Does a battery make financial sense in 2022?
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As you may have seen in the news recently, power bills are expected to rise in most Australian states. However, if you own a rooftop solar system, there’s no need to panic - you’re already far more sheltered from rising electricity prices than your solar-less neighbours! You have made a wise investment and the recent electricity price increase will give you an even better return on investment.
But with all the doom and gloom around rising prices, you might now be wondering if it’s the right time to grab a battery to further reduce your electricity bills; especially given that the solar battery combo is getting quite popular these days. Well, you've come to the right place to find answers! Recently we did some analysis on the economics of battery systems, using a year's worth of energy data from 2,079 solar households. Here are the interesting things we found:
- Without any subsidies or smart control (including VPPs), 99% of the analysed households would not save enough money to even cover their battery cost before the warranty expires (yes, 99% - you read that right).
- Batteries only start to make financial sense for the majority of customers when the prices (including installation costs) drop to $500/kWh. Of course, there are other reasons to want to get a battery (e.g. increased grid independence, reducing GHG emissions, blackout protection etc.)
- Solar Analytics' smart battery operation algorithms can significantly increase savings by hundreds of dollars per year, making batteries more financially viable. These smart algorithms work by picking the best times to charge and discharge your battery (i.e., charge when energy is cheap and discharge when it is most expensive). We’ll talk more about this later on.
Below, we will go through our findings in more detail and illustrate different battery use cases to help you make the right decision about getting a battery.
Battery savings analysis
Here are the steps we took in our battery economics analysis. For each of the 2,079 solar households, we looked at:
- We first simulated how a battery would operate by default on a household (an example is shown below in Figure 1). Default behaviour is to charge when there is excess solar available, and discharge when there is excess load (i.e. consumption).
- We calculated the savings it would generate (by reducing the amount of energy imported from the grid).
- Then we conducted a cash flow analysis to determine whether getting a battery makes financial sense, considering factors such as battery price, calculated savings, battery degradation over time etc.
If you want to know more about the technical details of our simulation and financial analysis, please have a read of the below section - 'Analysis in detail'. If you just want to see the results, feel free to skip this section.
Analysis in detail
Even though this is a simulation, we wanted to be as realistic as possible for each solar household included in our analysis. We did this by using:
● One year of 5-minute PV & load energy data, collected by us between 2021-06-01 and 2022-05-31.
● Energy plans entered by our customers.
● Every possible battery size between 1 and 20 kWh. We understand each household may have its own suitable battery size, so we wanted to assess each scenario.
● The installed battery price per kWh, published in May 2022 by Solar Choice.
In the meantime, as there are many manufacturers out there with various battery specifications, we have made the following assumptions by taking the average of what's out there in the market:
● Battery lifetime of ten years, or 4000 cycles, whichever occurs sooner.
● Max battery charging/discharging power is assumed to be 0.5 times the battery capacity. For example, a 10 kWh battery is assumed to have a maximum charging/discharging power of 5 kW.
● Round-trip efficiency of 0.95. Generally speaking, the amount of energy you put into a battery is not equal to the amount you could retrieve later on. This term means if you put 10 kWh of excess solar generation into the battery, 9.5 kWh can be retrieved later on for your load consumption.
● We assumed a battery would be at 60% of its original capacity at the end of its life. The battery degradation is assumed to cause the battery savings to reduce by 5% each year. This is to simplify our analysis so that we don’t have to simulate ten years of battery operations, taking account of the impacts of battery capacity degradation.
The discount rate is assumed to be 6%, meaning that if you make $100 of savings in the second year, it is only worth $94 in the present day.
So, does a battery make sense?
If you only care about financial return, the answer is pretty straightforward for a solar owner: getting an unsubsidised battery doesn't currently make financial sense. Even when on the cheapest available energy plan, 99% of our analysed households are getting a negative net present value - this means the total savings they make throughout the ten years will not make up for the cost of a battery.
