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Published on March 12th, 2013 | by Giles Parkinson

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How Battery Storage Will Change The Household Energy Market

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March 12th, 2013 by  

Reposted from RenewEconomy:

The plunging cost of solar PV means that it may now be half the cost of grid-based electricity, according to some industry estimates. But the economics of buying solar PV systems is still not clear for those who cannot consume most of the energy produced on their rooftops, because owners of rooftop solar systems are now getting paid little or nothing for the electricity they export.

So perhaps the time is approaching when the question should be asked: is it worth considering energy storage? Is it cost effective? Should householders go it alone, or in a community group? And what are the implications for other network users? Already, network operators and generators are bleeding because every solar panel that is added reduces demand and eats away at their centralised generation model. Batteries would only accelerate that change.

These were a series of questions that were posed by Gordon Weiss, an energy expert from the consultancy and advisory firm Energetics at the recent 2nd Summer Study into Energy Efficiency and Decentralised Energy in Sydney.

The first question is a bit of a no-brainer. As we wrote last Tuesday, the cost of solar PV has fallen to the extent that it has achieved “socket parity” in many places in Australia. Weiss thinks it’s even better than that. His estimates of the levellised cost of solar PV is between 12c/kWh and 14c/kWh, meaning that it is half the cost of electricity bought from the grid.

See the graph below for an illustration of these costs. For the energy and technology wonks, Weiss bases his assumptions on two different system sizes, assuming 14 per cent capacity factor, a 7 per cent discount rate, and a 30-year economic life.

This leads to the next problems. Generating electricity at this price is a no brainer when most of it can be consumed on the premises.

However, failing some clever and precise orientation of solar panels to the east, north, and west, that is not possible for most households, who find that they have to export much of their electricity back to the grid. At best, they are getting the wholesale prices paid to coal-fired generation, mostly around 6c/kWh. They lose money on this transaction.

This graph (above right) illustrates the problem. Even on a 1.5kW system, a lot of electricity can be consumed at a 40c/kWh discount to Origin Energy’s peak rate, but much of the electricity produced by the rooftop system has to be exported.

So, what to do? Either achieve a further reduction in solar PV costs per kW, or shift the output of the panels so that less solar output is exported, and less grid power is imported. To shift the output means either to move the timing of household use – in the same way the time of use tariffs are designed to do – re-orient the panels, or consider battery storage.

This graph below sums up the problem.

Battery storage is now an emerging opportunity. Some companies are already rolling out battery storage packages, and the industry forecasts a significant drop in costs in coming years.

Weiss has run some numbers on the battery storage option, and they are illustrated in the graph below. They are really only designed to be indicative. The consumption numbers are based on a large home with plenty of consumption, and some may disagree with the technology costs, both for solar PV and battery storage, which are evolving quickly anyway. The point is to provide a useful illustration for the choices that will be made, and for the critical debate about the shaping of our energy systems that must surely follow.

Based on these assumptions, Weiss crunches the numbers and works out that the sweet spot for a solar PV/Battery set-up is for a 5.3kW solar PV system that provides just enough power for 24 hours of household demand, and a 10.6 kWh battery capacity which stores surplus power to be used at night.

That means no import and no export. But there are several important caveats.

So long as the LCOE of solar PV is greater than the FiT (for exports to the grid), the best size for the solar module is the one that just supplies the house. If the LCOE is less than the FiT, then the sky is the limit.

The addition of a battery system only works if the LCOE for the battery plus solar module is below the power (grid cost). And nothing works if the LCOE for the solar PV module is greater than the cost of grid power.

But there are other considerations and challenges: Would householders need more than one day’s storage, to cater for the days when there is no sun? Is back-up generation required, or is a connection to the grid enough? Or is it more sensible to pool storage capacities at a community scale, rather than individual homes.

That then raises another problem.

Already, other network users may see no value in solar PV if they see it as merely using capacity, not necessarily reducing peak demand, and is not being billed for consumption. That, Weiss notes, could lead to “capacity” charging for network connections – something that has been quietly introduced in parts of the market. And that may kill the economics of solar PV along the way.

The complication of adding battery storage is that it will reduce peak demand, so can be a benefit to all electricity consumers because of reduced network costs. At the same time, that also makes it harder for networks to recover their investment through consumption-based tariffs.

“The value of this trade-off needs to be debated,” Weiss says. He says distributed renewable energy is about to be very big because it is now cost effective in terms of generated power, and even more so with storage. But while coupling it with storage can reduce peak load demand, it affects the cost recovery of existing networks.

“Renewable energy is now ‘affordable’, but who pays to make it dispatchable?” he asks. And, he suggests, it is an argument that the renewable energy industry should be leading now, because it requires a new way of thinking about energy markets.

As we noted at the start, the energy models of the incumbent utilities are already being threatened by the impact of solar, and battery storage will be an even bigger challenge. The utilities will either respond by adapting to a new business model, or by erecting barriers (in the form of regulation of capacity tariffs) to protect the model that already exists.

