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Batteries Screen-Shot-2013-07-30-at-11.44.44-AM

Published on July 31st, 2013 | by Giles Parkinson

4

Why Battery Storage Should Be A No Brainer — Take Two

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July 31st, 2013 by  

This post originally published on RenewEconomy

Monday’s report on the assessment of battery storage technology costs was met by a volley of reaction – emails, comments and phone calls – particularly from some battery technology developers and their boosters, and some independent experts. Part of the issue was over the cost of the technology, but the really important bit was over its “value”.

This, of course, is the central theme of a changing energy market – one that is transforming from a very simple hub-and-spoke model to a distributed network where the savings gained from avoiding excess capacity (in generation as well as poles and wires) are recognised in the cost of introducing new technologies such as solar PV, and more particularly storage and demand controls.

Some of this was captured in the recent report by the Institute of Sustainable Futures, some of it in the Federal Government’s recent assessment on energy efficiency.

The bottom line, however, is that battery storage and its potential should not be assessed on a simple price assessment to residential or even business users – but as a value proposition to the entire network, and therefore all users. And that’s where the assessment of numbers “not adding up” (yet) quickly morphs into one which its proponents says it is a “no-brainer”.

On the recent trip to California, the question about the value of storage was top of the mind for developers of renewable and battery storage technologies, as well as the network operators. People at the California Public Utilities Commission and the National Renewable Energy Laboratory are looking at this now. Their best guess is that it could be worth $50/MWh – but the real answer is that they just don’t know.

Over the past few months RenewEconomy has also been regaled with numerous stories of how network operators in Queensland, NSW, Victoria and Western Australia have insisted on investing in poles and wires in mostly remote and regional areas where adding storage and other technologies, and/or creating micro-grids, would have done the job at up to half the cost.

We’re going to document some of those in coming weeks. It goes to what Rob Campbell from Vulcan Energy described last week as a disconnect between what the actual operators of the network see as good value, and what the board is preparing to accept based on its pre-conceptions of what constitutes a viable business model.

Richard Turner from Zen Energy Systems, says the networks need to act quickly because if – as he and others predict – the cost of storage comes down anywhere near as quickly as solar PV did, and people begin to install them as quickly, then the utilities will quickly lose control of their grid.

But if, as he says some utilities are considering – most notably the likes of Vector in New Zealand which is trialling residential storage systems as we wrote earlier this year – the utilities find a way to subsidise those investments themselves, then they will be able to keep control of their systems.

It sounds all very dramatic, and appears to be a massive game of brinksmanship, but here’s the logic.

As we know, the biggest addition to network upgrades in recent years has been due to the increased used of air conditioners. Studies have shown this equates to an effective cross-subsidy of more than $330 per electricity customer. The Productivity Commission suggested that each 2kVa air conditioning system requires around $7,000 of added infrastructure investment – made up for $4,000 in distribution (in neighbourhoods), $1,400 in transmission (from the central coal fired power station), and $1,600 in generation costs (gas fired peakers).

So what would happen if the incentives were changed, so that instead of just being there to support a “bigger grid”, they were used to support smarter infrastructure such as storage systems and smart technology such as frequency and voltage controls, load shifting, smoothing etc.

Turner provided these tables below to illustrate his point. The first on the left fits in broadly with the conclusions that we reported on yesterday, although the payback period is slightly quicker (11 years versus 13 years) because Zen reckons their system comes in cheaper than the average cost estimated by IBESA and others.

But then it gets interesting. Because if the utilities – instead of hitting everyone with costs to upgrade the grid – focused that expenditure on subsidising battery storage, then the value proposition changes enormously. At $2,000 per kW/kV, the payback to households for installing battery storage with solar PV is 6.9 years; at $4,000 per kW/kVa, the payback is 2.3 years.

“When all the value streams are realised by all parties then it completely changes the value proposition,” Turner says. “It opens up for the systems to be heavily subsidised in areas of costly grid constraints where it is more cost effective to introduce storage than to augment the grid. Once you get down to 2-3 years it is really in ‘no brainer’ territory.”

And, he concludes, these figures do not reflect the reducing cost of energy storage or the rising cost of electricity and infrastructure.

Here is his table (note some of the assumptions below – and click on graph if it is not completely visible)

Screen-Shot-2013-07-30-at-11.44.44-AM

 (Additional assumptions for table include price of peak power 48c/kWh, solar PV export price of 8c/kWh. It also assumes retail pricing of Zen’s Freedom Powerbank will reduce to $1,250/kWh from current $1,500kWh)

Turner says that it is not just in regional and remote areas where battery storage can be more cost effective than network upgrades. He suggests even in inner city suburbs, the cost of storage is better value than upgrading or augmenting a local feeder. He reckons this is starting to dawn on network operators too, who are becoming increasingly aware of the falling demand patterns. The prospect of stranded infrastructure investment is a very real one, as we wrote last month.

Turner says the principal barriers lie in the regulatory framework. If the value of storage can be included in the regulated asset base that protects the utilities then the economic case “stacks up”. And, as he suggests, it would be in the interests of the utilities to be in control of this process.

It was interesting to note one senior executive of a leading energy retailer at Clean Energy Week passing off studies into the disconnect between utilities and customers, saying that its investigations found that many customers found electricity to be “boring”.

Maybe they do. But the world record “churn rates” (where customers dump one utility in favour of a better deal elsewhere) in Australia (of 25 per cent or more), and the massive take up of solar panels suggests that they may find electricity boring, but they are prepared to act on a good deal when they see one.

Some think the act of voting is boring, but they value democracy. And that is what we are seeing in today’s energy systems, thanks to solar PV and battery storage – the democratisation of energy. Oligarchs don’t like it one bit.

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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.



  • Bob_Wallace

    AC use continues after the Sun drops out. The extra infrastructure might not be needed as much during midday, but late afternoon it is required.

    Storing enough juice to run ACs will not be cheap.

  • Doug

    In addition, it would be nice to see the total cost comparison to include the estimate for adding PV alone, which generates at peak hours when A/C loads are highest. The utilities are claiming that PV owners getting FIT don’t pay their fair share of the infrastructure costs, but PV allows for some cost avoidance. How much I don’t know.

  • Betty Jo Hvistendahl

    If we consumers could get a pay back on the storage, some of us could cover the up front costs as an investment. There is no need to offer free – just offer a deal too good to resist!

  • Matt

    If the statement “each 2kVa air conditioning system requires around $7,000 of added infrastructure investment – made up for $4,000 in distribution (in neighbourhoods), $1,400 in transmission (from the central coal fired power station), and $1,600 in generation costs (gas fired peakers).”

    And there was someone to worry about the real system costs. It would be better to give away free a $5k battery system that had demand response built in. To anyone who buys/has a AC. And the grid upgrade cost are cut by $2k per AC. And as the price drops the saving grows. But the risk to the utilities is that once you are very far down this road, the exist peaking plants are no longer needed.

    Ok, if you give them free, you have a lottery based on getting them into the area that are most helpful to avoid the distribution/transmission cost. Sounds like a good use of the carbon tax funds. Yes, maybe if you get one you have to agree to stay on the grid.

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