When Electricity Price Hikes Don’t Improve The Economics Of Batteries

batteries and bills

Do rising electricity prices always improve the economics of batteries? No. Read on to discover why. (And don’t stand on your roof without wearing an approved safety harness – especially if you are balancing giant golden scales on your head.)

I’ve already written on how electricity prices are set to rise substantially.

Because Australians will soon have to shell out like an evicted hermit crab when it comes to grid power, both the good and bad mainstream media are declaring that rising power costs make buying batteries more attractive.

Unfortunately for fans of shock boxes this is unlikely to be the case. Counter-intuitive I know. But bear with me.

Most households without rooftop solar can expect an increase of roughly 20% in their electricity bills over the next two to three years while those in NSW may be hit with a 25% hike.  But where previous price rises were due to (often unnecessary) transmission and distribution upgrades, this round of rises will be the result of higher wholesale electricity prices.

Because solar feed-in tariffs are supposed to reflect the wholesale cost of electricity during the day, the coming increases in the cost of electricity per kilowatt-hour should be matched by identical increases in solar feed-in tariffs.  At least, if there is any justice, they should be.  Feed-in tariffs offered by some electricity retailers have already increased with Origin now offering 10 cents1 in all the states they operate and even higher feed-in tariffs are available from some other retailers2.  Our electricity plan comparison tool can be used to compare local feed-in tariffs.

But the thing about higher feed-in tariffs is they reduce the economic benefit of battery storage.  So they are likely to cancel out the benefit to batteries caused by rising electricity prices.

Higher Feed-in Tariffs Means Less Benefit From Batteries

Because solar feed-in tariffs’ effects on battery economics is not immediately obvious, I will go over how they interact, with examples.  (This will be on the test.)

Zero Feed-in Tariff:  First off, imagine a situation where there is no feed-in tariff and grid electricity costs 25c per kWh.  In this case a household could install a battery, charge it with surplus solar, and each kilowatt-hour of stored electricity used would cut their electricity bill by 25 cents.

Working out how much money a battery saves in this situation is straight forward and there are a number of businesses restricted to zero electricity export which prevents them from receiving any feed-in tariff and puts them in this situation.

Feed-in Tariff Equals the Cost of Grid Electricity:  There is only one place in Australia where feed-in tariffs are equal to the cost of electricity per kilowatt-hour and this is the Northern Territory.  Those lucky bastards!

Well, I guess it isn’t quite lucky enough to compensate for the fact that God keeps trying to destroy Darwin, but it’s better than a poke in the eye with a blunt stick, or since this is the Northern Territory, it’s better than poking yourself in the eye with a blunt.

When the feed-in tariff equals the cost of electricity there is no economic benefit to installing a battery.  If a home exports one kilowatt-hour of solar electricity they will save as much on their electricity bill as if they had stored it in a battery and used it in the evening.  In fact, because there are always some losses when using batteries, they will save more on their bills by exporting electricity and not storing it.

If you are you are receiving an old feed-in tariff that is higher than the cost of grid electricity, then battery storage makes absolutely no economic sense.

Feed-in Tariffs Are Less Than the Cost of Grid Electricity:  The very large majority of Australians are in the situation where their feed-in tariffs are less than what they pay per kilowatt-hour for electricity.  Usually much less.

If a household has a six cent feed-in tariff, pays 25 cents a kilowatt-hour for grid electricity, and has a magic battery that is 100% efficient, they can reduce their electricity bill by 6 cents by sending one kilowatt-hour of surplus solar electricity in the grid or they can reduce it by 25 cents by storing the solar electricity for use during the evening.  It may look like their battery is saving them 25 cents per stored kilowatt-hour, but since their electricity bill would be reduced by 6 cents anyway if they didn’t have one, their battery will actually only save them 19 cents.

If their feed-in tariff rises to 10 cents then their battery would only save them 15 cents a kilowatt-hour.

If a household is on a time-of-use tariff and not a standard tariff, which is likely if they have a battery, it may help the battery be more cost-effective, but it won’t change the overall effect of feed-in tariffs.3

Magic 100% Efficient Batteries Are Hard To Find

Leprechaun

Genies and leprechauns are very different because genies are always trying to get out of bottles…

I’m sorry to have to tell you there is no such thing as magic and so magic batteries don’t exist.  I didn’t want to break the news to you like this, but the leprechauns forced me to.

Because there is no such thing as a magically 100% efficient battery it will always be necessary to put more energy in than can be taken out.  I expect most battery systems will have a total round-trip efficiency of about 88%.  With that efficiency and a 10 cent feed-in tariff a household will have to forgo 11.4 cents in feed-in tariff in order for their battery to discharge one kilowatt-hour of electricity.