“Those that support renewable energy should be leading this discussion, or those who don’t support it will jump in and they will say that renewable energy is a gimmick,” Weiss says. “That discussion needs to be had now.”

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About the Author

is the founding editor of RenewEconomy.com.au, an Australian-based website that provides news and analysis on cleantech, carbon, and climate issues. Giles is based in Sydney and is watching the (slow, but quickening) transformation of Australia's energy grid with great interest.



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  • Alan

    What are you talking about; off grid battery storage should not be compared with grid tied systems cost, this is where you’re gone wrong, you cannot compare a battery operated off grid system to the cost of that on the grid. Grid connected systems have been highly subsidised like in Germany and the US while off grid system is completely independent of any subsidy, the owner is left individual to fork out the cost, and self maintain out of his own pocket, I don’t know where you getting this idea that we have to compare cost between the two setups.

    A good example in relation to grid connected solar system subsidies that Chancellor of Germany has been dumped by her own politicians as the cost continues to blow out in payouts into trillions of dollars, as the German’s citizens without solar power are refusing to pay any subsidies any more, as the cost of electricity blows out. Germany has been forced to import power from France and the Czech Republic as grid connected solar power failed deliver energy to sustain the German national grid. Many companies are seeking compensation as machinery and equipment has shut down due to a lack of stabilised power been delivered. And the companies now have been forced to have their own diesel generators to run their own factory. The humiliation of the German Chancellor to seek power from France and the Czech Republic as a German national grid collapses. The pride of Germany has gone down the drain with this renewable energy grid system.

  • Bob_Wallace

    “Weiss crunches the numbers and works out that the sweet spot for a solar PV/Battery set-up is for a 5.3kW solar PV system that provides just enough power for 24 hours of household demand, and a 10.6 kWh battery capacity which stores surplus power to be used at night.”

    Weiss’s analysis breaks down right here. One day does not get people through multiple days of no sunshine.

    I think we’ll move to the point at which most of our sunny time power comes from end-user rooftops but those end-users will use the grid for storage, access to other renewable sources (wind, geothermal, etc.) and very deep backup (gas turbines which run only a few hours a year).

    I doubt that small scale batteries will get cheap enough to compete with very large utility scale storage.

    • RobS

      It won’t get you through multiple days of no sunshine but we are talking about buffering intermittent renewables not setting ourselves up for total solar independence which requires far larger storage capacity. Having 12 hours of storage buffer removes all the short term swings from the generation profile of a high penetration solar grid, further smoothing will be provided by other renewable generators in addition to solar. The issue of how large to size the buffer is much like the issue of how tall to make a flood levy, Do you size it for a one in 1 year flood event, 1 in 10? 1 in 50? 1 in 100? similarly do you size batteries for 3 days of unusually low solar production? 5 days? 10 days? weather will always exist along a distribution curve, and you have to balance adequate buffering with cost. At some point it is economically unjustifiable to keep adding storage for freak weather events. This is about smoothing output and allowing integration and avoiding the need to have large amounts of constantly available spinning reserve. Having a moderate (12 hour) buffer and backing it up with some fossil fuel generation allows you to balance environmental and economic concerns. It is difficult to forecast the minute to minute swings in solar output which is why storage is necessary, it is far easier to forecast multiple day periods of low solar production therefore when such a period is known to be approaching back up generators can be brought on line.

      • Bob_Wallace

        Try looking at it from a purely economic level.

        First, large scale battery storage is going to be less expensive. Simple buying power.

        Second, frequency of cycling will determine the time to recover investment. Batteries at the grid level are (generally) going to cycle two times a day. Once for the solar cycle, once for the late night wind cycle. The less time a battery sits unused, the more money it makes for the owner.

        • RobS

          remember though, residential solar and storage both have the advantage of competing against retail power prices rather then wholesale power prices. It is much easier to economically justify storage when it can offset power bought at ~15c/kwh or in Australia ~27c/kwh then when its competing against far cheaper wholesale power ~7c/kwh as it does in a utility scale installation.

          • Bob_Wallace

            It will obviously depend on the retail rate of electricity.

            In the US with an average of about 12c/kWh I doubt that home storage will be widely used. If people can install solar and take back the additional power they need for a small charge I don’t think storage will pay.

            Remember, it’s not only the batteries. It’s a battery charger, an inverter to get back to grid voltage/frequency, installation, space, maintenance.

            I suspect storage will get very efficient at the utility level. Most strategies seem to be looking at shipping container size units coming out of the factory. Drop them on a trailer, tow to a cheap piece of real estate, stack them high, plug them in. Lithium and liquid metal batteries are going this direction as is Lightsail’s CAES.

        • http://cocreatr.typepad.com CoCreatr

          Yes, economics inform 90% of our decisions. Please help me get what the authors mean by “Battery, levelized cost of $400.00 per kWh”. That means the investment for a 10kWh capacity bank is some $4000, right? Seven years at 10 kWh/day x 2500 cycles (at what % discharge of capacity?) means the battery depreciation would add ~ 16c / kWh storage cost. I find that optimistic.

