Consumers vs the empire: The economics favour partial grid defection

Print Friendly

“We will fight for bovine freedom
And hold our large heads high
We will run free with the Buffalo, or die
Cows with guns”
Cows with Guns, Dana Lyons 1996

Grid arbitrage is becoming more attractive. You’re a fool if you don’t have rooftop solar PV and you could.

Grid delivered electricity is going up in price …. never mind the impending generator reliability obligation or gas prices or even the market oligopoly, the persistent underlying driver in the household sector is rising regulated monopoly network prices.

If networks continue to invest and household volumes continue to fall it will result in higher unit prices. Household are only 1/3 of electricity consumption, but they account for more than 80 per cent of network revenues and retail profits.

This note shows that solar PV + battery storage is now reasonably clearly economic in NSW, provided you have the roof space and the money.

A 6kW solar PV system and a 13kWh Tesla Powerwall 2.0 battery storage unit can probably be had for less than $20,00 with some shopping around.

If you assume that lasts for 25 years and 100 per cent of the electricity is used behind the meter, the IRR (internal rate of return) is about 15 per cent and the payback is about 7 years.

That’s very attractive when mortgage rates are 5 per cent, or even less. It’s hard to prove, because details on maximum demand costs are not shared, but we expect that batteries and PV are even more attractive for small and medium size business than they are for households.

PV on its own is now hugely attractive to households: it provides a 5 year payback if you use 50% behind the meter.

How will this play out is yet to be seen, but the ongoing competitiveness of behind the meter generation and storage will force a grid response.

Politicians will likely end up supporting calls for more of networks bills to become fixed. Another option in theory is for networks to reset and write down some of their RAB (regulated asset base). That won’t happen in a hurry.

In fact right now networks aren’t really feeling the pain because they just pass it on to their grid connected customers.

Make sure you know what the real debate is

So the debate is not really about whether it should be pumped hydro or utility scale batteries or more gas to keep the system going.

The underlying real debate continues to be the system v distributed electricity.

Behind the meter PV in the past 6 years has totally dominated all investment in generation and has been totally beyond the control of the existing players.

Now that batteries are competitive, stage 2 of this takeover is about to proceed.

Will storage further empower the consumer?

There’s no doubt there is a boom in renewable energy.

Wind and PV projects are springing up all over the place and there are more coming.

This is of course great, but as Reneweconomy has documented there is also a resurgence in rooftop PV.

All of this extra non firm capacity has put additional pressure on the value of firming.

The firming solutions that are on offer right now are:

  1. Reconfiguration of existing hydro resources to move from providing mainly energy to providing mainly firming power. For instance as more wind is built in Victoria, Snowy and Southern Hydro can move back to more of a peak role. Perhaps a better example is the potential for HydroTasmania to move from a role of mainly supplying energy to Tasmania to one of supplying firming power to the NEM. If enough transmission was built and some other reconfiguration HydroTasmania could supply about 2.5 GW of firming power to the NEM.
  2. Building more pumped hydro in Australia. That’s what the $4 bn ($2 bn for the project and $2 bn for the transmission) Snowy 2.0 project is about. However there are also two smaller projects where the planning is at a far more advance stage. One is Genex’s Kidston project and the other is EnergyAustralia’s proposed Cultana saltwater pumped Hydro plant in South Australia. In addition we have the Blakers concept of a massive pumped hydro build out backed up by HVDC transmission backbone.
  3. Existing or new gas plants. Our sole comment here is that as we see strong decarbonisation momentum gathering pace over time, the value of gas plants isn’t all that apparent. That said we are keeping an eye on the gas “resources” in the Northern Territory particularly at Origin Energy’s Beetaloo field.
  4. Ongoing flexibility increases of the existing thermal resources. We note that Australia’s electricity demand has always been quite peaky and the existing coal system copes well. There are technological innovations that maybe able to do more with the existing coal plants.
  5. Battery storage. We are going to focus on lithium batteries. In contrast to almost all the other technologies here batteries like PV can be decentralised. A battery can be as small as a watch battery or as large as 100 MW. That’s why batteries have a unique role in taking the consumer driven “hybrid system” forward.
  6. Demand response. Demand response is not a technology that has really had much of a run in Australia but there is a growing bandwagon of supporters. We ran out of space to talk demand response in this piece but keep your eyes peeled as it’s a hot topic that we are keen to cover.
  7. Possibly CSP plants might have an impact. Right now there are not enough working examples to form a view. For instance the Crescent Dunes project has been offline for six months due to molten salt tank leaks. We understand its restarted but we doubt there will be any official data to show capacity utilization prior to the December Quarter.

