Grid parity for battery storage? It’s complicated

“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.

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.