Economics of Domestic/Small Commercial Systems

Introduction

The cost of battery storage has come down significantly in recent months. The lifetime cost of small scale battery storage is now around 13p per kWh. This is the cost ‘per cycle’ of charging and discharging 1 kWh (excluding the cost of the electricity used to charge the battery).

In the residential arena, battery storage is starting to make sense in two applications:

1. Battery storage for solar - storing electricity produced by solar and other renewables on site, rather than exporting it to the grid for no additional income.

   The amount paid to owners of residential solar systems in respect of electricity exported to the grid is a fixed or variable rate set by the electricity supplier. The rate is in the region of 15p per kWh. Given that the price of electricity is 23.72p per kWh, it makes sense to use as much solar generation on site as possible. 

   With domestic electricity market prices hovering around 23.72p per kWh, then, after taking into account efficiency losses (~11% round-trip), each stored solar kWh is worth around 13.35p. The ‘profit’ once the cost of storage is taken into account is about 3p per kWh.
   
   Put another way, storing 1 kWh of on-site solar generation every day for 300 days of the year is worth about £40. At the moment the cost per kWh of storage (all-in installed cost) is about £520, and so the payback time for a system is around 13 years.
   
   This doesn’t take into account the fact that the cost of electricity is expected to rise. With an expected cost per kWh of 20p plus over the next 10 years, storing 1 kWh every day for 300 days of the year will on average be worth about £60, thus reducing the payback time to under 9 years.

   Note that the battery must be tightly sized to ensure that it is utilized as fully as possible. We have systems to calculate the optimal sizing of the system.

2. Time of use optimisation – buy cheap, use peak! With the advent of smart metering, time of use tariffs are coming into their own. The traditional Economy 7 tariff has now been extended to full time-of-day tariff differentiation (requiring a smart meter).

   As batteries start to become more commonplace, it is anticipated that not only will there be time-of-day import tariffs, but there will also be time-of-day export tariffs, with those in a position to export during the winter peak times (4-7pm) having the potential to earn comparatively high tariffs from export.

   The time-of-day import tariff from Bulb profiles as follows (in summer time):

See Bulb's smart tariff for local rates.

For a consumer on a flat 15p per kWh tariff, there is an opportunity to save around 10p per kWh (compared to their current tariff) by ‘buying cheap’ at night and ‘using peak’ in the day. After efficiency losses, the true saving will be 8.9p per kWh.

Each kWh of battery will allow a saving of around £33 per annum.

If the system is sized correctly and used with a solar system as well, then further savings are available from on-site usage of the solar electricity, albeit these savings should now be valued at the ‘off-peak’ purchase price of 5p per kWh.

Overall the savings again work out at about £40 per kWh of storage per annum, and the payback time is again around 13 years on a 20 year investment.

Again that’s before the anticipated rise in electricity prices is factored in as we all start to drive electric cars… or any future peak time export revenue earning opportunities are factored in.

Lifetime cost of battery storage: from 13p per kWh

With daily cycling, lithium ion and aqueous hybrid (salt water) batteries should last around 10-20 years.

For lead acid batteries, the expected life is more like 5 to 6 years, although the system life can be assumed to be 10 to 12 years, if the economic model allows for one replacement of the battery.

The table below sets out typical lifetime costs of electricity for different system sizes and different types of battery. Overall the real cost per kWh of energy discharged by a battery storage system is approximately 15p to 30p per kWh for most systems, with lithium-ion coming out strongly on top due to its long life.

Forecast average electricity price over 20 years: 28p to 56p?

In real terms, the cost of electricity has risen significantly in recent years:

Source: BEIS.

• If electricity prices keep rising at this rate, then in 20 years’ time, the real cost of electricity will be 42p per kWh. The average cost over the next 20 years will be 28p per kWh.
• If electricity prices rise by 7.5% per annum in real terms, the average cost over the next 20 years will be 38p per kWh.
• If electricity prices rise by 10% per annum in real terms, the average cost over the next 20 years will be 56p per kWh.

So with electricity price inflation at 7% to 10% per annum, systems achieving a stored energy cost of around 10p to 25p are starting to look like a reasonable investment, particularly when the other potential benefits of on site storage are taken into account.

And as the cost of storage comes down, the economic case will strengthen.

System design should target a stored electricity cost of around 22p/kWh or below.

For more information download, call us on 0118 951 4490 or download our free guide to residential storage: