Why energy storage already makes sense in Australia

Energy storage is already making financial sense in the Australian market, and it won’t be long until battery storage solutions become a compelling investment for households as well as business customers and network operators.

Andrew Simpson, the head of Brisbane-based consultancy Verdant Vision, and a former battery engineer at electric vehicle manufacturer Tesla Motors in the US, says battery storage has long been a “no-brainer” for off-grid applications.

Now it is also making sense for network operators to deploy at utility level, including for renewables integration, given the recent decision by Ergon Energy to install the first of twenty 100kWh battery storage installations on the fringe of its sprawling Queensland network.

Ergon says even unsubsidised battery storage makes sense because it is cheaper than upgrading poles and wires. It sees hundreds of such installations in coming years.

Simpson says battery storage is also already making financial sense for business customers, particularly those on demand charges whose bill is influenced less by how much power they use, and more by the level of their maximum demand.

Simpson says battery storage can help shave those demand peaks, and businesses are now waking up to that opportunity.

He cites the example of a warehouse operator that has a large solar array – they find that the solar output helps them save on energy costs (the amount of electricity they consume), but not on demand charges. Batteries can store excess solar and also help shave that  peak demand. “Business customers are finding they can get a fast pay-back on storage,” he says.

At a presentation this week at the Northern Rivers Energy Forum, Simpson used this graph to show how storage can be used to defray demand charges. If storage is worth 70c/kWh for such customers, there are plenty of battery storage options that can meet that cost.

(Click on these and other graphs to enlarge).

Some residential customers are also finding battery storage within reach, even if for early adopters financial equations are not necessarily the primary motivation.

Still, this graph below shows just how close it is in some situations. The structure of tariffs is encouraging households to “self-consume”, and then to add battery storage.

Simpson’s calculations suggest the combination of solar and storage can already deliver a levelised cost of energy as low as 35c/kWh, equivalent to grid tariffs in many parts of the country. This will be of particular interest to the 160,000 or so households that will lose their 66c/kWh solar bonus in NSW at the end of 2016, and will want to look for a way to maximise the value of their solar systems rather then settle for a 6c/kWh tariff from their retailer.

The growing adoption of battery storage does, of course, create huge issues for incumbent utilities, as does the inevitable rise in network and other costs. “The advent of storage is creating a real dilemma for utilities,” Simpson says.

“The way things are going people will opt out (of the grid). The utilities need to get on top of this and develop a plan to encourage people to stay on the grid. Whether that is through tariff reform, I’m not sure, but they have got to do it (their business models) differently.”

One options suggested by Simpson is the creation of micro-grids in the residential sector, where networks are restructured around storage and only trade with the wholesale market when it makes sense.

That’s a win for everyone, because it saves on network upgrades and should deliver reduced costs. Retirement villages, for instance, would be the perfect example of where this could work, but there is no reason such a concept couldn’t work on a town or suburban level.

This graph below is also interesting, showing how to arrive at the real cost of a lithium ion battery. It is a sample only, but it illustrates that the installed cost of a battery is just part of the equation. The key metrics lie in the life of the asset, how many cycles, and of course the efficiency and capital costs.

Simpson does not necessarily accept the general belief that the Tesla “gigafactory” will lead to a dramatic reduction in battery storage costs. That’s because the batteries for EVs are completely different for houses. Tesla already has a favourable battery cost because of a deal with Panasonic, and a fall to $150/kWh for Tesla will not translate into the stationary market. But it will help.