When Does It Make Sense to Combine Solar Panels and Batteries?

5th Aug 2020

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Large-scale energy storage with batteries is a promising technology in the renewable energy industry. Solar panels and wind turbines are now capable of producing electricity at a lower cost than many power plants that run with fossil fuels. However, these forms of renewable generation are intermittent, since sunlight and wind are not available 24/7. On the other hand, fossil fuels can be stored to produce electricity at any time. Batteries can eliminate the main limitation of solar and wind power, by storing energy for times when there is no generation.

Battery systems are still held back by their high upfront cost. However, the International Renewable Energy Agency (IRENA) has forecast a price reduction of over 60% by 2030. Also, Australia and other places with expensive electricity have already deployed batteries at large scale with success. When local electricity costs are very high, the savings potential improves the business case for solar panels with batteries.

This article will provide an overview of some situations in which batteries make sense from a financial standpoint. Australia offers ample opportunities, and one example is the 100 MW Tesla battery that started operating in December 2017.

Battery Application: The Electric Company Charges Much Higher Than What They Pay for Solar Power

Normally, buildings with solar power systems can export their surplus kilowatt-hours (kWh) to the grid, getting a power bill credit in exchange. However, some energy companies charge much higher than what they pay. For example, the retail price may be over 30 cents/kWh, while surplus electricity from solar panels is credited below 10 cents/kWh. In this case, each kWh stored in batteries for later use is worth over 20 cents more. For a total of 1,000 kWh stored and used later, the savings would increase by $200.

Solar power systems become 2-3 times more expensive when batteries are added, but their potential savings are also enhanced. Each project is unique, and the best recommendation is getting a professional assessment to find the optimal capacity of the solar array and batteries.

Battery Application: When There Is a Local Incentive Program

The business case for batteries also improves when there is a local program that offers additional benefits. These can range from upfront rebates when purchasing batteries, to demand response programs that reward you for taking load off the power network.

There are several battery programs in Australia, which vary by state and territory. The following are some examples:

  • New South Wales offers an interest-free loan of up to $14,000 for homeowners who deploy a solar power system with batteries, and up to $9,000 for adding batteries to an existing installation.
  • Victoria offers a rebate up to $4,174 for homeowners who install battery systems combined with solar panels.
  • South Australia offers a battery rebate of up to $4,000 and the opportunity to participate in a virtual power plant (VPP). When battery owners join a VPP, they let the power company use their battery capacity in exchange for power bill credits.
  • The Australian Capital Territory (ACT) offers a battery rebate of $825 per kilowatt of power capacity, up to 30 kW (up to $24,750).

Incentives like these improve the business case for using batteries, either by reducing the upfront cost, or by increasing savings in the long run. The outlook improves further when expensive electricity is combined with battery incentives, which is the case in many parts of Australia.

Battery Application: Providing Ancillary Services for the Power Grid

Ancillary services for the grid are among the most lucrative applications of batteries, and that is precisely how the Tesla big battery makes most of its income. The project had a cost of $90 million, but it had already saved over $30 million during its first year of operation. Due to the project’s success, a second stage was announced in November 2019, increasing capacity by 50% and bringing the total cost to $161 million.

Electricity in Australia has a Market Price Cap (MPC) of $15,000 per MWh for 2020-2021, which is equivalent to $15 per kWh. At times of high demand, there are energy price spices that can get close to the cap. A large-scale battery can take advantage of these spikes, supplying electricity to the grid within milliseconds. This also helps balance supply and demand, which keeps the MWh spot price to reach even higher levels.

  • Due to their fast response, batteries can supply electricity before power plants.
  • In other words, when there is a price spike, batteries can take advantage of the income opportunity before fossil fuels power plants. At the same time, they help balance supply and demand.

A solar farm can produce electricity to keep a large-scale battery charged, and electricity is then exported at times when the kWh price spikes. If the battery is kept fully charged, it will always have electricity to sell during price spikes. This can greatly increase the value of kilowatt-hours provided by solar panels.

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