Grid parity for battery storage? It’s complicated

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Depending on the retail electricity offer, the payback period for a given household battery storage system should range between 10-85 years. Grid parity? Your call.

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“Grid parity” has become one of those terms that has attached itself to the words “solar” and “batteries” in common parlance. I take it to mean, roughly, the market conditions in which the present value of the benefits from batteries equates to their price. The benefit is the ability to store electricity when it is less valuable and use it when it is more valuable.

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The term “grid parity” is often used when describing the future date at which batteries become viable to consumers and, by inference, the inflection point at which batteries becomes widespread.

It is human to ponder what the future holds, but as the economist John Maynard Keynes reminded us, “in the long term we are all dead.”  So, what can we say about the market as it is today?

Yesterday in Victoria there were 739 generally available electricity offers to households and small businesses in Victoria that had some kind of time-of-use differentiation in charges (there were another 1,351 offers that had no time-of-use differentiation).

In the time-of-use offers, the lowest difference between peak and off-peak prices was 3.5 cents/kWh; the median difference was 10.4 cents/kWh and the highest difference was 21.6 cents/kWh (assuming all discounts were applied).

At the median difference, the simple payback period for a 6.4kWh grid-connected battery (assuming it costs $9,500 installed and price differences remain unchanged in future) would be 29 years. For the highest peak/off-peak difference it would be 17 years and for the lowest 85 years.

But if the household already has 6.4 kWh per day worth of solar on the roof (and hence a marginal price of zero for such electricity) then the simple payback period of a battery, assuming that peak period power at the median offer price is avoided, would be 18 years. If however the household happens to be paying the highest peak price, then the pay-back period reduces to 10 years.

So, depending on the retail electricity offer, the payback period will range between 10 and 85 years. Grid parity? Your call.

And, of course, the issue is more complex than this, because the payback period will be affected not just by offers in the market today, but by what the household is actually paying, based on offers they accepted in the past. Quite possibly the actual payback period for some would be shorter than 10 years or longer than 85 years.

And remember, these observations have a short shelf life. No only is the cost of batteries changing rapidly, but the retail offers are also changing rapidly. As always in complex markets, data and information is the lifeblood.

Perhaps it is better to ponder the future rather than the present. It’s so much easier.

Bruce Mountain is the Director of consultancy CME Australia and the co-founder of retail market data provider, MarkIntell.

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8 Comments
  1. JeffJL 4 years ago

    Thanks for making the decision easier Mr Mountain. Not. 🙂

  2. wmh 4 years ago

    The surest way to reduce the pay back time is to reduce the cost of storage. In winter in the southern states at least, the major energy requirement is for home heating – perhaps 40 kWh/day – and this energy can be stored directly as low grade heat.

    Heat can be stored in heated pebble beds, but the best way to store heat is in a hot water tank. Water heated to 90C and used down to 45C, can store more than 50 kWh / cubic metre. The hot water feeds into the water flowing around a loop of wall mounted radiators in each room, via a tempering valve.

    Such a heat store costs little more than the cost of the tank and radiators. The tank operates at atmospheric pressure so can be home made and the water costs $2 / cubic metre and is recycled continously. Compare this to battery cost of perhaps $1000 / kWh. The source of the energy can be PV panels, solar thermal panels or simply off-peak grid electricity.

    • Mark Roest 4 years ago

      So true! Passive solar design, which includes heat and coolth storage, and energy efficiency and conservation are by far the most cost-effective things to do. Once you have reduced your consumption as much as you can, that’s the time to see how much generation and storage you want to put on.

  3. Geoff Bragg - SEIA 4 years ago

    It’s not all about the economics (fortunately). Nobody buys a car for economic reasons, or furniture, or art, or a holiday.
    Many purchase decisions are made on how the thing will make you feel. Energy storage is about autonomy, and the perception of it. Capturing energy from that warm stuff we like on our skin – sunlight – is a concept people like – it feels good too.
    Being able to save a bit of sunshine for later is just an extension of that.
    Talk to anyone who has lived off-grid with a well designed solar PV system, and they’ll tell you they never want to go back to the grid. They forget quite quickly how much it cost them, and remember the feeling of independence.

  4. Mark Roest 4 years ago

    $9500 / 6.4 kWh = $1484.38 per kWh capacity. Really? There is a saying in computing, Garbage in, garbage out. Didn’t anyone notice when the Chairman of General Motors announced that LG Chem will sell the batteries for the Chevy Bolt for $145 per kWh?

    How about all agreeing not to buy any battery system until they install very good quality batteries and control equipment, with very good workmanship on installation, for under $500 per kWh. That would get the ball rolling, as some business people or cooperatives would decide to make it happen, no matter what it takes.

    Next, get an electric car, and use the electricity preferentially to charge it. You will save big-time, far more than the wholesale net metering payback. Make your system big enough to charge both the car and the house on average, and trade the excess with your neighbors by having a smart micro-grid installed, by very competent electricians. Like my brother, but he retired already.

    PS, the bigger the system, the more diluted the soft costs get, so the cheaper it is per kWh capacity (for the battery) or per kW peak (for the solar). 6.4 kWh is not really enough for a home. Think in terms of hours of storage of the capacity of the solar system.

    If you need to wait for prices to come down, that should happen by 2017 to 2019.

    • Ian 4 years ago

      Mark, I totally agree with you. The question is who do you hate more: the utilities price-gouging consumers or the battery installers ripping us off with their ridiculous battery prices. If General Motors can get LG batteries for $145/KWH why the @$& should we pay 10 times more for home storage? No warm fuzzy feeling either way.

      There is an opportunity cost to battery storage. Spend $10000 on a garage blocking battery or earn $10000 less and work fewer hours and spend time with your kids. These batteries have got to be economical before most will buy them and that is very reasonable especially since the prices are projected to come down significantly in the next few years, and also as the manufactured costs are not nearly as much as the installed costs.

      Don’t buy home battery storage yet. Spend your money on lots of solar panels or hot water storage or insulation. We need to send a message to battery suppliers that they must reduce their prices considerably before Australia becomes a ” market leader” in battery storage. We are ready and waiting to buy home storage ,but at an acceptable price.

    • Brunel 4 years ago

      U$145. Not A$145.

      But yes, grid storage batteries will come down in price over the next 5 years.

  5. Jo 4 years ago

    Bruce, does it really make sense to discuss grid parity and then only use payback time?
    What is the payback time of grid electricity?
    And do you know that you can install solar PV with a payback time of $0 (=zero) if you use a home loan or any other low interest loan to finance it?

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