Battery storage, take two: Why it should be a ‘no brainer’

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Monday’s story about the ‘cost’ of battery storage sparked a big debate. The missing link was the ‘value’ of storage, and when used as a replacement for network upgrades, supporters insist it is already a ‘no brainer’. But can the utilities adapt to the ‘democratisation’ of energy, or will they lose control of their grid?

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Monday’s report on the assessment of battery storage technology costs was met by a volley of reaction – emails, comments and phone calls – particularly from some battery technology developers and their boosters, and some independent experts. Part of the issue was over the cost of the technology, but the really important bit was over its “value”.

This, of course, is the central theme of a changing energy market – one that is transforming from a very simple hub-and-spoke model to a distributed network where the savings gained from avoiding excess capacity (in generation as well as poles and wires) are recognised in the cost of introducing new technologies such as solar PV, and more particularly storage and demand controls.

Some of this was captured in the recent report by the Institute of Sustainable Futures, some of it in the Federal Government’s recent assessment on energy efficiency.

The bottom line, however, is that battery storage and its potential should not be assessed on a simple price assessment to residential or even business users – but as a value proposition to the entire network, and therefore all users. And that’s where the assessment of numbers “not adding up” (yet) quickly morphs into one which its proponents says it is a “no-brainer”.

On the recent trip to California, the question about the value of storage was top of the mind for developers of renewable and battery storage technologies, as well as the network operators. People at the California Public Utilities Commission and the National Renewable Energy Laboratory are looking at this now. Their best guess is that it could be worth $50/MWh – but the real answer is that they just don’t know.

Over the past few months RenewEconomy has also been regaled with numerous stories of how network operators in Queensland, NSW, Victoria and Western Australia have insisted on investing in poles and wires in mostly remote and regional areas where adding storage and other technologies, and/or creating micro-grids, would have done the job at up to half the cost.

We’re going to document some of those in coming weeks. It goes to what Rob Campbell from Vulcan Energy described last week as a disconnect between what the actual operators of the network see as good value, and what the board is preparing to accept based on its pre-conceptions of what constitutes a viable business model.

Richard Turner from Zen Energy Systems, says the networks need to act quickly because if – as he and others predict – the cost of storage comes down anywhere near as quickly as solar PV did, and people begin to install them as quickly, then the utilities will quickly lose control of their grid.

But if, as he says some utilities are considering – most notably the likes of Vector in New Zealand which is trialling residential storage systems as we wrote earlier this year – the utilities find a way to subsidise those investments themselves, then they will be able to keep control of their systems.

It sounds all very dramatic, and appears to be a massive game of brinksmanship, but here’s the logic.

As we know, the biggest addition to network upgrades in recent years has been due to the increased used of air conditioners. Studies have shown this equates to an effective cross-subsidy of more than $330 per electricity customer. The Productivity Commission suggested that each 2kVa air conditioning system requires around $7,000 of added infrastructure investment – made up for $4,000 in distribution (in neighbourhoods), $1,400 in transmission (from the central coal fired power station), and $1,600 in generation costs (gas fired peakers).

So what would happen if the incentives were changed, so that instead of just being there to support a “bigger grid”, they were used to support smarter infrastructure such as storage systems and smart technology such as frequency and voltage controls, load shifting, smoothing etc.

Turner provided these tables below to illustrate his point. The first on the left fits in broadly with the conclusions that we reported on yesterday, although the payback period is slightly quicker (11 years versus 13 years) because Zen reckons their system comes in cheaper than the average cost estimated by IBESA and others.

But then it gets interesting. Because if the utilities – instead of hitting everyone with costs to upgrade the grid – focused that expenditure on subsidising battery storage, then the value proposition changes enormously. At $2,000 per kW/kV, the payback to households for installing battery storage with solar PV is 6.9 years; at $4,000 per kW/kVa, the payback is 2.3 years.

