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October 2015

A recent report by the Climate Council grabbed the headlines with the claim that the new type of batteries designed for use with solar panels, such as Telsa’s Powerwall, will revolutionise the way Australian households generate and use electricity. The new batteries are better, cheaper, nicer looking and more reliable than what has been available thus far.

To really understand what is at stake here, one needs to remember that the extraordinary uptake of solar by individual houseowners came as a result of extraordinarily generous feed-in-tariffs that were heavily subsidised by governments. After realising that these subsidies were an enormous drain to the budget, governments decided to scale them back dramatically. At the moment, the low rates of feed-in-tariffs make solar panels on your roof not such a profitable proposition. But, here come the batteries!

Their effect is to replace the incentives that were offered by the high feed-in-tariffs. The point is that roof solar panels produce most electricity when it cannot be used by the household, i.e. during daytime. If there are no batteries, the unused generated electricity has to go to the grid, and households are paid a feed-in-tariff for generating that electricity. Given that these tariffs have been reduced dramatically over the last 5-6 years, and at the moment are lower than the lowest tariff from the grid, the benefit to solar panel owners is minimal. By installing the batteries, the owner will increase the value of the electricity produced by the panels that it is not used in the household, and will bring that value equal to the retail electricity price. Given the current differences between feed-in-tariffs and retail prices, the installation of batteries might increase the value of the electricity generated but not used by up to ten times (e.g. feed-in-tariffs currently range between 5.1 and 12 cents per kWh, and the peak load electricity retail price can be as high as 60 cents per kWh). So, the decision whether to install the batteries should be made based on balancing the cost of batteries (including installation and maintenance) with the benefits obtained from raising the value of the generated electricity that would have otherwise gone to the grid at a very low feed-in-tariff.

The actual calculation that a homeowner should do is not going to be simple, as it will require an hour-by-hour electricity consumption as well as electricity generation information. Next, the difference between generated and consumed electricity will need to be calculated. When this difference is positive, the extra energy will be accumulated in the batteries. When it is negative it will be drawn from the batteries, or from the grid. In all cases the electricity will be valued at the applicable retail electricity price.

The uptake of the new type of batteries will be dependent on this type of calculation for the existing solar panel users, and an even more complicated one for new users as they will also need to factor in the cost of installing the panels themselves. The new batteries combined with solar panels are a very exciting development, but the numbers will have to stack up before we can expect a large and quick uptake!

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