Pumped hydro v batteries

When set up as a straight cost comparsion pumped hydro can be made to look quite good. The cynic might almost ask, “if its so good why is there so little of it?”.

It has after all been around for years and there is no technology risk.

How much does pumped hydro cost?

Well it’s a project by project estimate.

Each one is different.

And there’s the nub.

Further the perspective on the cost of pumped hydro might look different from the system’s perspective as opposed to the individual developer’s perspective.

And this relates to the Generator Reliabity Obligation. In other words from the system’s perspective if all you need is a “little bit” of pumped hydro spread across a lot of volume it might be cheap.

On the other hand and individual pumped hydro project that has to compete for say merchant revenue might look quite expensive.

EnergyAustralia/MEI/ARENA’s proposed Cultana, salt water hydro plant in South Australia can be considered as a merchant plant.

Although we understand formal costing has not yet been received, EnergyAustralia provided some indicative data at the recent EnergyStorage conference.

We took some numbers off the graph and compared them with the numbers Andrew Blakers employed for the ANU 100% renewables study.

The point here is that Cultana is coming in at a higher capital cost (it does included transmission connection). Pretty much double. Note Cultana is saltwater.

We estimate that adds maybe 10% to capital cost. We might be wrong. On our numbers assuming 70% capacity utilization, that is volume of about 400 GWh per year Cultana would need to average $88/MWh to wash its face.

That $88/MWh is the required spread between the price it pays for electricity and the price it sells at. In our view as a merchant plant, and even in South Australia, that won’t be a “gimme”.

On the other hand we would say Cultana has likely had a quite a lot of detailed work to get to those numbers. Genex’s Kidston plant is cheaper, but benefits in that its storage is pre built, sort of.

Figure 1 Capital and energy costs of pumped hydro. Source: Blakers Report, EA presentation to storage conference, ITK calculations

Figure 1: Capital and energy costs of pumped hydro. Source: Blakers Report, EA presentation to storage conference, ITK calculations

Of course all these giant utility scale plants take lots of capex, lots of financing, lots of environmental discussion and take years and years to build.

Hand up if you know when Snowy 2.0 will be up and running?

Answers on a postcard please but if its four years it’ll be great.

What about batteries?

Well, frankly the first piece of BS that needs to be sorted out is the cost of utility scale batteries.

This is an important topic shrouded in mystery. We know lots of things about the South Australian big battery but not its price/cost.

This is garbage and similar to Esso/BHP hiding the price they charge the likes of AGL for Bass Strait gas. Nor do we necessarily see the problem as caused by the South Australian Government. In California none of the three separate Aliso Canyon battery suppliers have revealed the cost of the battery.

There are plenty of other examples.

And then we have the debate about capacity v power.

Lithium batteries at the household level are generally configured to look cheaper in terms of energy than in power. Take the Powerwall 2.0, it does 13 kWh of energy but only 5kW power. So the capital cost per kWh is less than half what the capacity cost in terms of kW is.

In terms of energy reading off the EnergyAustralia graph, but after lowering cost by 10 % for saltwater we compared the energy capital cost of batteries v pumped hydro in Fig 2.

For batteries we used the Tesla Powerwall 2 as a starting point.

Tesla does not reveal the cost of the larger (up to 200 KWh) Powerpack but a few online estimates suggest its not that different to the Powerwall in $KWh of energy capacity.

That number gets you to about A$650 KWh before installation.

