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Solar and battery storage beating best retail offers in S.A. by a quarter

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One Step Off The Grid

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Tesla recently launched its Powerwall 2.0 battery at a price per kWh stored that is less than half the price of its first battery.  My previous article looked at the annual charge that a household that installed 5 kW PV+ Powerwall 2.0 battery would pay. Such customers would use the grid for back-up supply and to export surplus PV production that it does not use. That article compared this “PV+battery+grid” option to the annual charge that a customer would pay for “grid-only” supply (i.e. a customer without PV and battery).

For the comparison it used the average of grid-only market offers in South Australia, firstly with conditional discounts and secondly without conditional discounts. This article extends the analysis by looking at how the “PV+battery+grid” option compares when such a customer selects the best (i.e. cheapest) grid offer for residual supply and exports, and compares this to every retail offer for “grid-only” supply.

This article will be followed by a third article looking at the implications of the developments in battery costs for network service providers.

The methodology used here, as before, is to calculate an annual charge for the PV+battery+grid combination by annuitising the capital outlay (after sales taxes) for PV and battery and adding to this the charges for grid purchases and subtracting the revenue from the export of surplus PV production.

For grid purchases and exports we have used the same volume assumptions as before but here, instead of assuming the average fixed and variable grid prices and feed-in rates, we have scanned all retail electricity offers to find the best deal (the one that offers the combination of the highest export revenue plus lowest grid charges). This best deal offers a credit of $101 per year to the customer (the worst deal is a charge of $320 per year).

Interestingly, since annual exports to the grid from a 5 kW PV + battery are so much greater than the small grid purchases, the best offer is not a time-of-use tariff, but a time-invariant block tariff that happens to offer a materially higher feed-in rate than the other retailers offer.

The resulting total annual charge for the PV+battery+grid combination represents the lowest annual cost for such customer. This is then compared to the annual cost (after sales taxes) of grid-only supply on all retail offers to households in South Australia. The dataset is established by assuming firstly that customers meet the terms of all conditional discounts in those offers and secondly assuming that they don’t receive any of those conditional discounts. This results in a dataset of 225 offers.

These offers are then ranked from highest to lowest and compared to the PV+battery+grid combination. As before, all retail market data is taken from MarkIntell (www.markintell.com.au)  which includes all market and standing retail offers in all electricity price fact sheets from all retailers in South Australia in a dataset updated on 25 October 2016. All assumptions on battery and PV costs and so on from the first article continue.

The results of this analysis are shown in the chart below.

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The chart shows that the combination of PV+battery+grid, taking advantage of the best grid offer, is $123 per year cheaper than the cheapest grid-only offer ($1,645 per year) and $449 lower than the median grid-only offer ($1,971). In other words, our typical 4,800 kWh household in Adelaide can beat all contemporary grid-only offers by installing a PV + battery system and selecting the best retail offer to provide their residual grid consumption and to export their PV production surplus.

This comparative advantage is reflected in payback periods for PV+battery that I estimate to be between 5 years (assuming the alternative was that the customer selected the most expensive grid-only retail offer) and 10 years (assuming the alternative was that the customer selected the cheapest grid-only retail offer) and 8.5 years for the median offer.

The outcome shown in the chart is the best that a PV+battery +grid customer can get in the current market. If they do not have the skill or good fortune to select the best offer for their exports and residual grid consumption, their annual electricity cost could rise from $1,522 (with the best offer) up to a maximum of $1,943 (if they selected the worst offer). Evidently, even if they selected the worst retail offer, a household with PV+battery would still be better off than if they were supplied on the median grid-only offer.

Many retailers in Australia already offer to install PV and batteries, for a fee, but they have not been major players in this business. Some retailers offer to finance or own PV installed on a customer’s roof and to sell the electricity back to customers at a fixed price, but again we understand this is not popular. Households own the vast majority of rooftop PV systems.  Its hard to imagine that they will think differently about batteries, particularly if PV + battery is sold as a package.

tesla_grid_battery

Of course not all customers will be able to accommodate a suitable PV + battery system. The economics may not be as attractive for customers that are much smaller or much larger than the 4,800 kWh per year assumed. Renters and those in apartments might find it difficult or impossible to take advantage of the opportunity. But PV+battery will be viable for a large part of the residential and probably also the commercial and agricultural market.

