Is now the right time to go off-grid?

A friend and fellow inventor suggested I should try to answer this question – is it the right time to go off-grid?

We all know that the price of PV systems and battery storage is coming down, at the same time that the cost of grid-provided electricity is going up.  At some point there will be a crossover.  Notice I’m not talking about socket parity at peak output when PV power is already cheaper than grid-provided electricity.

So when will this crossover point for PV with battery storage be reached? Or has it been reached already?

As you might imagine, to formulate a model to answer the question involves many considerations such as your location, your particular domestic circumstances and your expectations about the future cost of PV systems and battery storage.  In the post below, I give my modest contribution to the debate.

Here are my assumptions:

  • As an investor, you can make 3% per year after tax and inflation.
  • You live in a mythical location with an excellent solar resource such that you receive the average amount of sunshine each day.
  • The Capacity Factor of your PV system is 0.18.
  • PV panels will last for 25 years at rated output, so that a 1 kW system would deliver 24 × 365 × 0.18 / 365 = 4.32 kWhr/day each day for 25 years.
  • Your daily electricity requirement is 8.64 kWhr/day, which is exactly the output of a 2 kW system at your mythical location.  Further, half of this is required when the sun is not shining, so you need to store 4.32 kWhr/day.
  • Battery storage costs $1,000 per kWhr, and the batteries are capable of a complete charge/discharge cycle every day for 25 years.  This is a heroic assumption, but hopefully covered by assigning a high price to the cost of storage.
  • After government incentives, the specific cost of an installed PV system is $2/W.
  • Your annual electricity bill today is $1,000 and will not increase in real terms after inflation.
  • To disconnect from the grid, the cost to you of PV panels and storage will be $2 × 2,000 + 4.32 × 1,000 = $8,320, which let’s say you have available for investment.
Now we formulate two options.

Option 1: Stay connected to the grid.

After 25 years of compounding at 3% after tax and inflation, your $8,320 becomes $8,320 × (1.03)^25 = $17,420.
Option 2: Disconnect from the grid

If you invest $1,000 each year (your annual electricity bill) for 25 years at 3% after tax and inflation, it compounds to $1,000 × (1.03^25 – 1)/0.03 = $36,459.  By that stage the PV panels and batteries would need replacement, a cost of $8,320, which leaves a balance of $36,459 – 8,320 = $28,139.

On this grossly simplified calculation, Option 2 is 62% superior to Option 1.

Weaknesses in the assumptions can easily be pinpointed.  For example, I live in Sydney in an all-electric dwelling, and my peak electricity demand is in winter when the daily output of PV panels is below the annual average.  I would need to buy a generator set, which would get substantial use in winter, and I’d have spare power for sale in summer when the utilities wouldn’t pay much for it.  I’d need additional assumptions and/or data about demand, output, the cost of a generator set and the future cost of fuel.  Those calculations are for another day!

Conclusion
My conclusion is that to justify going off the grid for financial reasons, you‘d need to live in an exceptionally favourable location and in an accommodative lifestyle. That’s my conclusion today, but it would be worth repeating the calculation in a few years when circumstances will surely have changed.

Acknowledgement: Thanks to Anthony Kitchener for the interesting suggestion.

Addendum: In comments below, Derek points out that it is not correct to subtract the cost of a new system after 25 years.  So the advantage of Option 2 over Option 1 is 109%, rather than 62%.  This strengthens the case to go off-grid, but doesn’t cause me to change my overall conclusion, particularly in light of other comments about the suitability of battery storage.

Noel Barton is Managing Director of Sunoba Pty Ltd and is developing new concepts for solar thermal power with storage.  He blogs at www.sunoba.blogspot.com.  Republished with permission.

Comments

25 responses to “Is now the right time to go off-grid?”

  1. Ed Skinner Avatar

    I would be interested to see this calculation using a Hybrid Wind/Solar Package.

    1. Robert Johnston Avatar
      Robert Johnston

      Its worse, small scale wind is a joke commercially (would be very pleased to see a supplier present a business case that improves the economics of the exercise with a sensible production estimate) – and impossible to get approved for use on a normal house anyway due to noise and shadow flicker.