We allow lithium unit costs to reduce 3% per extra hour of storage required.

This comes from moving from containers to buildings, spreading air conditioning and fire suppression costs, building vertically so lower land cost per unit etc.

Note that this is not an NPV estimate but a capital cost .

The battery will likely not last as long as the pumped hydro. Pumped hydro could easily last 40% years. Still its instructive for someone looking for something in a hurry.

We’d argue that at least up to 3 hours of storage lithium’s scalability (ie install in 10 MW increments) and speed of deployment would easily justify the cost difference to pumped hydro as used for time shifting of energy consumption.

Figure 2 Lithium v pumped hydro capital costs in $KWh of energy capacity. Source: EA, Tesla, ITK

Figure 2: Lithium v pumped hydro capital costs in $KWh of energy capacity. Source: EA, Tesla, ITK

On a $MW power basis though, we think right now Pumped Hydro is pretty much as cheap as lithium batteries.

It’s behind the meter v in front of the meter that matters

The real point of this note though is that only batteries can move behind the meter. Once you move behind the meter you can “arb the wires and poles”.

According to the median installed cost of a 4 KW system is around $1.14 watt in July 2017.

After allowing for discounts (Origin for instance has 24% off the ex-gst usage price) the cost of electricity in Sydney works to about $0.30 KWh. So on that basis even if you use just use 50% of your PV behind the meter payback is 5 years and the IRR 22%.

PV payback - leitch

Adding in a battery requires a more complex calculation.

Specifically you really want to avoid peak charges and maybe shoulder charges.

Many householders, most, aren’t aware of how much electricity they consume at peak, even if they have a time of use meter. You have to adjust for weekends. It’s a pain.

For business there are generally peak charges based on the maximum KvA (power adjusted for power factor) to be considered.

The business themselves may know what they are but an analyst trying to generalise from outside has no idea.

So the size of the opportunity in batteries in the business world is hard to estimate. That said, my opinion, is that batteries have a big part to play in medium size business but the sales teams may have trouble reaching the decision makers.

So for this analysis lets stay with households. Details of Origin Energy (for instance) pricing plans in the Ausgrid area can be found at:

Origin prices ausgrid area

Peak charges are 58 cents KWh and shoulder 26.2. ORG offers as much as a 24% discount off the ex GST usage charges for online, direct debit. We average all that out to 30 cents KWh near enough.

The fixed grid connection charge is $334 per year. Unavoidable if you stay on the grid and great value.

We assume the installed cost of a Powerwall 2 is $11000 and 6KW of PV costs $6840 with average annual output of 7.4 MWh and average daily outut of 20 KWh (this will vary over the seasons).

On this basis we calculate a payback of 7 years and an IRR of 15%.

In our view an IRR of 15% is attractive.

The assumption is that 100% of the PV is used behind the meter thanks to the battery, and that all the battery is used each day to avoid peak and shoulder grid charges.

Figure 3 Less than $20 K for a 6 KW system with Powerwall. Source: Solarchoice and Tesla

Figure 3 Less than $20 K for a 6 KW system with Powerwall. Source: Solarchoice and Tesla

The Internal rate of return model ( a simple one is shown below).

You can question whether the battery will last 25 years.

You have to have enough roof space for 6kW. You have to have $20,000. You could make some allowances for efficiency losses.

All that said we have used a flat $0.30 KWh as the benchmark.

If retailers and networks don’t get any price increases over the next 25 years there will be some fairly grumpy financiers.

NB: that we don’t use 5% cost of capital in an IRR model and in this case the sell to grid price is not relevant. 6 KW will on average charge the battery once a day and leave 7 KWh over for other self consumption, ie typically to run the house in the middle of the day (washing machine, fridge, swimming pool, dishwasher, electric jug, some airconditioning in Summer).

At the moment with the sell to grid price of around 10 cents KWh and discounted off peak price buying from grid around 12.4 cents KWh are close.