However, often money is not the only thing people care about. From the Ausgrid solar battery survey and Queensland Household Energy Survey, here are the top reasons people want to get batteries:
● Store excess solar
● Save money on electricity bills
● Reduce carbon emissions
● Blackout protection
● Good investment
● Keep up with the technology
If you also have other reasons to get a battery like the households in the surveys, it makes sense to pay a bit extra. But how much are you paying for the extra features? We'll discuss this next.
What's the “right” price point?
So where is the price point when batteries become economically viable? When we changed the battery installed price to $500/kWh, about 50% of the households returned positive net present values.
That’s still a stretch from the > $1000/kWh you’ll be paying for most batteries these days, but things could be different if you're eligible for rebates in NSW, VIC, SA or ACT. If these battery rebates reduce your battery price to be under $500/kWh, a battery could become a viable financial investment for you.
If you do have other, non-financial reasons to get a battery, the math to work out the price you pay for the non-financial features is pretty simple: $1000/kWh (the minimum price you pay for an installed battery at the moment) - $500/kWh = $500/kWh. For example, let’s assume you are considering a 10 kWh battery. The minimum upfront price you need to pay to get it installed at the moment is $10,000, so $5,000 would be spent for “non-financial reasons”. If the $5,000 is split over the course of the battery lifetime (typically ten years), you'd be asking yourself questions like “is it worthwhile to spend a bit over $500 a year to have the blackout protection I desire, or to increase my self-consumption, or to feel good about reducing my carbon emissions?”
What is the “optimal” battery size for me?
Earlier, we learned that batteries start to make financial sense for the majority of customers when the prices (including installation costs) drop to $500/kWh. But we didn’t talk about what size battery you should get at this price point. During our analyses, we tested various battery sizes and costs to find the optimal battery size for each of the 2,079 solar households in our analysis, and the results are shown below.
For most houses, even at $500/kWh, a small battery is the most optimum choice (if you only care about financial return). Above this price point, the optimal battery size is zero - in other words, it would be a better financial option to not install a battery at all. Finally, it should come as no surprise that as the price per kWh of a battery decreases (which will hopefully be the case in the future), larger batteries become more optimum in terms of financial return.
Of course, if you care about things other than financial return then a larger battery would definitely help.
Smart battery charging with forecasts
So far, we have assumed our battery follows the default battery control strategy, which is to maximise self-consumption. To put it simply: it charges when you have excess solar; it discharges when you have a load higher than PV.
But what happens if we were to model a smart battery control strategy on a time-of-use tariff? It is possible if you have a good idea of your generation and consumption levels for the next 12-24 hours and - of course - your inverter/battery needs to have the functionality of scheduling when to charge and discharge.
The below graph - using the same PV & load data as the graph above - shows what's possible with smart battery control on a time-of-use tariff.
If the battery operates under the default control strategy, the household would need to import quite a bit of energy during shoulder periods (7am – 2pm, 8 – 10pm) and it would run out of energy at around 7pm - before the peak period (2 – 8pm) ends.
However, if we knew this was going to happen, we could fully charge the battery using the cheap off-peak rate from 5 – 7am. By pre-charging the battery, we have reduced the household’s imports in shoulder period and peak period to 8.03vkWh and 2.04 kWh respectively, from 14.56 kWh and 3.21 kWh shoulder and peak imports using the default battery controls. Now, let’s assume the peak, off-peak and shoulder rates are respectively $0.50/kWh, $0.10/kWh, and $0.20/kWh. On this day, we would be getting an additional saving of (14.56 - 8.03) * (0.2 – 0.1) + (3.21 – 2.04) * (0.5 – 0.1) = $1.121, on top of the default battery control.
After testing the whole year of data of this particular household, we found smart charging could generate an additional saving of $437, assuming we have perfect forecasts for consumption and generation over the next 24 hours. When we tested the smart charging algorithm on a larger sample of households, the results were pretty promising: on average they could generate $512 of savings per year!
The big caveat here is that “perfect forecasts” of a household’s future consumption and generation are practically impossible to generate. So, here at Solar Analytics, we’re currently working on new algorithms to produce forecasts as close to perfect as possible, so these incredible “smart battery charging” savings can be fully realised.
Learn more about the other ways Solar Analytics can help you save with your solar.