If Feed-In Tariffs And Grid Prices Rise In Step, Battery Economics Get Slightly Worse

If a household has an 88% efficient Powerwall 24 or other battery system, a 6 cent feed-in tariff, and currently pays 25 cents a kilowatt-hour for grid electricity, then each kilowatt-hour of stored electricity they use will save them 18.2 cents.

If their solar feed-in tariff and what they are charged for grid electricity both rise by 5 cents, then each kilowatt-hour of stored electricity they use will save them 17.5 cents.  Even though both the feed-in tariff and grid electricity price rose by the same amount, the amount of money battery storage saves decreases because the higher feed-in tariff means battery losses now cost more.

Increased Fixed Charges Could Worsen Battery Payoff

Because the wholesale cost of electricity has risen, it may seem reasonable to expect an identical increase in what households are charged per kilowatt-hour.  But this may not be the case because electricity retailers like to raise the fixed costs on electricity bills when prices go up.  They do this because it discourages energy efficiency, discourages rooftop solar, and discourages battery installation5.

If feed-in tariffs rise by the same amount as wholesale electricity prices have, but some of the increase goes into fixed charges and not charges per kilowatt-hour, then that will make the economics of batteries worse.  If wholesale electricity prices and feed-in tariffs go up by 5 cents but the charge per kilowatt-hour for grid electricity only rises by 4 cents because the rest of the increase goes into fixed charges, then the amount of money they save by using one kilowatt-hour of stored electricity will decrease by 1 cent.  And that’s with a magic battery.  With an 88% efficient one the amount saved will decrease by 1.6 cents.

Feed-In Tariffs And Grid Prices May Not Rise In Tandem

While feed-in tariffs are supposed to reflect the wholesale price of electricity, it is possible they won’t be raised high enough to equal the increase in wholesale prices in all states.  It would be a pretty rotten move, but could happen.  For example, during Tasmania’s energy crisis when their wholesale cost of electricity went through the roof, no moves was made to make feed-in tariffs match.  But on the other hand, it is quite possible feed-in tariffs will rise by more than wholesale electricity prices.

In Victoria the minimum feed-in tariff will increase to 11.3 cents on the 1st of July.  This figure doesn’t just reflect the rise in the wholesale cost of electricity, but also includes a small payment for avoided distribution and transmission costs and 2.5 cents to reflect the value of avoiding carbon emissions6.  Other states could follow Victoria’s lead and include more of the benefits of rooftop solar into the feed-in tariffs causing them to rise by more than wholesale electricity prices.

Buy Batteries When They Pay For Themselves

Over the next two to three years as electricity prices and hopefully feed-in tariffs rise, solar batteries should continue to fall in price.  So although the economics of batteries may get worse due to increasing feed-in tariffs and higher fixed charges on bills, this could be more than offset by declines in battery costs.

While I’m certain batteries will be cheaper than they are, I doubt they will fall the long way required for them to be a money saver for a typical household in that time.

In the meantime beware of any slick adverts or daytime TV ‘advertorials’, that are selling batteries based on future electricity price increases.  Do your research on local feed in tariffs, and decide how likely they are to rise in step with wholesale electricity costs. Because handing over thousands of dollars for something that won’t pay for itself now but may pay for itself even less in the future is not a good investment strategy.

Footnotes

  1. Don’t be fooled by Origin’s offer of a 12 cent feed-in tariff.  That only applies for 12 months if you buy a solar system from them.  Not always making this clear is not the most despicable thing Origin has done.
  2. Unfortunately the plan with the highest feed-in tariff may not be the overall cheapest, as plans may give with one hand but take more with the other.
  3. Test Questions:  Q1. Where can Australians get a solar feed-in tariff equal to the cost of grid electricity?  (a) Norfolk Island (b) Nowhere  (c) The Northern Territory  (d) Both b & c.  Q2.  If your feed-in tariff is higher than what you pay for grid electricity, then you are…  (a) …a lucky bastard.  (b) …in the Northern Territory.  (c) …only going to lose from installing batteries.  (d) …extremely attractive to solar gold diggers.  Q3.  Magic batteries are: (a) 100% efficient  (b) non-existent  (c) In the Northern Territory  (d) Both b & c
  4. Tesla says the AC Powerwall 2 has a round trip efficiency of 89%.  I am using 88% because life is full of disapointments.
  5. Or at least it discourages batteries, up to the point where people start leaving the grid.
  6. Even with an extremely optimistic calculation, I put the value of avoided carbon at over 7 cents per kilowatt-hour, but 2.5 cents is still infinitely better than zero cents.
About Ronald Brakels

Many years ago now, Ronald Brakels was born in Toowoomba. He first rose to international prominence when his township took up a collection to send him to Japan, which was the furthest they could manage with the money they raised. He became passionately interested in environmental matters upon his return to Australia when the local Mayor met him at the airport and explained it was far too dangerous for him to return to Toowoomba on account of climate change and mutant attack goats. Ronald then moved to a property in the Adelaide Hills where he now lives with his horse, Tonto 23.