Figure 4 IRR model showing positive return for PV + battery. Source: ITKe

Figure 4: IRR model showing positive return for PV + battery. Source: ITKe

An increasing number of houses and businesses are at tipping point and this may put further pressure on networks

Here is the real kicker to this analysis. The economics are now increasingly in favour of partial grid defection.

That is to say it’s easier and easier to see numbers that support putting in a battery and a PV system. We aren’t talking for the most part 1 or 2 KW systems but 5 KW and larger systems with batteries.

If it’s worth it for residential in NSW, it’s almost certainly going to be more economic for businesses that consume most of their power in peak and shoulder periods and also face expensive maximum demand charges.

Every kWh that doesn’t go through the grid will tend to make the grid more expensive.

We already know that the main reason electricity prices have more than doubled in the past decade is that networks over invested at the same time that consumption was falling.

It wasn’t just the investment it was the falling consumption.

This analysis supports the view residential and business consumption growth in aggregate is more likely to be negative than positive.

The impact is to put ongoing upwards pressure on grid delivered prices. We expect networks will react to this by further adjustments to tariff structures.

More and more we will see flat monthly charges for grid connection, perhaps supported by demand management reward.

David Leitch is principal of ITK. He was formerly a Utility Analyst for leading investment banks over the past 30 years. The views expressed are his own. Please note our new section, Energy Markets, which will include analysis from Leitch on the energy markets and broader energy issues. And also note our live generation widget, and the APVI solar contribution.   

Share this:

  • Mike Westerman

    Excellent piece David! And I would agree with your numbers generally except the fairer way to assess the PHES cost per MWh is over an assumed life of 25y for PHES and 10y for batteries and typical IRR hurdle rate of say 7.5%, rather than Capex/(annual storage capacity). The financing challenge is complete lack of transitional policy in the energy/transport sector, so that other than mine type projects or direct government investment, the 10s of GW of attractive PHES projects are unbankable. So stupid when the cost to the system would be extremely low.

    But for sure the real and most immediate impact is behind the meter – it seems only chaos and catastrophe will force this Fed government’s hand.

    • solarguy

      I’m not to convinced that with this current government that even that will work.

  • Catprog

    The battery will likely not last as long as the pumped hydro. Pumped
    hydro could easily last 40% years. Still its instructive for someone
    looking for something in a hurry.

    40% years?

    • Mike Westerman

      40+/- years I’d say – Kangaroo Valley is 40yo this year, while Tumut 3 is 58yo and Wivenhoe 32yo. The oldest in the world as far as I know was Letten in Switzerland built in 1893 and ran until refurbished in 1951.

      • Catprog

        I was talking about the % sign, not the number

        • David leitch

          Correct % sign shouldn’t be there. I have yet to publish something in my career without at least one typo or spelling error.

  • solarguy

    David, surely you mean the network passes it (cost) onto the retailers, who in turn give the customer the good news?

    • David leitch

      Absolutely correct. I could have made that clearer.

  • neroden

    The real danger for the grid is — if the flat connection charge goes too high, people will completely pull the plug.

    • Carl Raymond S

      But, can the govt decree that the grid is a social necessity, therefor you must pay for the grid if it goes past your door. An ‘availability’ rather than a ‘connection’ fee. We all pay for schools, police and hospitals, and they need the grid. Is there a difference?

      • Ren Stimpy

        Most solar owners would want a grid connection to make money exporting their excess solar power.

        • Carl Raymond S

          So it’s export value v connection fee. The grid can survive if exporters are rewarded.

          • Mike Westerman

            But first equity must result in a revaluation of the assets – at the moment we are all paying for the self serving gold plating of previous years and the recalcitrance of distributors to look at alternatives to grid augmentation. At the moment I’m paying about $1,500pa network charges, whereas the cheapest alternative would be batteries at about the same but which also allow for load shifting and avoidance of high energy prices. SO on that basis the network “assets” are about 2x the value they should be if all they provided was stability and reserve.