“When all the value streams are realised by all parties then it completely changes the value proposition,” Turner says. “It opens up for the systems to be heavily subsidised in areas of costly grid constraints where it is more cost effective to introduce storage than to augment the grid. Once you get down to 2-3 years it is really in ‘no brainer’ territory.”

And, he concludes, these figures do not reflect the reducing cost of energy storage or the rising cost of electricity and infrastructure.

Here is his table (note some of the assumptions below – and click on graph if it is not completely visible)

Screen Shot 2013-07-30 at 11.44.44 AM

 (Additional assumptions for table include price of peak power 48c/kWh, solar PV export price of 8c/kWh. It also assumes retail pricing of Zen’s Freedom Powerbank will reduce to $1,250/kWh from current $1,500kWh)

Turner says that it is not just in regional and remote areas where battery storage can be more cost effective than network upgrades. He suggests even in inner city suburbs, the cost of storage is better value than upgrading or augmenting a local feeder. He reckons this is starting to dawn on network operators too, who are becoming increasingly aware of the falling demand patterns. The prospect of stranded infrastructure investment is a very real one, as we wrote last month.

Turner says the principal barriers lie in the regulatory framework. If the value of storage can be included in the regulated asset base that protects the utilities then the economic case “stacks up”. And, as he suggests, it would be in the interests of the utilities to be in control of this process.

It was interesting to note one senior executive of a leading energy retailer at Clean Energy Week passing off studies into the disconnect between utilities and customers, saying that its investigations found that many customers found electricity to be “boring”.

Maybe they do. But the world record “churn rates” (where customers dump one utility in favour of a better deal elsewhere) in Australia (of 25 per cent or more), and the massive take up of solar panels suggests that they may find electricity boring, but they are prepared to act on a good deal when they see one.

Some think the act of voting is boring, but they value democracy. And that is what we are seeing in today’s energy systems, thanks to solar PV and battery storage – the democratisation of energy. Oligarchs don’t like it one bit.

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17 Comments
  1. barrie harrop 6 years ago

    When storage batteries hit a payback period of less than 5 years the market will move rapidly.

  2. Michel Rahme 6 years ago

    That’s cool! And once again New Zealand leading the way…..

  3. Rob Campbell 6 years ago

    Distributor Models Built On Contraction

    Rob Campbell – Vulcan Energy.

    Competition is a great thing; it reduces consumer prices by encouraging business to be more efficient and innovative.There are hundreds of examples of prices driven by competition for the consumer dollar. Then there are great competition failures.
    Most have been brought about by deregulation.

    Example 1. Fixed wire telephony.

    The concept of competition in fixed wire telephony in Australia, completely ignored the geographical range of our population, offering “billing rights” to all comers and then allowing duplicate infrastructure to be built only stalled advancement in Australia’s infrastructure. Without the advent of cellular technology, telephony would be priced well above where it is now. Mobile phones have disguised the flop that
    fixed line “competition” was.

    Example 2. Pay TV

    The outraged caused by the rollout of pay TV cabling through our suburbs, and the fact that most of this multi-billion dollar investment sits idol, again shows a failure to address the geographic realities. Foxtel now will install a satellite dish on the roof of a premise, rather than spend the money to run a co-ax to the street to pick up an existing connection point put there at great expense. If the amount of money Telstra
    (Foxtel) and Optus spent on this duplicate infrastructure was spent on one quality installation, we would be half way to the National Broadband Network (NBN) already.

    Example 3. Electricity, the flop (or the biggest con).

    “If we open up billing rights to all comers, the amount it costs to produce a bill and collect the money you owe will come down.” And “By connecting the eastern states with bits of wire, generators can compete to sell their electricity into the big market and this will force prices down” They are the lines we were spun at the time.