  2. James Fisher Avatar
    James Fisher

    I don’t believe you can do this calculation with the belief that you purchase the storage system and get 25 years of use. Today the only practical and available technology is Lead Acid based. These batteries are not well suited to install and forget and can be extremely hazardous if not maintained correctly.

    The average life expectancy for an individual battery in a PV storage application that is well maintained would be ~ 5 years (some would say that is optimistic.) Some will fail earlier. This will lead to reduced storage capacity as you can’t replace a failed battery with a new battery. You need to replace the entire battery bank which would need to happen every 5 years if you are to maintain storage capacity.

    Lead Acid chemistry will last longer if the depth of discharge is reduced, however this means a larger nameplate storage capacity and higher initial Capex.

    Another downside is that Lead Acid technology can fail spectacularly very quickly. I am an engineer involved in the development of renewable energy and we use Lead Acid battery storage in our pilot plant. Over Xmas our charging system over heated and correctly shutdown. With everyone on holidays the system was unmonitored for a few days. When we got back we had some very expensive batteries purchase only 6 weeks earlier that had been fully discharged and allowed to sit in this state for a couple of days which destroyed them. Of course we should have had a system shut the batteries down which would have saved us many thousands of dollars, but even then protective systems fail.

    1. J Morganlowe Avatar
      J Morganlowe

      Hi James

      Just couldn’t let your claim of 5 year turn over for lead acid batteries go unchallenged.

      In 1992 I installed a 24volt bank consisting of 12×2 volt 750 amp hr lead acid cells in a stand alone system, comprising of 2KW solar PV and diesel generator backup for overcast periods.

      These batteries, with what one may call casual maintenance, provided uninterrupted service for our household of of two adults and 4 children growing to adulthood, low energy lights, washing machine, TV, electric fridge, ceiling fans, computers etc. The batteries failed in mid 2010 and have been replaced with a set 1025 2 volt cells.

      Working on this experience and the fact that the load factor has dropped markedly, (children left), I feel confident of a repeat performance, though that would put me at the age of 90 so I’m a little unsure who will go first.

      Also as the electricity company originally quoted me in excess of $80k to run the line to my property I am extremely happy with my investment.

      1. Tosh Avatar

        Hi James, that is a great story.
        Can we talk more?
        Feel free to email me direct at [email protected] and we can go from there

        cheers
        tosh

  3. bill parker Avatar
    bill parker

    I think 8.64kWh/day is a pretty ambitious usage level for most householders. In WA the average across the south west integrated system is at least twice that. As a former owner of a low energy passive solar home, the electricity consumption was around 6.5 – 7kWh/day with a gas boosted solar water heater and the only major demand (fridge/freezer) at about 3kWh/day depending on season. I could have reduced that with better heat disposal.

  4. Alistair Avatar
    Alistair

    But James , why use lead acid batteries given all the problems stated above ….. It would be interesting to see a similar equation for households who run gas cooking/hot water , don’t have central heating or air conditioning and are prepared to use lifepo4 as storage ……. Intuitively I think the costs will be a fraction of the above … If we take it that many humble households would only need power for lighting, a fridge, a tv, and a washing machine …. It may be that those with less need for power consumption might be comparatively better off – off grid , not paying for their neighbors air conditioner ……… The real question is how many low and middle income households like mine exist … And what would that do to the grid if we exited!

  5. Graeme Dennis Avatar
    Graeme Dennis

    Interesting article. Obviously, more details needed on gen set etc. Perhaps consider alternative heating sources in winter (gas, heat pump) to flatten the load profile by reducing electrical demand in winter.

    Also, when I plug 8.64kwh/day into IPART’s tariff comparator, I come up with a grid bill of $675pa (rather than $1,000pa) for a Sydney 2000 residence (and as low as $512 from some retailers). So the $1,000pa grid assumption may need revision.

    http://www.myenergyoffers.nsw.gov.au/search-offers.aspx

  6. Chris Fraser Avatar
    Chris Fraser

    A 25 year life for all components is more palatable for home consumers. Then all the parts wear out at the same time and it saves inconvenience.

    LiFePO4 batteries may be better in the long run. They are supposed to be very stable and easy maintenance. Lifetime studies have been done which alludes to a 25 year + (10,000 cycle) service life ;-

    http://upcommons.upc.edu/e-prints/bitstream/2117/15119/1/Lifetime.pdf

    The down side of long life is that the depth of discharge is limited to only 25%. Therefore, Noel’s 8.64 kWh needed capacity would become 34.56 kWh minimum storage.

