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The Economics of a Home Battery versus Solar Power

About Home Batteries

Residential energy storage systems have become very topical in the last few years due to increased awareness and understanding of battery systems and technology. This is thanks mainly to the Tesla Powerwall (and subsequent versions) which attracted a lot of attention when it launched in Australia a few years ago. There are now dozens of different battery systems available in Australia from a range of manufacturers. The majority use a lithium-based battery chemistry which is the same technology used in batteries for phones, laptops and other personal electronic items as well as electric vehicles.

The basic premise of a home battery, when coupled with a solar power system, is that you can store your excess solar energy generated during the day, and draw on that stored energy overnight, thus maximising the utilisation of your generated solar energy. The other main benefit is the ability to provide energy in the event of a power outage. The economic value of the first benefit can be quantified whilst the economic value of the second benefit depends on how much value you place on energy independence, and the potential impact and frequency of power outages.

Quantifying the Economic Value of a Battery

To quantify the economic value of a battery you need to know four things:

  1. your ‘daylight rate’, that is, the average cost of energy during daylight hours;

  2. your feed in tariff (FiT);

  3. the typical life of a battery; and

  4. the storage capacity of your selected battery.

A metric used to compare batteries is the ‘warrantied storage capacity’, which is the maximum amount of energy that can be stored during the warranty period of a battery (recognizing that this reduces over time).

To use an example which is typical of many batteries in the market, a 10kWh battery is expected to cycle once per day (charge and discharge completely) and has a warranty of 10 years. Thus the warrantied storage capacity is 36,500 kWh. Note that this assumes that you have a large enough solar power system to fully charge the battery each day, and that you have sufficient overnight energy usage to fully discharge the battery each night, and excludes degradation of the battery over time.

You can then calculate the value of this 36,500 kWh of energy stored by comparing your daylight rate, which is the energy rate you would have had to buy energy for, with the FiT rate, the rate you would have sold the energy for. The value of the battery storage is the difference between the two. If your daylight rate is 25 c/kWh and your FiT is 10 c/kWh then the economic value of this storage is $5,475, assuming a 10-year battery life. This assumption may be a bit pessimistic, so assuming a 15-year battery life the value is $8,212. The current cost of a 10 kWh battery is around $10,000, so the resultant payback period is 18 years.

The bottom line is that the maximum value that a battery can provide for each kWh of stored energy is the difference between your daylight rate and your feed-in tariff rate, which is around 15 c/kWh.

Comparing to Solar Power

Now let’s compare this to installing an additional 8 kW of solar, which is around the same as a battery, if installing a good quality components.

Over the same 15 year period we would expect to generate in Tasmania around 168,000 kWh of energy. Even assuming that you would not utilise any of this energy and all would be fed back to the grid at a FiT rate of 10 c/kWh, the economic value of this energy is $16,800. If you were to utilise 50% of this additional energy at an average rate of 20 c/kWh, the value would increase to $25,200, at a payback period of 6 years.

As you can see, installing solar power (or additional solar capacity) provides a much higher economic benefit than simply installing a battery, even if the solar power is completely fed back to the grid. A much cheaper way of increasing the utilisation of your solar energy is to install a timer on your hot water system, forcing the element to run only during daylight hours and thus use your excess solar generation to heat water – essentially turning your cylinder into a large battery. Note you will need to be on a single tariff such as tariff 93 to take advantage of this opportunity.

Of course, if energy security and sustainability are important to you then a home battery is a great way of achieving these goals, however, in a purely economic sense, you’ll get a much better return on your investment by installing solar.

(Be aware that these figures are to be used as a guide only and may not be applicable to your unique situation. Please contact us and we can assist in evaluating your situation).


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