Citigroup: solar + battery storage “socket” parity in years | RenewEconomy

Citigroup: solar + battery storage “socket” parity in years

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Investment bank Citigroup says the return on investment for solar plus storage by 2020 will beat the payback from solar now. That means socket parity in some countries by 2020, and in utility scale grid in large parts of the world by 2030. Fossil fuel generators and utiliy business models will be terminally challenged.

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Investment bank Citigroup says the return on investment for solar and battery storage by 2020 will beat the payback from solar now. That means socket parity in some countries by 2020, and utility-scale grid parity in large parts of the world by 2030. Fossil fuel generators and utiliy business models will be terminally challenged.

A major new report from researchers at investment bank Citigroup predicts that the payback for rooftop solar plus battery storage systems will, by 2020, beat the payback on solar-only systems now.

Its forecasts are based on the assumption that battery storage costs will halve over the next 5, 6 or 7 years to around $230/KWh. That would make storage financially attractive enough to increase manufacturing and further accelerate the fall in battery storage system costs towards $150/KWh.

This, in turn, will eliminate the need for subsidies, will deliver paybacks for solar plus storage of around 6-7 years in Australia and some European countries. And it will also become attractive at grid level, with solar and storage at grid parity in large parts of the world by 2030, meaning that network operators will be installing them in significant numbers.

Citigroup estimates a 240GW global market for energy storage worth more than $400 billion by that date. That is excluding car batteries.

It will, of course, have dramatic, and even terminal impacts on incumbent parts of the global energy system. A system that had been unable to store its commodity so had to build excess capacity, will now be able to calibrate supply and demand. The system is, quite literally, being turned on its head.

The Citigroup report is titled Energy Darwinism II, and is a follow-up to its original Energy Darwinism report released last year – with an Australian version this year – which discussed the potential impact of socket parity – where sourcing energy from rooftop solar in cheaper than the grid – on incumbent utilities.

Citigroup said then that the global energy mix is shifting more rapidly than is widely appreciated, and this has major implications for generators, utilities, and consumers, and for exporters of fossil fuels such as Australia.

This new report, subtitled Energy Storage: Game Changer for Utilities, Tech & Commodities is an update to take into account new forecasts on the course of battery and other forms of storage, and predicts even more dramatic impacts.

It follows a number of similar conclusions from other leading investment banks. UBS in August suggested that the payback for solar plus storage could be as low as 6 years by the end of the decade. This week, the HSBC analysis said both consumers and grid operators look to battery and other storage technologies.

Like HSBC, Citigroup says that these developments will have a dramatic impact on utilities, in some cases terminal. Generators will be most exposed, particularly coal-fired plants. Utilities will also be impacted, but have the option of buying into the technology and boosting their own regulated asset base by investing in storage.

Still, Citigroup says that most utilities are staring at the future like rabbits in the headlights, and have been slow to change despite the clear warnings.

The report quotes former US Energy Secretary Stephen Chu, who said that in his discussions with utilities their response had been any of (i) “tell us what to do”, (ii) “deer in the headlights” or (iii) “we will fight this”.

“This initially sounded like none of the utilities has in place a plan to adjust for these changes but times may be changing. Chu argues that the right business model adaptation would be for utilities to partner with installation/construction companies, use their low cost of debt to fund purchases of distributed energy capacity and storage and then rent this out to their customers.”

But back to the question of socket parity for Solar plus storage.

Figure 28 (below) illustrates Citigroup’s point. It assumes a large portion of the solar output is self-consumed rather than sold to the grid, so the ‘income’ is primarily avoided electricity bills rather than energy sales.

citigroup storage parity

It assumes a $230/KWh cost for battery, a decline in installation costs of solar to €1,200/KW and unchanged household bills versus today. The implied payback period declines to 12 years and the IRR over 15 years (assuming a shortened life for batteries) rises to 5.7 per cent.

“We estimate that solar systems have already reached socket parity in most parts of Continental Europe, South West US and Australia and will do so in Japan by 2016 and in the UK and Brazil by early 2020s.

“That means that, even with no subsidies, it is economic for households in those regions to install rooftop solar.

“The introduction of battery storage in a distributed generation system would increase upfront costs for households but would improve their ongoing cash flow position as it would minimize power purchases from the grid.”

As the graph shows, the payback in Australia and some European countries will be as low six to seven years by 2020. Citigroup says this will expand and accelerate the trend of corporates and households looking to become self-sufficient.

But it’s not just at the distributed level that things will change rapidly.

That same key number – $230/kWh – will also have a big impact at utility level.

“Because, on our estimates, renewables with battery storage is due to reach grid parity in large parts of the world within 15 years, which is inside the typical 30-35- year economic lifecycle of utility assets, we concur with the conclusions reached by the Rocky Mountain Institute in its report “The Economics of Grid Defection: When and Where Distributed Solar Generation Plus Storage Competes with Traditional Utility Service” that the current business model of parts of the sector will be terminally challenged in these regions.”

Centralised power generation (coal, gas, nuclear and lignite plants) will be the first to feel the effects, with load factors falling to around 35% by 2030 across the EU-28 member states.

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  1. Alexander Dudley 6 years ago

    Not a good time to be buying into a new coal mine. NSW and Qld politicians take notice.

  2. Zvyozdochka 6 years ago

    Citigroup are a very conservative organisation. This is huge news.

    Hobbyists who also look at consumption side (like us) can do it now and Citigroup aren’t factoring in much efficiency/consumption change.

  3. juxx0r 6 years ago

    Doesn’t this mean that nuclear is now DOA?

    • Zvyozdochka 6 years ago

      Yes, but … it was already.

