What could a federal incentive for home solar battery storage look like?

Strong government incentives paved the way for rooftop solar power to achieve the prominence that it has in Australia. Home battery storage is the next frontier in distributed energy, but battery prices are still too high for most Australian homes to consider installing them purely for financial reasons. A strong incentive regime akin to the federal Renewable Energy Target (RET) or a state-sponsored production incentive (perhaps a kind of feed-in tariff) could change that, however. What forms could incentives for home energy storage take? In the interest of starting a conversation on the topic, I’ve decided to undertake some speculation.

Let’s imagine that a state or the federal government wanted to support the uptake of home battery storage. The purpose behind doing so would probably be similar to that of the RET or state-based feed-in tariffs: to promote greater use of renewable energy by homes & small-scale businesses and thereby theoretically reduce CO2 & other emissions. The more energy that homes & businesses generate and consume themselves, the less coal or gas need to be burned and sent over miles of transmission lines to meet household demand. In fact, Australia’s ~1.5 million solar homes are already doing a good job towards this end. Energy storage could take it a step further.

This might still be a bit of a dream (especially under the current Lib-Nat government), but it’s not entirely unfeasible that something could come into place. Just for speculation’s sake, let’s imagine the form that federal and state energy storage incentives might take – and maybe even hope that it plants a seed.

How could battery storage be worked into the RET’s existing small-scale incentive framework?

The federal Renewable Energy Target offers an indirect, up-front incentive for solar PV systems under 100kW in the form of Small-scale Technology Certificates (STCs). STCs have proved to be a boon to small-scale solar system owners and the solar industry at large, enabling Australia to boast some of the lowest solar PV installation prices in the world. Currently, the RET does not cover battery storage, and so does not account for the role batteries can play in helping households & businesses ‘self-consume’ more of their solar energy instead of exporting it into the electricity grid (where it is decidedly less useful to all involved).

Unlike solar PV, batteries do not generate electricity – they only store it. This makes it tricky to quantify the contribution they make to increasing solar’s share in Australia’s overall electricity generation mix. A 5kW solar system in Sydney, for example, generates 103 STCs, which are currently trading at about $39 apiece (translating into a ‘discount’ of about $4,000). Each STC is supposed to account for one megawatt-hour (MWh, or 1,000kWh) of energy.

The RET is conservative about how STCs are doled out – you only get 15 years’ worth of STCs when you install a system, even though the system should continue to produce energy for 25. Essentially, the federal government decided to err on the side of caution: what if all of these solar systems don’t produce energy for 25 full years, or what if they don’t generate as much energy as expected (e.g. because they’re shaded or face east or west instead of north)? This same conservative logic needs to be applied to batteries.

We’ll assume that batteries only get STCs when they’re installed alongside a solar system (new or pre-existing). Let’s also assume that the federal government agrees that installing batteries counts as increasing Australia’s renewable energy capacity. The basic idea would be to instate a system that a) encourages maximisation of solar self-consumption using batteries, and b) takes into account how much additional solar will be self-consumed once the battery bank is installed.

For general battery bank size eligibility, we have to look at how much energy the solar system produces: Will the solar panels generate enough electricity to fill up the battery bank (from its lowest allowable DoD) on a more or less daily basis? To determine this, we should look at power generation in the middle of winter (the average July day, for example), when the solar resource is at its lowest – again, to be conservative. If it doesn’t, the battery bank should not be deemed eligible to generate STCs.

There also needs to be a standard way to calculate how much renewable energy a particular battery can support. Not all batteries are created equal, and will have varying lifepans and lifetime energy throughput figures. The one example we can look to in Australia of a currently up-and-running battery storage incentive is the one on offer by the City of Adelaide (read about it here). Their formula for calculating the battery subsidy value for a given home is as follows:

Adelaide City Council Battery Storage Rebate = kWh discharge per cycle (at manufacturer’s depth of discharge) x lifetime discharge cycles (EOL 80%) x $0.15/kWh

This formula is a good starting point because it includes all the relevant specifications that (at least hypothetically) determine a battery’s lifetime energy throughput. It also standardises some of the figures that can be fudged (e.g. a standard definition of end of life at 80% original capacity). Much like the calculation of STCs, it doesn’t take into account actual operating conditions (heat? humidity?) or possible future malfunctions, and as such should probably given the same conservative ‘derating’ of about 60% that solar systems get on their STCs (deeming of only 15 years vs 25). A RET-based program for supporting batteries might even take into account the respective performance of different types of batteries in different climates.

Now, let’s take Adelaide City’s formula and apply a 60% derating. Then let’s fit the specs for Tesla’s Powerwall into the formula. We’ll have to fudge the numbers a bit, as no Powerwall spec sheet that I’ve seen gives DoD or cycle life to 80% end of life (EOL for the Powerwall has been given to me as 60%).

7kWh x 85% DoD x 3650 cycles = 22MWh

22MWh x 60% = 13MWh, or about 13 STCs

If 1 STC = $39, total incentive value = $507

You’d be hard pressed to argue that $500 is a generous incentive for a battery storage bank (Telsa’s Powerwall retails for $9,000 – $12,000 installed), but it is arguably a fair one in terms of the degree to which it supports additional renewable energy consumption.

Or could the government take another approach?

The government doesn’t need to approach storage incentives through the RET, however. In fact, this might prove to be a difficult way to implement them – the complexity of the above speculation, combined with the the rather paltry total incentive value that results might convince you that this is indeed the case. Instead, if any incentive is introduced it all, it might come more in the form of the one offered by the City of Adelaide – a straight-up, capped rebate on the cost of a fully installed solar system. Hopefully the states will follow suit with similar incentives, whether they be an up-front ‘rebate’ or a production-type.

Another interesting conclusion we can draw from this thought experiment is that – judging by the rather small incentive that resulted – batteries actually do very little toward fostering increased renewable energy generation or even self-consumption. This drives home the point that although they will play a very important supporting role in the clean energy revolution, they are not the stars.

Thanks for reading! As mentioned above, this article was written to start a conversation – not as a final solution. Please leave your thoughts in the comments!

© 2016 Solar Choice Pty Ltd

James Martin II