Batteries are good news, but are they suitable for you?

Batteries + Solar PV = $?
Batteries + Solar PV = $?
NSW Farmers

If you reside in NSW, it doesn’t take much number-crunching to realise that if you have a connection to the grid, disconnecting from it and using batteries to make up for the infrastructure is a pretty poor financial decision. What’s more, as noted by Tristan Edis from the late Climate Spectator, it could be ‘a waste of perfectly good solar panels’.

So no, this isn’t about going off grid. But there are reasons why Elon Musk, founder and CEO of Tesla Motors and prolific engineering and business whiz, set his sights on Australia as one of the first markets in which to launch Tesla Energy’s battery (the PowerWall). And among these reasons is that, due to the particularly high cost of electricity in some regions of Australia, the numbers may just add up – for some.

Because what isn’t as silly is charging up a battery with solar power and draining it only to meet your most expensive power needs (i.e. peak-time electricity). Let’s look at this in more detail.

On 10 December 2015, in what seems like a coordinated effort, several solar installers and providers, including Origin Energy and NaturalSolar, launched their offer for the Tesla Energy PowerWall in Australia.

Given the humongous excitement that has been brewing since the announcement of this technology, I thought it would be a good idea to get my head around exactly what the value of these batteries is, so as to better help farmers and small business owners who might be thinking of installing them.

I found, however, that it wasn’t easy to work out the financial case for installing a solar battery system. Back-of-the-envelope calculations wouldn’t suffice for a system that derives best value when used flexibly in combination with solar PV, to remove demand for grid power that occurs at peak-pricing times of the day (and not on weekends!). 

So I developed a calculator to do the crunch work and analysis for us.

As a bonus, the calculator is now available online and I encourage anyone to use it before taking the dive and plopping down around $10k for a new battery (be it a Tesla PowerWall or its competitors). 

Currently, the calculator caters only for customers in NSW on ‘franchise tariffs’. Down the track, however, I’ll be updating it with more retailers, tariff structures and solar data from cities around Australia.

Click here to go to the calculator now!

The analysis

From the get-go, we know that batteries will hold the greatest value to those customers who:

  1. are on Time-of-Use (ToU) tariffs with very high peak-time pricing. This is the case for customers in the AusGrid distribution area, as standard peak-time rates for AusGrid customers are usually around 50c/kWh (before discounts).
    Figure 1: Network distribution area maps
    Figure 1: Network distribution area maps
     and
  2. use significant portions of electricity during peak-time hours (AusGrid’s peak window is from 2pm to 8pm on work days).

This narrows down our target to dwellings in the metro regions of Sydney, the Northern Beaches or the far north-west of Sydney, towards the Upper Hunter area. 

The typical dwelling/household in these areas is relatively unoccupied until 2pm and then experiences a significant surge in power use. This may describe a large family home with multiple children, where household members come home after school or work and begin using computers, lights, air conditioning and electric cooking appliances (oven, stove, toaster, microwave oven, kettle and so on). 

So let’s go with that.

Our hypothetical household uses 25 kWh of power on a typical ‘work’ day and 25 kWh of power on a weekend day. On work days, the household’s electricity consumption profile has a small peak in the morning and a much larger peak in the evening. On weekends, the household uses air-conditioning and has a steadier, less-peak-prone consumption profile.

Figure 2: Baseline profile of hypothetical household’s daily consumption of electricity from the grid on a typical ‘work’ and ‘weekend’ day.
Figure 2: Baseline profile of hypothetical household’s daily consumption of electricity from the grid on a typical ‘work’ and ‘weekend’ day.
NSW Farmers

At the moment, the household’s price for power is as set by Origin Energy for the ‘Supply – Domestic Time of Use’ (TOU Powersmart) tariff and they enjoy a 15% discount (on consumption rates) if they pay their bills on time.

Table 1: Electricity rates for an Ausgrid customer with Origin Energy’s ‘Supply – Domestic Time of Use’ (TOU Powersmart) tariff and a 15% discount on consumption charges.
Type $/kWh $AUD/kWh with discount
Off peak $0.11 $0.10
Shoulder $0.20 $0.17
Peak $0.51 $0.43
 
Supply charge ($/day) $0.91

 

With their current consumption profile (as shown in the table below), this household is coughing up more than $2,500 a year to cover their electricity bill. This is a blended average cost of about 28 cents per kWh.

Table 2: Baseline weekly/yearly consumption of electricity from the grid and costs with no solar PV and no battery.
Daily consumption profile Work day (kWh/day) Weekend day (kWh/day)
Off peak 5.30 5.98
Shoulder 8.37 19.02
Peak 11.33 0.00
 
Weekly consumption profile Consumption (kWh/week) Consumption (%)
Off peak 38.47 22%
Shoulder 79.90 46%
Peak 56.63 32%
Total (kWh/week) 175.00 100%
 
Current costs Cost per week ($AUD) Cost per year ($AUD)
Off peak $3.74 $195.06
Shoulder $13.76 $717.57
Peak $24.36 $1,270.22
Supply charge $6.36 $331.56
Total $48.22 $2,514.40

 

We’ll assume that this household will add a new PV system and a new battery by jumping on the rumoured offer by NaturalSolar of a 4kW PV system and a 7kWh Tesla Battery for around $13,600.