    Two things have happened since this scheme came into play. Retailer margins (billings rights) costs have tripled to support business models that were never going to breed competition. The other, most significant transpiration is that the national electricity market called for uniform reliability standards. This exposed allegedly huge deficiencies in the quality of our aging distribution networks. The result meant that competition policy had the exact opposite effect consumer costs. Distributors,
    mostly government owned have been gouging huge amounts of money from consumers to carry out “urgent and pre-emptive works”, to meet growing demand and increased reliability imposts. The chorus continues as the distributors, now
    corporatized provide these services under a profit generating model, conveniently
    delivering hundreds of millions of dollars in profits to their owners, in the main state governments or investors with government guaranteed returns. Faced with competition from renewables, the distributors are stuck in a situation where the reasons to spend have been substantially reduced, and with the advent of storage, the real possibility of having to shrink the network is unavoidable.

    By embracing storage can Distributors still generate profits?

    The value proposition for storage at a residential level is tantalizingly close, this,
    without one cent of subsidy from the distributors, who stand to gain considerably from the mass rollout of residential storage. The commonly reported demand impact of a residential air-conditioner is a cost to the distributor of $3-5000.00. Whether this is true or not, who has the knowledge to question it? Why then can this situation not work in the reverse, if a residential customer installed battery storage which could directly reduce peak demand by 3 kilowatts, would that not have a $3-5000.00 benefit to thedistributor? If so why would the distributor not want to subsidize the
    installation of storage into every household in the country? Distributors allocate a demand average of 4-5 kilowatts per home when calculating the size of a distribution network. Integrated and reliable storage can reduce this to 1.5-2.5 kilowatts, half or less of what they need today. If 51% of our bill is devoted to these costs, and we all pay for our own storage, we could expect our energy costs to drop by at least 25%.

    If we have solar to charge our batteries, we could all go virtually “off-grid” using the network only on the rare occasion where our demands exceed the capabilities of our storage or inverter. But how does the distributor make money out of reducing the size of the network? Based on publicly available information in Queensland, the amount of money expended on capital works on whole of network is $2.7 billion, with $1.05 billion spent annually on maintenance.If the distributors in Queensland were to subsidise residential storage to 200000 homes per year at a cost of $600 million the net effect per year in reduced demand on the network amounts to 600 MW, next year 1200MW, 1800MW and so on.

    Queensland maximum demand sits at approximately 7000 MW with a base to peak variation of approximately 3000 MW. This means that in a period of 5 years, the demand profile for Queensland could be a flat line at 4000 MW. The ability to reduce base load of 4000 MW by at least 1000 MW is easily achieved. In theory there is $2.1 Billion in capital expenditure no longer required per annum. Even if this figure were to be halved there still remains a large amount of potential “profit” for the network owners.
    Storage does not have to be confined only to Solar PV or in fact single dwelling homes. The case for storage in apartments and similar situations is equally relevant where a power is available a suitable of-peak discount for charging of the storage units.

    The ability for a distribution entity to generate profits whilst subsidizing the rollout of
    residential storage is in plain sight. By the very nature of the model, the benefits for all involved can only increase, giving scope for reductions over successive
    years in overall electricity prices.

  4. Nhan 6 years ago

    It was humorous ,see my new energy === I have one method for solving integrity of energy no storage needed without losing landscape and environment;My energy model, adapting to green buildings;Proper, sea, islands, rural areas;With characteristic continuous operation should not need expensive storage systems and cumbersome

  5. Murray Wall 6 years ago

    Interesting article, but who owns the right to dispatch the stored energy? The network or the retailer? The outcome will be different depending on the answer. The network will be looking at system loads and using the storage to offset infrastructure investment, while the retailer will be looking at trading period price and its energy trading book position to maximise profit.

    In simple terms both companies objectives should be aligned as price is set by supply and demand, supply being set by available capacity (incredible over build in Australia) and network capacity. As price is set in Australia on a state by state basis (transmission level), the price signals to the retailer do not align with the network constraints on the distribution systems where the storage is located.

  6. Matt Robinson 6 years ago

    The whole idea of encouraging individuals to be entirely responsible for their own electrical power generation is stupid and irresponsible. Firstly, I expect the concept will only appeal to a minority who are happy to worry about such things.