Comments

  1. Steve Charles says

    Irrespective of the economic argument, some households would want batteries with inverter anyway because of the high frequency of power cuts in some areas, particularly during the winter months. Without power, some people here in SA have had to put up with no water, showers or toilets for several days which is not fun. An AC coupled battery under such circumstances is priceless.

    • Ronald Brakels says

      While some people definitely value the backup capability batteries can provide highly, the more economic option will normally be to use a generator. The economics of using batteries plus solar for backup are problematic as batteries may be drained when they are required and blackouts are highly correlated with storms and cloudy weather which means recharging batteries with solar may be difficult.

    • Our house is wired so that we can plug in a portable generator. The cost of the Honda 2.01was from memory about $1,700 [two years ago]. We can run the Fridge and Lights. We have a bottled gas bbq for anything requiring heating like water or food. If you do the maths you will quickly understand that battery backup based on current storage pricing is not a cost effective option.

  2. Ronald,
    I follow the principle, but I’m struggling with the numbers

    “If a household has an 88% efficient battery system, a 6 cent feed-in, and pays 25 cents, then each KWH of stored electricity used will save 18.2 cents.”

    Why 18.2 cents? Isn’t it the case that:

    Saving on 1KWH generated and sold back to the grid (ie not stored) = 6c
    Saving on 1KWH generated and stored with a 100% efficient battery = 25c * 100% = 25c
    Saving on 1KWH generated and stored with a 88% efficient battery = 25c * 88% = 22c
    ie with an 88% efficient battery you’re better off re-using it rather than selling it back, by 22c-6c = 16c

    “If the feed-in and the cost both rise by 5 cents, then each KWH of stored electricity will save 17.5 cents”

    Why 17.5 cents ? Isn’t it the case that:
    Saving on 1KWH generated and sold back to the grid (ie not stored) = 6c + 5c =11c
    Saving on 1KWH generated and stored with a 100% efficient battery = (25c + 5c) * 100% = 30c
    Saving on 1KWH generated and stored with a 88% efficient battery = (25c + 5c) * 88% = 26.4c
    ie with an 88% efficient battery you’re better off re-using it rather than selling it back, by 26.4c – 11c = 15.4c

    • Ronald Brakels says

      I have assumed that the battery will only be charged with rooftop solar. So with a magic 100% efficient battery, a 6 cent feed-in tariff, and grid electricity that costs 25 cents a kilowatt-hour, the household can:

      1) Not use the battery and get 6 cents feed-in tariff for a kilowatt-hour of surplus solar electricity they don’t use themselves during the day.

      2) Store a kilowatt-hour of surplus solar electricity they don’t use during the day for use at night and lose the 6 cent feed-in tariff but save the 25 cent cost of grid electricity. Since they lose out on the 6 cents they would have got without the battery, it really only saves them 19 cents.

      With a battery system that isn’t magical and only 88% efficient, 1.14 kilowatt-hours will need to be put into the battery to get one kilowatt-hour out. This means with the 6 cent feed-in tariff that 6.8 cents worth of feed-in tariff will have to be forgone to use one kilowatt-hour of stored electricity in the evening. So with a realistic battery system, the household would only be saving about 18.2 cents on their electricity bill for each kilowatt-hour of stored electricity they use.

    • We have an Enphase system with a 1.2 kW Storage Battery [to experience performance and collect data] which has an efficiency of 85% approximately so for every 1 kWh we send to storage we get back 850 watt-hours. For every kWh stored the loss of the Feed in is 0.07c plus the loss of efficiency value of 150 watt-hours per kWh 0.01c So if the Import tariff is say 0.27c per kWh then the real value of the storage is 0.19c per kWh [0.27c minus 0.08c].

      There is a problem with the MyEnlighten Monthly Net Energy report in that during out of sunlight hours they are reporting 1 watt-hour is coming from the grid and being sent to battery storage. Whilst this is being reported having done a reconciliation of the values I cannot with any confidence confirm that it is bringing aggregated together with available storage.