  4. Chris Fraser 6 years ago

    A short payback is also important from the viewpoint that the asset has to last at least the same number of years (derived from the capacity daily cycles expected) until payback time.

  5. john 6 years ago

    Con Edison announced that very shortly they will be releasing Panels that will be 40c against the standard 80c the only conclusion is that this is a total no brainer in any situation.
    I have not filled in the meaning of the above 40 versus 80 as I imagine your all across this and have read the information.

  6. GreenGenie 6 years ago

    The $230/kWh figure for battery storage is intriguing.

    Naively, does this take into consideration the effects of the degree of discharge (DoD) on Pb-acid bank life or will future storage be Lithium or other based?

    If I could get quality BAE’s or Raylites for $230/kWh in Australia then that would close the deal for me, even when I would only be using 20% of the charge to get (hopefully) 3000 cycles out of them.

  7. wideEyedPupil 6 years ago

    Anybody found a link to Energy Darwinism II PDF yet?

  8. fearless 6 years ago

    I’m a huge fan of this entire topic. Question: what are the chances that utility companies will use lobbying and legislation to protect their (stranded) assets? For example, could they forbid consumers from quitting the grid?

    Tiny typo in the opening graph: “Fossil fuel generators and utiliy business models will be terminally challenged.” utiliy => utility

  9. Rob G 6 years ago

    With this in mind would any global bank want to make new investments in dirty energy? The list of reasons to abandon these industries is growing, linked businesses will be advised to leave these relationships before they too get dragged down. People are fed up.

  10. Vince Garrone 6 years ago

    The question of “socket parity for solar plus storage” is only truly equitable if one is considering standalone alternate power supplies. Standalone PV systems can provide all the characteristics of the grid; security, reliability and appropriate power quality, however they inherently require extensive overcapacity to handle the inevitable extended periods of inclement weather. They either need generous amounts of PV (to continue to charge batteries or supply load on rainy days), large battery capacity (to cater for successive days without substantial PV input) or they require a standby generator. Most of the time, these investments are underutilized, waiting for the “rainy day” in the same manner as grid over capacity does. With the benefit of customer diversity however, grids can generally operate with less excess capacity in percentage terms, than would be achieved with individual disconnected power sources supplying the same load.

    Comparing grid tied solar/storage systems to socket prices ignores the grid’s essential contribution to facilitating renewable energy, and fosters an unhelpful adversarial debate. By providing frequency and voltage stability, local demand shortfalls or redistributing local generation excesses, the grid provides a fundamentally important service. Our vital progression towards clean energy sustainability needs to promote efficient embedded generation/storage as well as a mechanism for appropriate integration with the grid. Otherwise we risk overinvestment in standalone systems that could easily be a great waste of scarce resources at significant real community cost.

    • Giles 6 years ago

      Couldn’t agree with you more Vince. But with UBS predicting that even with this over-capacity, it will be cheaper for households in suburbs to go off grid by 2018 – – then we have a problem. Yes, the grid should be the cheapest battery, and using it will avoid massive over-capitalisation. But unless they price it right, and match the cost of new technologies, then people will make a rational individual choice. The onus is on the network provider, not the consumer, to make the right societal decision – the networks are simply relying on the principal they can charge more to those who are left, but they know this is not sustainable, or even rational. Time for a write-down.

    • neroden 6 years ago

      There are some things to consider here.

      First, Australia doesn’t get a lot of snow. Snow stinks for solar panels; you have to physically clear it off. So the inclement-weather problem is quite severe in the snowbelts. But in Australia, those solar panels are producing all day every day. They produce even in the rain.

      Second, and most important, in rural areas, your grid costs are extremely high, even with massive subsidies coming from urban areas, due to the extremely high cost of all those transmission lines. Furthermore, you have *lots and lots of land* to put solar panels on.

      For the isolated mini-grids, solar + storage is already cheaper than running fossil fuel plans, due to the problem of importing the fossil fuels.

      The rural areas of Australia should go off the grid *now*. For instance, the whole of Ergon Energy’s territory in Queensland, and the whole of the Northern Territory. None of these areas should be running thermal plants.

      The cities may not go off the grid right away. The Outback should be off the grid *already* — and that’s kind of a big deal. The shrunken networks left behind in urban areas should be a lot cheaper to manage.

      • Vince Garrone 6 years ago

        Neroden, it is a very worthwhile objective to transfer remote rural customers off the grid to self-sufficiency, however the economics is still a challenge. Most stand-alone systems or minigrids will still require some form of internal combustion powered generator as a backup to solar and batteries.

        Good power plant design has to allow for all reasonable contingencies and unfortunately solar panels do not produce all day every day. The ratio between maximum and minimum daily energy can easily exceed 15:1 depending on the season and the weather. For example, the University of Queensland’s St Lucia PV installations only generated 600kWh on 20/2/15 compared to 10,500kWh on 6/12/13 (ref – My own max/min ratio on a residential system is even worse at about 23:1.

        It takes an awful lot of expensive storage to account for that sort of daily energy shortfall, or one has to dramatically oversize the PV installation to compensate. Given that many days of inclement weather have to be accommodated, diesel or gas fired plant is almost invariably required.

        • neroden 5 years ago

          600 kwh in a day is enough to power 35 homes, if they’re properly insulated, use LED lighting, etc. etc.

          And storage is probably cheaper than transformers and long-distance power lines; it’s certainly cheaper than importing fossil fuels by ship to an island, or driving them for hundreds of miles into the Outback.

          The economics for solar are seriously obvious in the deep rural areas. Less so in the urban areas.

  11. neroden 6 years ago

    This is a gross underestimate of the rate of solar deployment. By 2030, solar will be generating 100% of electricity needs — so I would not expect load factors of 35% for centralized power generation plants, I’d expect zero!

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