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Update on Battery Pricing

I had a few questions about how the numbers from Reneweconomy earlier this week showing that batteries+solar are at grid parity in Adelaide stack up against our analysis.  The short answer is that salesmanship is all about framing. The numbers are similar, with high electricity prices, relatively good solar resources in Adelaide and some sales “sleight of hand” making solar + battery look attractive. I don’t think solar + batteries are at grid parity yet, but its getting very close in Adelaide.

The longer answer is that it depends on what you are trying to measure, especially if you want to sell a $16k battery + solar solution rather than a $5k solar only.

Here are the Reneweconomy numbers:

 

 

Tesla Powerwall 2 plus 5 kV PV plus grid versus grid-only in Adelaide in November 2016
Source:Reneweconomy

Here are my numbers for utility-scale from our primer:

Levelised cost of energy table

Here are my numbers for residential:

Retail Energy Costs

Noting that my numbers in the primer are all in USD, Reneweconomy figures are in AUD. I will need to increase my band for the Australian power prices, the rest of the numbers I’m still comfortable with.

There are three different cases that our hypothetical Adelaide customer should consider (all figures in AUD/kWh):

  1. Should a retail consumer buy solar to substitute for their own daytime power usage? Under this scenario, we care about how many kilowatts the system will produce vs its cost. The cost is around 10-15c for the solar (which is largely fixed) vs 42-46c to buy (which many people expect to increase over time). Verdict: No brainer – do it.
  2. Should a retail consumer buy additional solar for the purpose of selling electricity to the grid? Under this scenario, we care about the solar cost again, but instead of the retail price, now we are comparing it to the feed in price. Solar = 10-15c (which is largely fixed) vs 16c feed in (which could go up or down over time). Verdict: Risky – you are paying up front and hoping the feed-in will increase and your panels don’t have any issues over time.
  3. Should a retail consumer buy additional solar and a battery to offset their own night time use? Under this scenario, we care about the solar cost, plus the battery cost compared to the retail cost. Solar: 8-13c (it is lower because I’m assuming you have already chosen option 1 which “covers” your installation costs) + batteries: 35-50c = 43-63c (which is fixed for the life of the panels) vs 42-46c feed in (which could go up or down over time). Verdict:  Not yet worth it unless you think the battery will last a really long time or electricity prices will go much higher.

 

However, if your goal was to sell a $16k battery + solar solution rather than a $5.5k solar only install (and convince people to help stop global warming as an admittedly extremely useful side effect), then you would combine the breakeven/loss from scenario 3 with the gain from scenario 1 and the aggregate of both these options make the numbers look good right now.

 

Two more things that are also worth considering:

  1. Should a retail consumer buy additional solar and a battery to go completely off-grid. Under this we care about how much more capacity you will need, compared to the fixed connection charges. Verdict: Not yet worth it unless you live in a remote area and have a high connection charge that can be avoided. If electricity retailers push the fixed cost higher then this becomes more of an option and probably turns into the death spiral we have spoken about – i.e. fewer customers means electricity companies put up their prices which mean more people leave and electricity companies put up their prices and so on.
  2. Should a retail consumer buy additional solar and a battery, group together with other consumers and sell back to the grid as a “peaking supply”. This is not really widely possible at the moment, but there are lots of corporations working on it. The questions is whether arrays can be set up (say in 1,000 homes) where the power can be controlled centrally and sold back to the grid in times of shortages. Under this scenario we don’t care about the retail feed-in price, we care about the wholesale peaking price, which can be $1-2 per kWh (intermittently) vs 0.16c. Verdict: Worth it from a monetary perspective, technical capabilities are still being developed for wide-scale usage. Hard to tell how much of the benefit will flow to the consumer vs the company running the software.

 

And one final point I almost don’t want to make in case it dissuades people from buying solar + batteries. Solar + batteries are for me an “upper bound” on electricity prices. In sunny places, the AUD cost is currently around 45-50c and falling.

The assumption in most of the pricing models is that electricity prices will continue to rise. I don’t think that is likely over 10-20 years, I think they will be capped by solar + battery and so we have only 5-10 years of electricity price increases (probably fewer in Adelaide where prices are already high) before electricity prices are likely to fall.

 

 

Damien Klassen is Head of Investments at Nucleus Wealth.

The information on this blog contains general information and does not take into account your personal objectives, financial situation or needs. Past performance is not an indication of future performance. Damien Klassen is an authorised representative of Nucleus Wealth Management, a Corporate Authorised Representative of Integrity Private Wealth Pty Ltd, AFSL 436298.

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