    Secondly, even with storage most people understand that there will be times when they have no power and so will still want a grid connection as a backup, thus invalidating all of the arguments about reduced grid maintenance.

    Thirdly, anyone whose ever owned a battery knows that they have a limited lifespan – often much shorter than they expected – and so need further capital expenditure when replacement is required.

    As usual, people who spruik these concepts are only concerned with the short term ‘1st pass’, which benefits those in the renewables industry more than anyone else. It’s the current trend to bash the utilities, but it’s because of their efforts we have a stable reliable electricity supply – regardless of their motives.

    • RobS 6 years ago

      Stupid and irresponsible, but neither claim is explained…right.

      A grid which provides back up in the event of prolonged outages is an entirely different and FAR cheaper grid to maintain because it requires almost zero guaranteed reliability and can simply have a few low cost generators on it that can be turned on with a few days notice when allow sun, low wind period is forecasted. All peak load and high quality low interruption power is managed by local storage and it these things that result in 95% of grid costs.

      “Batteries don’t last forever therefore they are completely useless” that one is to even worth responding too.

      Better luck next time on producing some actual valid points without the shrill leap to the defence of those poor marginalised utility companies.

      • Matt Robinson 6 years ago

        I thought my points were fairly self-explanatory, actually. Why did you misquote me on batteries? Unfortunately it’s you who seems to sound shrill.

        I think your point on grids is at best very flawed. I recently attended the ATSE National Conference in Sydney, where the Australian grid(s) were discussed at length. What you describe is not only extremely expensive to create but simply won’t work! A few day’s notice?!? Where did you get the idea that you have a few days to ramp up to meet demand? Demand is assessed and power dispatched in 5 minute intervals. No, what you’re describing is rubbish.

        A national grid to support the intermittency of renewables power whether as a backup or as mainstream requires the same level of investment. You still need large amounts of generation capacity. You still need two-way current flow support. You still need significant amounts of idle capital equipment.

        According to Dr. John Sligar (former chief scientist at Pacific Power) A renewables support grid in Australia would need 215% of reserve capacity. Our current eastern seaboard grid based on coal requires only 28%.

        A million battery packs may mitigate the reserve requirement slightly, but the complexity of providing grid backup is so extreme that it would be prohibitively expensive and it simply wouldn’t work.

        • RobS 6 years ago

          You either have wilfully or unintentionally completed missed the point of the impact of storage on the grid. Yes at present power is bought and sold in 5 minute blocks with greater then 99% reliability, that is exactly why the grid is so expensive. 20-30% of grid expenditure is for peak demand which occurs less then 2% of the year. Once you have significant amounts of storage and distributed generation all the grid has to do is replenish storage during prolonged low distributed generation periods. Ie if a prolonged cloudy low wind period is forecast in winter some grid generation can be brought on line to support or replenish distributed storage through that period. However uninterruptibility, peak load supply and frequency management which all represent the most expensive aspects of running the grid at present beck e irrelevant with significant storage in place. Forecasting will allow several days notice of when grid replenishment will be necessary but with 2-3 days of storage autonomy even if not forecast you have at least 1-2 days notice of storage s being run down and the need for some grid supplied replenishment. Grid backup is nfinitely less com,ex then the present grid.

          • Jarrod 6 years ago

            Ill take Victoria as an example. Victoria’s power bills consist of only 30% (lowest in AU) as network costs meaning the so called “gold plating” isn’t an issue in Vic nor is reliability. Oh and how ironic is it that Victoria’s demand fluctuates more than any other state yet also able to maintain the fact that Melbourne has the most reliable electricity grid in Australia. Storage is also expensive infrastructure. We should be looking at things like energy efficiency, remote control switching of air conditioners etc rather than new infrastructure such as storage and grid upgrades. During the last few summers, Vic’s peak demand was reduced by almost 500Mw as a reaction to a sudden peak in wholesale electricity prices (smart meters haven’t even been activated yet, but once they are this reduction will be even greater). Instead of spending nearly $12,000 on storage to save 5 Kwh, I easily changed all my lights to LED which only costs $500 and saves me 4-5Kwh per day (lights never on during daylight hours).