Finally, I will caveat this analysis by stressing that markets change all the time. Massive interconnector development in SA seems increasingly likely and with a concentrated wholesale market and high gas prices, there seems to be substantial pressure for continued high grid prices. On the PV+battery side, who knows what the future holds. It seems that even the most bullish forecaster has consistently under-estimated the rate of cost decline and technology improvement.

Analyses like these should be repeated frequently and time series established and published. But it seems pretty clear that with PV+battery economics now so compelling, and with a large market potential, it is likely that the retail electricity market is going to change profoundly. Quite what those changes are, and how retailers will respond to them remains to be seen.

Bruce Mountain is the Director of Carbon and Energy Markets and co-founder of MarkIntell

Related Reading: Tesla’s price shock: solar + battery as cheap as grid power

This article was originally published on RE sister site One Step Off The Grid. To sign up for the weekly newsletter, click here.  

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  • Tim Forcey

    STRATEGY TO SELL MORE ELECTRICITY: ECONOMIC FUEL-SWITCHING

    Electricity retailers could extol the “economic fuel-switching” virtues of using electricity in lieu of gas: heat pumps for hot water, and reverse cycle air conditioners (also heat pumps) for space heating. But I suppose those retailers that sell both gas and electricity may have internal conflicts regarding this strategy. See: https://www.facebook.com/groups/996387660405677/

    • Mike Dill

      Just put more PV on your roof, and be happy.

      • Kenshō

        So you’ve got this Trump situation happening. I’m endeavouring to get off this site as trained in human development, welfare, meditation. With Trump he has a specific character, as most have noticed. If we break character up into will, feeling and insight, Trump is integrating primarily with the will approach. Character strengths:
        a) personal responsibility for own “backyard” first though bordering upon isolationist in the negative,
        b) a potential force of destruction in a positive sense, perhaps addressing tax breaks for the rich, political donations etc, integrity of this character is a strength when it sees a need to address its own historical shortcomings,
        c) strategising for the purpose of winning, glory “I alone can fix this”, although unfortunately not very intelligent in an intellectual or science based way. More likely to have a go and bump into things, learning along the way and dragging everyone else along with it,
        d) biggest issues is usually polarised against feelings, so the prime way to evaluate the individual on this path is a commitment to “inclusiveness”.
        All in all, this path always destroys as it builds. It’s good in crisis. Good for wrecking havoc when something needs to change. Will think on its feet, so no one else will be able to predict performance, as Trump is still working it out himself. The outcome will depend on if he consults, listens and puts in place inclusive strategies, all weaknesses of the “will” based individual and strengths of the “feeling” based individual.

  • phred01

    For the electricity retailers plan B is to demonize renewable even more so

  • Kevin Brown

    Bruce’s analysis is definitely pointing us (a 64 yo married couple in Queensland) towards installing PV and storage in a house that we hope to downsize to. Extra factors that make solar and storage an attractive option for us and other age pensioners are that it decreases our assets that are subject to deeming by transferring them into our home and therefore increases our pension. This increases our part pension and increases our ROI in any PV and storage system we install.

  • Martin Sevior

    Thank you Bruce. Very interesting indeed. I imagine that PV + Battery is going to put an upper limit on retail electricity prices. If retail prices rise, demand will fall faster than ever. The generation industry will have to think hard about how to recoup the costs of the resilient grid required for intermittent electricity generation.

    BTW are you thinking of looking at how seasons affect your cost model?

    • bruce mountain

      Martin, seasonality is taken into account in the calculation of grid purchases and exports. The calculations were done using NREL’s SAM model taking account of daily and monthly load profiles and PV production in Adelaide

    • MrMauricio

      The grid connection is separately billed to the electricity consumption,at least here in Victoria.It is also responsible for most of the hikes in bills due to monopolies,gold plating and a compliant regulator.In addition Australian retail electricity unit prices are pretty much the highest in the world and a huge drag on productivity.This whole sector is a disaster.