  3. Antonius says

    I have had battery back up also running non essentials for 10 years now including 5 kW Net to the grid and compared to my neighbour who pays average $382.00 per quarter my costs average $51.00 per quarter this includes 10c kW in-feed tariff, purchase cost of system over 10 years. Mine is a simple 3.8 kW array into 860 AH gel cells some of which are still going strong after 9 years. If you are going solar a split system like mine is a big money saver but you need to be vigilant how you use it. For example heat hot water only for one hour at midday when sun is highest, run other high energy users in the hours preceding and after the midday water heating such as dishwasher, washing machine and air condition and none at the same time.

  4. Can someone point me in the right direction. Want to no is there a company that makes a combination of generator batteries inverter and the ability to hook in a solar array. With very efficient diesel motors inverters. Something not thrown together from mismatched parts and a thumbs-up attitude no disrespect for localy made intended. I no there are a lot of variables but something that would run a modest house. I no this is more suited to country use and most of the talk is for city folk in these pages. The thought came from an article in a Japanese mag ( 1999 ) that showed solar tiles on the roof in a new estate and it was also hooked up to charge the electric car with the ability to run the house in a power outage from the car.

  5. Just a couple of things if my battery is full where does the excess electricity that I generate go ?
    Secondly a 25% rise in tarif would mean electricty cost would rise to 33 cents so in fact if you could get 10cents for your feed back to the grid ,which has now gone , because of your battery, you would in fact be saving 23 cents a KLWH ?

    • I think you might find that the excess electricity is simply throttled if you are not connected to the grid and if you are then it is probably processed as Feed in.

    • We have an Enphase system with a 1.2 kW Storage Battery [to experience performance and collect data] which has an efficiency of 85% approximately so for every 1 kWh we send to storage we get back 850 watt-hours. For every kWh stored the loss of the Feed in is 0.07c plus the loss of efficiency value of 150 watt-hours per kWh 0.01c So if the Import tariff is say 0.27c per kWh then the real value of the storage is 0.19c per kWh [0.27c minus 0.08c]. Just substitute your tariff values to calculate the resulted based on 0.33c general tariff and .10c feed in.

    • I understand that if your battery is full, the excess electricity will be still going back to grid. If the sunlight changes during the day and your system cannot supply the required demand, the battery will be used first and the system will not export to the grid. So the priority is solar- battery- grid.
      Hope this helps.

  6. I wonder at what usage point and cost structure the current battery tech does pay for itself. I think ithas to get down to about $450 per kWh installed. I’m trying to justify it the same way I justify my PHEV Outlander – not because it makes economic sense but because i enjoy driving it. The Outlander sucks on average probably 50 kWh a week allowing for holidays etc (ToU meter). Without boring you with all the figures I probably save about $19 per week on fuel over a conventional petrol vehicle. However the car cost an additional $11,000 probably to buy so even at a saving of $19pw it would take 11 years to pay back (and by that time I’d are say the battery would need replacing and the savings would decrease as the battery capacity diminishes). I didn’t buy it to save money – I bought it because I like driving it on electric, I love the regen braking and the torque.

    I have 4.6kW of panels and an SMA inverter and I’ve just switched over to net metering (took AGL 5 months to achieve that!). I might have a go at a DIY Powerwall if I can do it cheap enough, but only because I’d enjoy the project and not because it makes any economic sense!

    I have 3 phase air con so I wonder if I can install more panels??? (Hills district Sydney)

    • Ronald Brakels says

      An installed price of around $450 is about right for many households to start making money on batteries, although a lot will depend on location and consumption habits.

      Don’t worry about boring me with details of your PHEV Outlander. I’m quite interested. My next horse will be electric.

      It looks like you may be in the Ausgrid network, but you’d have to check. (It will be on your bill.) You probably are permitted to get just below 5 kilowatts of panels provided you don’t go above 133% of your inverter capacity. But if you want to go above 5 kilowatts of panels or 5 kilowatts of inverter you will need an installer to perform voltage rise calculations for your property and fill in a form and see if Ausgrid will be given approval.

      If you are actually in the Endeavour network area, I imagine the process will be similar.

      • ….or you could set up a whole separate system and run separate circuits off it. eg 300 watts to keep your fridge-freezer running all day (thermostat-ectomy), and arrange your environment so that the appliances stay cold all night.

  7. if if and if…….IF my auntie had testicles would she be my uncle?? Who cares? It’s irrelevant ~ well, except for those whose minds wander off into spheres of abstruse vagueness, horse-owners and those with vested interests.
    In this day of dirt-cheap technology, WHY would anybody with more than three braincells even consider staying connected to the grid?

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