    Did Noel factor in battery efficiency round trip losses ? (such as charging losses, discharge losses) and finally inverter losses between DC and AC ? I’m not sure if they are huge but still they must be counted.

  7. Derek Avatar
    Derek

    I’m unconvinced by the maths.
    a) I have $8,320 today; invested for 25 years gives me $17,420 and no PV system.
    b) I spend $8,320 today on a PV system; after 25 years I have $36,459 and write off the system.
    Benefit of (b) over (a) is over 100%. Subtracting the cost of a replacement system after 25 years in (b) is double-dipping.

    1. Sunoba Avatar

      Yes Derek, I think you’re right. I only realised the error you pointed out after the article had been republished, and I then wondered if anyone would spot it. You win a prize!

      The error does not cause me to change my conclusion, particularly in light of earlier comments about batteries.

  8. Tosh Avatar

    Nice to see someone working through this publicly, though the assumptions result in the exercise not meaning much in the real world.

    We are developing a range of off-grid energy projects to more fully explore and test how to make off grid or indeed micro-grid viable and are confident it will be a mainstream solution within 10 years. If anyone is interested, check out http://www.energyforthepeople.net

  9. David Avatar

    Derek makes a valid point, although it isn’t double dipping, just wrong timing. Better to do the calculations on a cash flow basis, and then use a discounted cashflow/NPV calculation with a 3% discount rate for the comparison.

    Scenario (a) should include all your electirity bill payments (ideally on a quarterly basis). Scenario (b) should include the upfront $8,250 payment. There may be some residual value in the system, however after discounting for 25 years, even at a low 3%, its probably not a major factor.

    Perhaps someone could do a spreadsheet that people can use and customise to their own circumstances?

    1. Tosh Avatar

      Homer software is the obvious choice but I’m not convinced its outputs are robust. Tends to over-use the back-up generator for some reason…

    2. Derek Avatar
      Derek

      David, it is double-dipping. Scenario (b) pays for two systems, but only considers the benefits over the lifetime of one.

      1. david Avatar
        david

        Derek,
        Scenario (b) only has the cost of the system recognised at the end (subtracting the $8320 at the end). He doesn’t recognise the upfront cost of the system (my issue with the calculation). Hence it isn’t really double counting.

        If he had taken the cost of the system into account at the start, and then again subtracted it from the invested total of his $1k electricity bills, then that would be double counting.

        I hope this comment adds some clarity.

        1. Derek Avatar
          Derek

          In both scenarios, he starts with $8320.
          In (1) he invests it for 25 years and ends up with $17420 in total. That includes the original capital and there’s no other asset to show.
          In (2), he invests the $8320 in a PV system instead. After 25 years he has $36,459 in the bank and writes off the PV system.
          Comparison is $36,459 versus $17420, as Noel confirms.

  10. Bill Avatar
    Bill

    Not sure how this fits into the calculations but, as the cost of panels goes down, it becomes more efficient to add more panels than to add more battery storage.

  11. Graeme Dennis Avatar
    Graeme Dennis

    Hmmm, some new maths on this page.

    The present value of 25 years of grid payments of $1000pa, paid quarterly, discounted at 3%pa (the author’s assumed rate by which interest earnings outstrips grid bill inflation) is $17,543.

    So, provided you spent less than $17,543 on day 1 on an off-grid system (and it lasted 25 years) you would be no worse off than on the grid.

    Or, put another way, spending $8,320 up front to go off-grid has a payback point at about 38 quarters (9.5 years) if your grid cost would be $250 per quarter.

    Or, very simply, whatever its size, if your system is going to last 10 years, you can’t afford to pay more than about 8.5 times your annual grid bill on its purchase.

    If you make the heroic assumption that it will last 25 years without cost, then you can afford to pay 17 times your annual grid bill on its purchase.

  12. Craig Memery Avatar
    Craig Memery

    Thanks Noel et al,

    Interesting discussion. ATA undertook an in depth assessment of the cost viability of going off grid, initially as an alternative to upgrades of the existing network

    Check out http://www.ata.org.au/projects-and-advocacy/the-economics-of-stand-alone-power-systems/
    and associated links

  13. David Avatar
    David

    I don’t think this type of simplistic analysis is helpful to the cause of renewables. Not even the Atacama desert gets the same insolation every day.