          • Ian

            Correct me if I am wrong, but the point of the gold plating was not so much the increased cost required to improve transmission capacity and reliability of the centralised power supply, but the gentailers ability and licence to charge more for their improvements. ie, “if you do improvements, we will let you charge more” . The second source of high electricity prices is the gaming of electricity market.: generators are able to withhold generating capacity until the market is desperate and wholesale prices rise, then they bid-in to provide supply. The third is the high cost of ‘administration’ Take out all the BS, get streamlined, bare bones network operating costs and see how competitive the grid could be vis-a-vis behind-the-meter solar and storage.

      • solarguy

        Yes, if you don’t us it!

      • MaxG

        It is unfortunate — and I eluded to it many times — the LNP represents the neoliberal agenda, which in sort: is the abolishment of government and privatising public assets under the guise of a free market and free trade. As such, the social contract is long gone; in fact “social” in its essence does no longer exist other than in social media, which is another guise for “give me your privacy and I sell to the highest bidder”.

        While we pay taxes, the corporations don’t, and funnily (not) enough, private schools get you money, hospitals are being privatised, and the grid has… corporations pillage the environment for bugger all royalties, and the costs are publicised; look at e.g. water, etc. and you can easily follow what I am talking about. This is the current state of play. Unless people stop believing in fairy tales, nothing will change!

        • Matthew O’Brien

          Don’t forget the aftermath …
          Mine rehabilitation costs:
          Pre approval – mine company and lobbyists undershoot cleanup cost and bond amount.
          Production and tax avoidance complete – sell mine to loss making mining coy for a dollar.
          Bond released, new owner wound up.
          Taxpayer pays for cleanup, cost socialised … another neocon ideology success.
          Change locations and players, rinse and repeat.

    • solarguy

      True, so they had better play ball!

  • juxx0r

    I get similar number to David, but i use Si units like kW and kWh.

    I get a cost of going off grid of 25.6c/kWh no matter how much replacement stuff i have to buy.

    Good news lads, it’s 20% cheaper to go off grid than stay on it.

    What if people pooled their resources and took whole blocks off the grid, it would likely be 40% cheaper than the grid.

    Time our leaders faced up to the reality that someone broke our grid.

    • solarguy

      If you can get the grid at no cost I can’t agree with you.

  • George Darroch

    Millenials are screwed. Our power bills are rocketing, and we don’t own houses.

    • Mike Westerman

      Go to your landlord and offer to put in the solar if he’ll provide the roof and buy out the residual if you move out in <5y – that's gotta be good for both

      • George Darroch

        Unfortunately we’re at the bottom of a three story block so that means wrangling the body-corporate. When we do eventually buy, it will be something where we have control of our rooftop, so that we can get a degree of energy independence.

        • Mike Westerman

          George I can imagine it is going to be a tougher battle but there are some great examples of stratas and body corporates getting systems up – in some cases better systems than most households could achieve. Google “solar body corporate”

    • Krypton

      A possible scenario: a business approaches a landlord and offers to
      install solar panels on his rental property. The deal is no cost to the
      landlord at all, but he will own it in 20 or 25 years. The landlord
      is happy, as he gets an asset that will last four or five decades at
      no cost. Solar is installed, paid for by the business. The tenants
      are happy as they get a contract that amounts to say about two thirds of
      their current bill. They learn to time-shift usage to not have to pay
      a higher price for import from the grid. The business gets a payback on their
      investment at say seven years. Profitable for the following years, with income from the tenant and the exported electricity.

      • solarguy

        One problem, no inverter will last that long so the land lord may have to pay for a replacement after 10yrs

        • Krypton

          No the business pays for that. And its cost may be half or a third of the cost a decade earlier, as it is electronics. So a reduced profit for the business at say 10 and 20 years.

        • Ren Stimpy

          Is the cost of inverters trending downwards? If so how much lower will it be in 10 years?

          • Krypton

            At the rate that solar is being installed in especially China and India, increasing massively every year, then Swanson’s law is likely to hold true for the electronics as well as the panels.

        • Rod

          Solar panels (bought after 2004) can be depreciated over 15 years.
          I can’t find anything specific about inverters. Switchboards and other electrical equipment is considered a capital expense.
          So, yes an inverter replacement every 10 years would be a PITA for landlords.