          • RobS 6 years ago

            Storage saves 0 kwh’s, it simply allows you to use power generated at time A to power a load at time B. We should absolutely without a shadow of a doubt conduct deep energy efficiency measures, we could easily save 50% or more of home power consumption with ultra efficient lighintg, appropriate solar passive heating and cooling, heat pump or solar hot water etc etc. However with increasing interest in intermittent distributed generation such as domestic solar or micro wind turbines the addition of a small amount of storage allows you to use your own generation for far more. Increased efficiency significantly improves the economics of storage because a substantially smaller battery provides an equal period of stored power.

          • Jarrod 6 years ago

            Thanks rob, I assumed the point of storage was to save Kwh exported to the grid at day and use them during your peak usage at night (if you have a crap FIT)? If so by reducing my peak usage via these efficiency measures it could kind of substitute for storage? (at a fraction of the cost). Anyway I had been considering solar but now that ive almost cut my bill in half by efficiency measures instead, I am only paying 300$ quarterly so I have no issues with my bills :)! I think out of all our energy issues though, efficiency will be the best solution

          • Matt Robinson 6 years ago

            This will be my last reply to you, RobS.

            I haven’t misrepresented the effect of battery storage by individual households. You only have to read what you’re saying to come to the conclusion you don’t get it.

            Firstly, peaks in usage happen every single day, can be unpredictable and actually occur quite a bit more than 2%, and vary year on year.

            Secondly, you seem to think weather forecasts have the reliability needed to predict energy usage. Utterly false and completely naive.

            Thirdly you seem to think all battery systems will have the same level of use, efficiency and charge, also impossible.

            Finally, you think the expense of the grid is solely due to peak demand. It isn’t. Not even close.

    • dwj 6 years ago

      Couldn’t agree more Matt.

      This article has some serious logical flaws:
      For the last few years our electrical supply companies have been installing excess distribution and transmission capacity. Our average and peak demand has been declining. Rooftop solar has been growing rapidly, further offsetting peak demand. In this environment, how can there be any justification for distributed storage to reduce pressure on the transmission and distribution
      systems? It is totally illogical.

      As more rooftop solar is installed, the peak demand will shift later and later in the day and will create much smaller morning and evening peaks. It would make more sense for the utilities to encourage people to point their panels West than to install batteries.

      In the long term, having distributed storage would only make sense when the distributed peak generation exceeds demand by a very large amount (this will probably never happen). Otherwise it would be much more cost effective to have centralised storage. Pumped hydro and CAES are still at least an order of magnitude cheaper than batteries.

      Why would an electricity supplier ever want to subsidise their customers to shift their consumption to a lower cost regime? If storage was financially worthwhile, the supply company would just install it itself.

      Because the utility is always last resort supplier, no distributed storage scheme will significantly reduce distribution and transmission requirements unless it has enough capacity to take the consumer off the mains entirely and I can’t see how that benefits the supply company.

      • Rob Campbell 6 years ago

        Can I suggest you look at the AEMO demand for NSW any day, may as well be today. If you look you see an almost vertical line between 4 and 6pm. How do you think generators cope with such a rapid rise in demand? Answer is that they keep the boilers fired and the turbines on standby much earlier during the day, wasting heaps of fossil fuel and polluting the air. One of the major causes, Solar. But would you wind back solar to fix this problem or would you find a method of flattening this peak? One solution is a backward move, one is progressive. You work it out.

        • Jarrod 6 years ago

          The less demand, the less pollution being created thus the less fossil fuels required (even if the generator is fired up). Also solar has only changed our demand profiles slightly in the past few years, but they generally look the same since before solar came in. Plus what youre looking at is a standard demand profile which isn’t a problem. Problems are peak demand on those few days during summer, and that could be solved in way cheaper methods such as efficiency etc

        • dwj 6 years ago

          How many hours is it between noon and sunset Rob? Read my post again.

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