Battery storage: Close to parity under certain tariffs

A new survey from energy consultancy Energeia says the point of mass uptake of battery storage on economic grounds may be closer than most people think, although it would require a different tariff structure for electricity prices.

The survey, the second in recent months by Energeia analyst Melanie Koerner, says that under the “flat tariff” structure most common in Australia, battery storage prices will need to fall dramatically if they are to be taken up by households.

But if the tariffs are based around maximum demand charges, and these are introduced nationally, then the price of battery storage may need to fall only slightly – to around $A900/kWh, from around $1,000kWh now – before they become an “economically rational” investment for households.

If maximum demand tariffs are introduced, and battery storage costs fall to around $A400/kWh as the industry predicts, then the uptake in Australia could surge to around 2.8 million households. Under the flat tariff structure, prices would need to fall to around $A150/kWh before there is mass market interest.

The study serves to highlight that the uptake of battery storage technology will depend as much on the structure of tariffs as it does on manufacturing costs, and on extracting benefits for utilities.

Demand tariffs, particularly ones that equate to maximum demand on the grid, rather than individual homes which can be highly variable, may also deliver significant benefits to the grid

And as a recent pilot by network operator Ausnet suggested, the benefits to the grid are nearly as great as to the household. Capturing that value to both network and consumer appears to be the key to success for battery storage.

Energeia defines an “economically rational” decision in the Australian household context as something that will deliver a return on investment within eight years, although there are plenty of people who suggest that many households will buy storage on principal, or jut because they want to, rather than based on economics.

On the flat tariff common to many areas in Australia, the news is not good. Energeia says the cost of battery storage will need to fall to around $A150/kWh mark before households are financially better off with storage.

Under a flat tariff, the only way to generate value from a battery is to store excess power generated by the solar panel in the middle of the day and use it in the evening.

“This only becomes viable for the household when the levelised cost of storing the energy in the battery falls below the difference between the cost of energy to the customer (~22c/kWh) and the opportunity cost of missing out on the feed-in credit (~6c/kWh),” the report says.

This breakpoint occurs at a battery cost of ~A$150/kWh for the majority of households. When it does happen, the optimal battery capacity for these customers falls between 7 kWh and 15 kWh, reflecting the volatility in daily consumption between households.

The story is different for maximum demand tariffs.

Even at a battery storage price of $1,000/kWh, which is close to today’s prices, a maximum demand tariff can provide “significant value” for a large number of households.

That is true for the first kWh of battery storage, which Energeia says has the highest value as it is used to reduce the net maximum demand of the household, and therefore the electricity bill.

For large battery storage arrays of around 5kWh-6kWh, the optimum size for an Australian household, the price of battery storage would need to fall to around $450/kWh.

But at that price point, the report says, the market for battery storage in Australia could take off.

Indeed, the $1,000/kWh battery storage price is seen as the “bear case” where only 10,000 households adopt the technology.

This grows progressively to 100,000 households at the “breakthrough” price of $900/kWh and up to 2.8 million households in the $400/kWh pricing point. That would suggest a $20 billion market for battery storage in Australia alone.

There is a catch, though. The bad news is that only one Australia utility, United Energy, has proposed a maximum demand tariff.

Most of the others are proposing demand tariffs, but they are indiscriminate, and seek only to capture an individual household’s maximum demand, which might be in the middle of the night and far away from the grid peak.

These proposals have been criticised by the solar industry as nothing more than a revenue grab dressed up as “cost reflective” pricing.

Structured like this, they are more likely to create new cross-subsidies in the battery storage market, because some customers will get a saving without having had any impact on reducing peak demand on the grid or lowering network costs.

As Koerner suggests, this will do little to reduce network costs, forcing prices to potentially increase and again leaving the networks vulnerable to the “death spiral” they are supposed to be trying to avoid.