Let’s look at this by adding each technology (PV and battery) individually.

Add solar PV

As shown in the figure below, the addition of a 4kW solar PV system  removes pretty much all grid consumption during daylight hours from around 8 am to 4 pm.

Figure 3: Profile of daily consumption of electricity from the grid on a typical ‘work’ and ‘weekend’ day after installation of a 4 kW solar PV system.
Figure 3: Profile of daily consumption of electricity from the grid on a typical ‘work’ and ‘weekend’ day after installation of a 4 kW solar PV system.
NSW Farmers

The PV system is likely oversized, however, as a large portion (~46% per week or about 45 kWh) of the system’s renewable generation is exported for a measly six cent reward. Nonetheless, the yearly electricity bill cost to the household is reduced to about $1,740 so the PV system on its own is enabling savings of $776 in a year! You can see these calculations in the table below.

Table 3: Weekly/yearly consumption of electricity from the grid and costs for household after installation of a 4 kW solar PV system
Daily consumption profile after PV Work day (kWh/day) Weekend day (kWh/day)
Off peak 5.12 5.80
Shoulder 4.77 8.63
Peak 8.82 0.00
 
PV consumption (kWh/day) 6.29 10.57
PV exports (kWh/day) 7.67 3.38
 
Weekly consumption profile after PV Consumption (kWh/week) Consumption (%)
Off peak 37.18 30%
Shoulder 41.12 34%
Peak 44.11 36%
Total consumption (kWh/week) 122.41 100%
 
PV exports (kWh/week) 45.11
 
Costs after PV Per week ($AUD) Per year ($AUD)
Off peak $3.62 $188.51
Shoulder $7.08 $369.30
Peak $18.98 $989.51
Supply charge $6.36 $331.56
PV exports -$2.71 -$141.13
Total $33.33 $1,737.74

 

For an expected cost of just over $4k, this is likely a great investment on its own, with a net present value (NPV) of $2,471.64 over 10 years and an internal rate of return (IRR) of almost 16%.

Table 4: Yearly savings and financial case analysis after installation of a 4 kW solar PV system (PV only)
Savings ($ per year) $776.66
Capital cost required $4,043.06
Annual electricity cost escalation (%) 2.00%
Discount rate 5.0%
Number of years 10
NPV $2,471.64
IRR 15.8%
Simple payback (years) 5.00
Amortised cost of power ($/kWh) $0.25

Add a battery

OK, so the PV system was a good idea, but the system is exporting 46% of its generated power (45 kWh per week) for a measly reward of about $140 per year. How does it look (financially) to reclaim that power by installing a battery and using it to meet consumption at times when there is no sunshine?

Well, once we add a Tesla PowerWall, grid consumption takes another big hit, mostly during peak times – albeit that single PowerWall battery unit does not have enough capacity to eliminate peak-time consumption on work days completely (as shown in the figure below).

Figure 4: Profile of daily consumption of electricity from the grid on a typical ‘work’ and ‘weekend’ day after installation of a system comprising 4 kW of solar PV and Tesla’s 7 kWh battery.
Figure 4: Profile of daily consumption of electricity from the grid on a typical ‘work’ and ‘weekend’ day after installation of a system comprising 4 kW of solar PV and Tesla’s 7 kWh battery.
NSW Farmers

The amount of PV exported to the grid is also reduced significantly to about 1 kWh per work day and no export on weekends. This means that only about 5% of the power generated by the PV system is exported. Other details can be observed in the figure below.

Table 5: Weekly/yearly consumption of electricity from the grid and from the battery, and costs for household after installation of a system comprising 4 kW of solar PV and Tesla’s 7 kWh battery
  Work days (kWh/day) Weekend days (kWh/day)
Consumption met by battery (kWh/day) 6.16 3.38
Total cycles per day 0.96 0.53
Consumption met by battery (kWh/week) 37.54
Total cycles per year 305.86
 
Daily consumption profile after PV + battery Work day (kWh/day) Weekend day (kWh/day)
Off peak 5.12 5.80
Shoulder 4.77 5.25
Peak 2.67 0.00
 
PV consumption (kWh/day) 12.94 13.96
PV exports (kWh/day) 1.01 0.00
 
Weekly consumption profile after PV Consumption (kWh/week) Consumption (%)
Off peak 37.18 44%
Shoulder 34.36 40%
Peak 13.34 16%
Total consumption (kWh/week) 84.87 100%
 
PV exports (kWh/week) 5.07
 
Costs after PV + battery Per week ($AUD) Per year ($AUD)
Off peak $3.62 $188.51
Shoulder $5.92 $308.55
Peak $5.74 $299.15
Supply charge $6.36 $331.56
PV exports -$0.30 -$15.88
Total $21.32 $1,111.88

 

The new yearly electricity bill for this forward-looking futuristic abode is around $1,100 which means a whopping $1,400 in savings from the original $2,500 bill.