    The 99.9% renewables article just posted shows that you need very substantial amounts of excess generation capacity to approach 100% renewables even with the advantages of a mix of generation types, wide geographic distribution and smoothing of demand by a large population. Even than it still needs much more than 1 days storage.

  14. Robert Avatar
    Robert

    I live in Coffs Harbour and have just moved into a rental house so I’m signing up for electricity. I will be charged 34.4c/kwh for all usage plus $1.48 per day. I have solar hot water so the controlled-load should be about zero.

    I’ve concluded that I’m much better off installing an off-grid PV and battery storage system for my expected usage of 7kwh/day the average cost of electricity is about 50c/kwh which is almost double the cost of the off-grid system. I can’t understand why more people are not going off-grid.

  15. Chris Cooper Avatar
    Chris Cooper

    What about demand smoothing? I have a Wattson power monitor, and am thus very aware of the fluctuations in demand, where appliances routinely draw well above what solar is producing, but then switch off. Washing machines, thermostat controlled ovens, microwaves etc. A battery system would cover these peaks during the day, and be therefore used for more than one ‘cycle per day’. It may be partially charged and partially discharged several times per day – which is a lot more benefit than solely being used to cover night use. Seems this should be considered as a financial benefit in favour of batteries, which is not present in the current calculations.

    The ideal scenario may be for appliances to be configured to draw lower amounts of power for longer times, and thus stay more in the solar generation range, but as this is not likely anytime soon, batteries can be used to ‘spread the load’.

    Seems the real debate is not on or off the grid, but ‘how much grid’ should we use? Assuming it is not yet viable to go totally off-grid, it does seem likely that offloading a portion of demand to batteries is at least viable for demand smoothing – with real financial returns.

  16. bruce Avatar
    bruce

    I live in victoria and am currently off grid. I love it. My lighting uses 240vac cable (to lower resistance not to cope with amps which is bugger all. All lighting is 12 vdc led. all circuits have appropriate 12 vdc circuit breakers. I bought my solar cells for $200 for 12 vdc 200w or 24vd 200w in various configs and have an mppt and pwm and normal regulator charger (3 parallel chargers) but only 1kw of cells on the roof. I can do 4 front load wash loads (240vac) a day (cold water). All hot water is lpg instantaneous. I have a 660 litre french door fridge freezer (240vac) with ice dispensor / crusher and cold drink output, i have a home theatre 280 watts projector benq hd that we watch movies on, All water is via our tank which uses 10amp pump. We have chef lpg fan forced oven, 3 led tvs, 2 laptops, wireless modem on 24/7, electric fence 8000volts on 24/7 for chooks, 12vdc ceiling fans, The only time i have to run the geni is for my wifes vercola such as tonight as the inverter which deals with everything else couldn’t cope with that. In winter, i have to use geny occasionally.

    I see people defeated with winter and say………. i over produce in summer and under produce in winter……. idiots, simply do what i will do and recognize you only get 60% of power in winter due shorter days and lower declination etc, and then increase you pv array so your BASE LINE is winter, for me that is 1.6kw panels instead of 1 kw, i’ll probably use the extra in summer to pump water around the black irrigation pipes that heat my spa- and it would run the spa pump (extra power that is), but either way the batteries love ticking over fully charged, so there is no downside. All i have said is true. My inverter which is 12 vdc – 240vac floating neutral, 3kw cost about $400 from ebay- hasnt missed a beat in 3 years The whole system has cost $4000 incl gel deep cycle batteries 12 x 12vdc 120ah all in parallel (off ebay second hand)

    Oh , some lateral thinking for the neigh sayers, bypass the vultures and elect companies, get pv cells and batteries, stay connected -don’t feed back onto the grid, keep your connection and have it switch onto a battery charger when and if needed when voltage drops, thus avoiding need for geny and your bill will be F A.

  17. Mandy Ruiz Avatar
    Mandy Ruiz

    An alternative to using a Gene in winter is to install a wind turbine to produce the additional power required.

Get up to 3 quotes from pre-vetted solar (and battery) installers.