          My own prior eyeballpark of just the cost of energy, using cost of battery, 1000 cycles at half capacity, and charger/discharger losses came near $4 per kWh used. That is 16 to 30 times cost of utility electricity. Trend: battery falling, utility rising, so they may eventually meet and reverse the game. Until then, I would not break even, an earlier point of entry could be reached if I bought night electricity at 1/3 rate and sold it at full.

          For now, for me, battery makes sense as a silent emergency backup. With some noise and pollution, a small portable inverter generator can do that at way lower investment and running cost of $1 / kWh give and take, including fuel, oil, maintenance and depreciation. To be lightweight, alternator efficiency is near 50%. For stationary generators, up that beyond 80% and use the waste heat for the building, and we have CHP, decentralized and competitive. Because of the reduced primary energy usage, Germany gives CHP a small FIT, like 5c / kWh.

      • Bob_Wallace

        The Budischak et al. paper found that it didn’t make sense to size storage for 100% coverage. They found it cheaper to use a very small amount of NG capacity to cover the “once a year” very high demand period.

        We are building a lot of NG capacity (and its capex is very low). The smart thing is likely to keep those NG turbines in good working order as deep backup.

        And they found that, with today’s technology, it made sense to overbuild wind and solar capacity and curtail some than to build larger amounts of storage. That, of course, will change is something like the Ambri liquid metal battery pans out and gives us very cheap storage.

        Budischak, et al.
        https://docs.google.com/file/d/1NrBZJejkUTRYJv5YE__kBFuecdDL2pDTvKLyBjfCPr_8yR7eCTDhLGm8oEPo/edit

        • RobS

          I completely agree, hence why I said trying to size storage for 100% solar independence was prohibitively expensive. My point is a small amount of storage to buffer minute to minute and hour to hour fluctuation is appropriate, then reserve NG and other fossil fuel capacity for day to day buffering.

  • stellar_gr

    With 40c/Kwh the grid is doomed!

  • karl

    Why is your electricty so expensive? I pay $12 a month and 7.5 cents a KW.in Chicago. Illinois.

    • http://zacharyshahan.com/ Zachary Shahan

      Australia has very expensive electricity for a number of reasons. Long predates solar power growth.

      • Ronald Brakels

        Basically it’s because of the tyranny of distance, high capital and labour costs, general gold plating of transmission systems, stupidity, and the peakiest pair of grids you’ve ever seen.

  • agelbert

    Is it just me or does anybody else think a water tank with a pump and generator is the most reliable “battery” for excess PV? Gravity is always going to be available. The water tank can be underground as well. Battery banks are a fire hazard. Water tanks are a solution to fire hazards and a source of water in a drought.

    • RobS

      If you have a 10,000 Litre water tank and mount it at 6 metres off the ground then you empty that tank through a turbine just above ground level for the 16 hours per day you are not producing solar power then for those 16 hours the system will produce about 4 watts continuously for a total overnight generation of 0.09 Kwh. To produce the 10kwh the average home uses overnight you would either need the 10,000L on a tower 666metres tall, or if you wanted to keep your tower 6 metres tall you could alternately have a 1,111,111 litre tank (293,524 gallons). Bottom line is there is no practical way to use tanks and pumps on the scale of a residential structure to generate any meaningful amount of power.

  • http://www.facebook.com/matthew.t.peffly Matthew Todd Peffly

    Capacity tariffs. Like have max grid connect solar at 10% of peak.

  • Thor Russell

    What is meant by regulation of capacity tariffs? Things I could see happening;
    1.You get charged for the maximum amount you draw (peak load) as well as total power (though a big battery would of course greatly reduce this)
    2. The utility charges an annual grid connection charge that is sufficiently high and includes some “free” power in it. This would then make solar + battery not so economic anymore. This is the most effective and anti-competitive strategy I can think of that they can do, short of legislating against customers having their own battery! Or they also could legislate that the grid is a “strategic resource” and everyone paying tax should pay for its upkeep no matter how much or little they use it.
    They definitely could go into a death spiral otherwise as fewer customers are forced to wear the cost of keeping the grid operational. This would put up the cost, and create an ever increasing incentive to avoid the grid.

  • http://xeeme.com/MrEnergyCzar MrEnergyCzar

    For me, I now put my surplus solar into my Volt and run it 6,000 miles per year on the annual solar surplus. You get much more bang for the buck versus selling the surplus back a the wholesale rate. This is what I see as becoming more popular over storage. Plus, you can power parts of your home with the plug-in car as well, at least with the Volt you can…..

    MrEnergyCzar

    • http://zacharyshahan.com/ Zachary Shahan

      Good note. Yes, as much as solar+storage might beat retail electricity, solar+EV is a good competitor to electricity+gasoline. :D

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