonky car service bill. Who’s sh1tting whom?

    • nakedChimp

      Isn’t it like that everywhere really?
      Order a beer in the pub or get one yourself in the adjacent drive through and tell me the difference.