          • Krypton

            I think the failure mechanism for inverters will probably be voltage spikes from electrical storms. The spikes are likely to be 1000 V on top of the AC, in either direction. Short at say 10 microseconds. It is more energy than what the inverter output semi-conductors can absorb. So voltage-dependent resistors or power zeners are used as protection. But sooner or later a pulse that is damaging occurs.

            If properly protected the electronics should last many decades, until the firmware memory chip loses a bit and the software goes haywire. Good software design can get around a few bits flipping. The cooler the temperature the longer the product will last.

            We have the technology to build memory that will last a century, but it costs 5% more for the product, and therefore not used.

          • Rod

            I am clueless on the inner workings of inverters and their faults.
            I thought incorrect sizing for the array and or the household loads and peak load was a factor.
            I’ve had two Fronius inverters (upgraded my 2000 system in 2008) and they have both worked seamlessly.
            I do however have my inverter indoors, in an attached room which is relatively cool for most of the year. The inverter also has active cooling (I’m not sure if that is common)

          • Mike Shackleton

            I thought the depreciation period for plant and equipment such as solar panels was 5 years.

          • Rod

            The ATO doc I was looking at the other day said it was 20 and dropped to 15 in 2004.
            This is a third party list that has solar at 15

          • Rod

            Scratch that, solar HWS is 15 and solar systems are still 20 according to this list.
            Amazing, you can write off a HiLux immediately of you are a tradie but 20 years for solar

      • Rod

        If one of my tenants expressed interest I would jump on it.

        • Mike Shackleton

          I’m installing a Matter system regardless of my tenant’s interest in it. As long as I price the power consumed by my tenant accordingly, it will be a win-win for both of us.

          • Rod

            Yes, but they have to consent and agree to refund your FiT credit?
            They also need to have a permanent internet connection.
            Would be interested to hear how it goes.

          • Mike Shackleton

            The Matter system handles all of that. It’s your property, you can do what you like with it. The only thing you can’t do is charge more for the solar than the tenant’s standing energy offer. You don’t need a permanent internet connection anymore. The system uses Telstra’s IOT band.

          • Rod

            Thanks for the info re the internet connection.
            My concern is I would need to chase up the tenant to get the FiT portion of their bill refunded to me. I’ve read the website and I think that is the way it works?

          • Mike Shackleton

            No, Matter handle all the billing. If the panels feed into the grid, you receive the FiT. If your tenant consumes it on site, you receive the rate you set with them.

          • Rod

            OK, thanks
            I’ll try to get my tenant on board.

        • Ian

          What do you know, a solution to the solar for renters dilemma.

          If the networks were smart they could have provided this sort of service instead of people invoking a third party company. There is another need that should be addressed and that is generating electricity on a solar array distant to the point of consumption. Eg inner city dweller with personal solar array in a solar allotment, or 2. Household solar with EV parked at work.

          • Rod

            Yes, a huge opportunity in the rental market.
            Community solar is a thing.

          • Ian

            Thanks for the reference, I was talking more of an allotment type development. Analogous to allotment gardens found in the U.K. A person without a suitable sun exposed roof could put their solar panels at a site other than their home – in an allotment – and then pay a small fee to have the electricity transmitted to their home., or to their car for that matter, wherever it’s parked.

          • Rod

            Ah, OK. Yes I see the need but don’t know of a solution.

  • Malcolm M

    If it costs an extra 10% for saltwater pumped storage hydro, why not go fresh water using a small desalination plant for top-ups ? The main reason to use salt water is if the lower pool is the sea. The Google Earth heights for the Cultana area shows that the steepest heads are several kilometers from the sea, and that there are good potential dam-sites for lower pools.

    Salt water introduces uncertainty in the on-going operating costs. The upper pool needs a membrane and drainage system to stop salt water leaking into sensitive parts of the landscape, and may need replacement every 5-10 years. Turbines may not last as well, and warranty specifications would have been developed for fresh water. A small desalination plant only needs to cover the replacement of water by evaporation and seepage for a few hectares covering the lower and upper pools, so its should be small relative to all the other potential savings.