But unfortunately (prepare your sighs), the capital cost of this peak-avoiding panacea is hefty, at around $13,643. This means that the financial case for this PV-and-battery system looks less rosy than you might expect.

Table 6: Yearly savings and financial case analysis after installation of a system comprising 4 kW of solar PV and Tesla’s 7 kWh battery (PV + battery)
Savings ($ per year) $1,402.52
Capital cost required $13,643.06
Annual electricity cost escalation (%) 2.00%
Discount rate 5.0%
Number of years 10
NPV -$1,878.59
IRR 2.1%
Simple payback (years) 9.00
Amortised cost of power ($/kWh) $0.28
Battery cycle life 591 cycles remaining for battery.

 

The IRR of the project would remain below our discount rate, which means that the net present value of the project is negative (so it is assumed that you would be better off placing your money in another investment, one that generates at least 5%). 

Nonetheless, the project will still pay itself back in the ninth year – just before the warranty on the battery expires – and has financials that may still be appealing to early adopters.

Battery only?

What if this dwelling already had a PV system that was fully paid for or considered a sunk cost? In this case, the household would only have to install a new battery (and possibly a new inverter) and they could use their existing PV system to reclaim some of the 45 kWh of solar-generated power they’re currently gifting to the retailer at the paltry rate of six cents per kilowatt hour. This would save about $4,000 on the initial outlay, since no PV system would have to be purchased or installed.

We would assume that with PV, the household would initially portray the consumption profile showcased in figure 3 and would be paying around $1,737 in yearly electricity bills prior to installing a battery.

However, adding a battery to their set-up would change this household’s consumption profile to that shown in figure 4, and would bring its yearly costs down to $1,100. This amounts to yearly savings of about $640. Sounds good... but the cost of installing the battery alone will still be somewhere around $9,600. So, in fact, this is a far worse financial decision than installing a battery in combination with a PV system or going with PV alone.

Table 7: Yearly savings and financial case analysis after installation of Tesla’s 7 kWh battery for hypothetical household that already has a 4 kW solar PV system (new battery only)
Savings ($ per year) $625.86
Capital cost required $9,600.00
Annual electricity cost escalation (%) 2.00%
Discount rate 5.0%
Number of years 10
NPV -$4,350.23
IRR -5.6%
Simple payback (years) Does not pay back within the selected term (10 years)
Amortised cost of power ($/kWh) $0.24
Battery cycle life 591 cycles remaining for battery.

PV is best but this is the start of the battery market

It seems the smartest move is still to just install a solar PV system and forget about batteries for the moment. However, do ensure that the install comes with an inverter that is compatible with your future choice of battery, and perhaps think about oversizing your overall system. This may future-proof your investment so that you may make use of excess PV down the line.

Note that the parameters used in our calculations could change drastically in the near and longer-term future. I assumed an escalation of power prices of 2% per year, but if the ‘death spiral’ truly takes hold of our grid, electricity prices could soar beyond this.

Additionally, as showcased by the meta-analysis conducted by the University of Melbourne last year, the cost of batteries for solar-generated power storage is expected to keep dropping (see figure below). We have also yet to explore the pricing and tariff structures in other states.

Figure 5: Cost predictions for full automotive Li-ion packs
Figure 5: Cost predictions for full automotive Li-ion packs
Analysis: V. Muenzel, University of Melbourne/IBM Research – Australia. from: https://theconversation.com/affordable-batteries-for-green-energy-are-cl...

Finally, it’s worth remarking that this is a new industry, and we should learn from the trends that we observed in the development of the mature solar PV industry.

You may recall a time when solar PV panels were 10 dollars per Watt – then, a 4kW system would have set you back more than $40,000! Yet, even in those days, systems were being bought and installed.

Solar PV was adopted early by some ‘cool, hip’, environmentally-conscious entrepreneurs to whom money, presumably, was of little consequence. Others – such as people living and working in remote areas with no grid supply – forked out for solar PV even when it was pricey because their particular circumstances made sourcing electricity from sources other than solar PV even more expensive. Still others, perhaps, just didn’t care to run through the numbers.

What’s important is that those early adopters of solar PV helped to get the ball rolling, and I expect we’ll see a similar trend with batteries.

If you would like tailored energy-efficiency, batteries and/or solar analysis for your specific farm business or household, remember that NSW Farmers is offering these services. If you’re interested in finding out whether solar PV and/or batteries would make financial sense for you, get in touch with us.

NSW Farmers' Energy Information Service

You may also click below to watch a webinar presentation covering the themes and topics addressed in this article, as well as a guide on how to use the NSW Farmers calculator:

 

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