Economics of Domestic/Small Commercial Systems

Introduction

The cost of battery storage has fallen dramatically over the past decade. Global lithium-ion pack prices have dropped around 93% over the past ten years, and installed costs in the UK continue to fall. A 13kWh+ system now costs below £650 per kWh of usable storage installed, with smaller systems costing more per kWh. Battery storage now makes clear financial sense in two applications:

Battery storage for solar: storing electricity produced by solar panels for use later in the day, rather than exporting it to the grid at a lower rate than you pay to import.

Time-of-use tariff optimisation: charging the battery overnight at a cheap off-peak rate and using that electricity during the more expensive peak periods, even without solar.

Battery Storage for Solar

Without a battery, most households use around 30–50% of the solar electricity they generate, the rest is exported to the grid. With a well-sized battery, self-consumption typically rises to 60–80% of annual solar generation. Scribd

The financial case is straightforward. Electricity exported to the grid earns around 15p per kWh under the Smart Export Guarantee. Electricity imported from the grid costs 22.36p per kWh. Every unit of solar electricity stored and self-consumed is therefore worth 22.36p rather than 15p, a significant difference that compounds over the lifetime of the system.

After accounting for round-trip efficiency losses of approximately 5–10% (depending on the system), each stored solar kWh is worth around 20.79p in displaced grid electricity. The 'profit' over the cost of storage depends on system size, but for larger systems the economics are increasingly compelling.

Note that the battery must be well sized relative to the solar system to ensure it is utilised as fully as possible, an oversized battery that rarely fills completely will have a longer payback than one that cycles daily. We have tools to calculate the optimal sizing for each installation.

Time-of-Use Optimisation: Buy Cheap, Use Peak

Smart meters have enabled a new generation of time-of-use electricity tariffs, where the price paid for electricity varies by time of day. The most popular tariffs for battery owners are Octopus Go and Octopus Agile. These tariffs offer overnight rates as low as 7–10p/kWh, versus peak rates of 30–40p/kWh during the evening. ENF Solar

A battery charged overnight at 9p/kWh and discharged at 28p/kWh saves approximately 19p per kWh. A 10kWh battery cycling daily at this spread saves roughly £694 per year, not far from the full installed cost of a mid-range system over 10 years. Add solar self-consumption savings on top and the economics become compelling for most solar households. ENF Solar

For a household with solar and a battery on a time-of-use tariff, savings come from three sources simultaneously:

• Solar self-consumption: using your own generated electricity rather than buying from the grid
• Overnight cheap charging: buying electricity at off-peak rates for daytime use
• Export tariff optimisation: exporting at the highest available rate rather than whenever surplus arises

Looking ahead, time-of-use export tariffs are also developing, with the potential to earn higher rates for households that can export electricity during the winter evening peak (typically 4–7pm). Households with battery storage will be well placed to take advantage of these as they become more widely available.

Lifetime cost of battery storage: from 13p per kWh

With daily cycling, modern lithium iron phosphate (LFP) batteries, as used in the Tesla Powerwall 3 and most current residential systems, are rated for around 4,000 or more full cycles, equivalent to around 10–15 years of daily use. Most systems now carry 10-year warranties as standard.

The table below sets out updated typical lifetime costs for different system sizes. The all-in installed cost per kWh of usable storage varies significantly with scale:

Figures assume 10–15 year battery life with one inverter replacement over a 20-year system life.

Forecast Electricity Prices

The lifetime cost of storage needs to be weighed against the cost of grid electricity over the same period. The current electricity price cap unit rate is approximately 24.7p/kWh, rising to 26.1p/kWh from July 2026. Bills remain significantly above pre-2021 levels and the long-term direction of electricity prices, driven by increasing electrification of heat and transport, is expected to be upward.

The table below shows what the average cost of grid electricity might be over the next 20 years under different price inflation scenarios:

Against these forecasts, systems achieving a stored electricity cost of 15–20p/kWh represent a strong long-term investment, and as battery costs continue to fall, the economics will only improve.

System design should target a stored electricity cost of around 22.36p/kWh or below to ensure the investment stacks up on conservative assumptions.

VAT Relief

Qualifying residential battery storage installations currently benefit from 0% VAT until 31 March 2027, before reverting to the reduced 5% rate. This applies whether the battery is installed alongside solar panels or as a standalone retrofit.

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