    • Mike Westerman

      Good questions Malcolm. I wonder why Cultana for the first saltwater PHES in Australia and only the 2nd in the world (tho’ the first has been decommissioned) – there are plenty of other good freshwater sites, as Andrew Blakers showed.

  • Ren Stimpy

    Regarding pumped hydro, those plants will be in operation for how long – a hundred years? By the time investment capital is paid back there will still be 70 years? or more of operation left in them, making them considerable assets for a long time still. Also, over the course of the next few decades surely there is the presumption that the network gold plating fiasco will be finally be resolved, and gas generation will slowly recede, and there will be a glut of wind and solar power at various times of day – ie. that the power required by them to pump water will trend progressively cheaper over the long term. I like the concept of highly distributed lithium ion batteries better, for various reasons, but pumped hydro seems like a really good investment too.

    What about biomass? In Germany’s biomass is now around 9% of total electricity generation. Surely it’s a better option than gas – for both economic and environmental reasons?

  • Ren Stimpy

    He mooed “we must fight and escape or we’ll die.”
    Cows gathered around ’cause the steaks were so high.

    Bad cow pun.

    • Mike Westerman

      A few burning stakes would be fine for our hopeless rule makers!

    • Krypton

      Pull the udder one.

    • solarguy

      Oh for fox sake!

  • Ian

    David, your not putting your cards on the table with estimates for PHES capital cost per MWH. As you say, each project is different, but dam it , there must be a ballpark figure. From my layman’s google search getting such a figure is very difficult, most quote capital costs in the MW units, which is all but useless when storage of electricity is concerned.

    There are a couple of issues that need to be considered. 1: the round trip efficiency of PHES is closer to 60% than 85% this being the range of efficiencies quoted for these projects. 2. To maximise return on capital any electricity storage must be close to fully utilised and fully cycled frequently. ie batteries and PHES must be filled and emptied on a daily basis.

    Discussing this last point further, if the capital cost of batteries and PHES are similar per MWH storage capacity, and batteries are expected to be cycled daily and used for daily energy and frequency fluctuations , whilst PHES is expected to provide storage lasting days or weeks we suddenly see that PHES is multiples more expensive than batteries. Just to expand on this further: if the plan is to build PHES to store enough electrical energy for a couple of weeks and that these sorts of events occur 6 times a year, 1MWH storage capacity will provide a total of 6MWH storage for the year. A battery is expected to be cycled every day so for 1MWH of storage you would get 365 MWH of storage for the year. To have similar costs per MWH of storage , the PHES will have to be 365/6 =60 times cheaper than batteries!

    • Ian

      You cannot compare PHES with ordinary once through hydroelectricity. PHES is a type of ‘battery’, hydroelectricity is a type of generator.

      You can, however, build PHES onto existing hydroelectric schemes to take advantage of daily cycling of PHES when there is plenty of solar or wind in the system and thus extend the storage capacity of the hydro plant.

      • Ian

        Another point that might be worth while considering when comparing batteries and PHES . Batteries would have an expected cycle life of 7000 cycles plus and cycled once a day thus would last 20 years. Hydro would last 40 years plus. Both would have very long repayment periods so financial costs would not be that different.

    • Mike Westerman

      Ian one reason PHES varies so much in cost is the broad range of potential sites. For example, Kidston has two existing ponds, and only needs a power station between them, and there are others like this. Kangaroo Valley, Wivenhoe and Tumut were built as adjuncts to other facilities – water transfer scheme, flood mitigation reservoir and conventional hydro respectively. Since civil costs typically form >60% of a hydro project, the large variation in scheme arrangements: 2 existing reservoirs, 1 existing reservoir, surface and underground, high and low head etc give rise to a wide variation. But as the Blakers study suggested, there are many in the $1.5-2M/MW, which for many 6h schemes translates to <$200/kWh on a LCOES basis.

      Re efficiencies, unless there is water leaking away somewhere, the basis of round figure efficiencies is turbines 93.5%, pumps 93%, generators 98.5%, transformers and connections 99.5%, auxiliaries <1%. That gives generating 90.6% and pumping 90.1% or a cycle efficiency of just over 80%. Unlike conventional hydro, there is not reason to operate off best efficiency point.

      If PHES is on the other hand required to provide reserve on a long term basis (several schemes including the Snowy 2 being studied could provide days or weeks at full output), then they would need to be paid for on a different basis with the "cost of security" spread over the whole system, as David points out.

      Recent studies of European wind resources suggest that the biggest impediment to secure wind power is not technical but political – you need co-operation across the network. Fortunately Australia has a NEM that supposedly could operate this way, unfortunately we have a government with no interest in managing the development of such a scheme.

      • Ian

        Thankyou, Mike for your insights, as you say, many PHES have and can be built as adjuncts to existing facilities or use highly advantageous sites with existing reservoirs. It would be nice to have some figures for an off-river stand-alone site. Where there are no synergistic advantages with other schemes. Just the PHES as an electricity storage facility.

        • Mike Westerman

          As an example, I have a site I’ve done some work on north of Adelaide which is undeveloped offstream. 200MW for 6h, reservoirs with a head difference of about 280m, cost of construction (ie without finance costs) of just over $500M. That would need $115/MWh differential to give a 7% IRR over 25y. If its auxiliary services and reserve capacity were valued separately it would be quite a bit less.

          • Ian

            Thank you, that would be $400/KWH capital cost.

  • Ian

    Most people would have to use borrowed money to finance PV due to already having a home loan. This comes at a 4-5% cost penalty and must be taken into account in the DCF for calculating NPV and IRR. I know that PV doesn’t stack up for me because I live in zone 4 and I have a mortgage. It only stacks up when the mortgage is closer to being paid off, assuming that interest rates don’t increase.

    • MaxG

      I tend to disagree… the question is what are the priorities? Continue to consume stuff we don’t need, or put some money aside and pay for a good PV/battery system and get instant returns. E.g. in my case at 20kWh/day at 30 Cents I save $2,200 per year! (not even taking the $500 connection fee into account, because I am still connected, just don’t use anything). Use that money to pay back the PV/batt system… works really nicely. Then use the 2 grant to pay off your mortgage quicker — this is how it is done if people can do the numbers.

    • Ian

      Ian, you need to redo your sums. Presumably you would be able to self-consume much of your solar electricity consumption even without a battery system. Most would come in at less than $1.50/watt , you should get on average 4KWH for at least 300 days a year per 1KW installed. That’s every year, 1200KWH/ KW installed . If your electricity cost is 26c/KWH you will reduce your bill by 1200 x 0.26 = $300/ KW installed . That’s three years to pay off the solar system. If the cost of capital is 5% make that 3 x 1.05 years =3years and 2 months. Adding a battery comes in at about $1000per KWH installed . If you cycle your battery every day and want to time shift your solar production so that you can reduce your grid electricity consumption at night the savings would be the difference between export and import tariffs

      • Ian

        I know how to work a spreadsheet that takes into account the varying insolation rates for each month. That is one thing engineers are really good at doing. PV really only works in my area if you are always comsuming everything you produce. If I was in a better sun zone then I would require a smaller array for the same sized output and it would cost less to purchase. The market price for exported electrons would still be poor, unless they could be consumed by some other useful device. If I’m exporting, the shortest payback I can manage is around 6 years. It reduces drastically if I consume everything and don’t export.

        • Ian

          Yep, that’s what I said. Your original comment said the economics do not stack up for you but your last comment says worst case pay back is 6 years. I assume then that 6 years is too long for you. If that’s the case, fair enough. What would you consider to be an adequate time to pay off such an investment?

  • Jolly Roger

    It seems Tesla cant supply the Powerwall2 for a while yet so local suppliers should be getting in on the action to take up the slack if they can.