Tesla Battery Day: Good News for Solar Power

26 September 2020

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In September 22, 2020, Tesla announced major cost reductions in batteries within the next three years. Electric vehicles are also expected to become more affordable, since batteries represent a large portion of their cost. This is good news for the solar industry – affordable battery systems can allow an increased use of solar panels.

When only kilowatt-hour prices are considered, solar power can now match the generation cost of coal power plants. Electricity costs are evenly matched when comparing new solar projects with existing coal generation. However, when new coal power plants are considered, their kilowatt-hour costs are almost two times higher than solar generation costs.

However, there is still one aspect in which fossil fuels beat wind turbines and solar panels. Natural gas and coal can be stored to generate electricity at any time, while wind and solar power depend on inputs that cannot be controlled. Battery systems can cover the main limitation of renewable energy, but they are still held back by price. However, Tesla has announced cost reductions in battery technology, which can make solar power more competitive.

Tesla Announces a 56% Cost Reduction for Batteries

In October 2017, the International Renewable Energy Agency (IRENA) predicted that batteries could become up to 66% cheaper by 2030. Batteries have a major potential in the renewable energy industry, especially when combined with wind turbines and solar panels:

  • Since batteries have a modular design, they can be scaled up or down for the needs of any wind turbine or photovoltaic array.
  • When combined with a battery system, a solar farm can continue delivering power at night, and the same applies for a wind farm when there is no wind blowing.

Elon Musk announced a more optimistic scenario than IRENA on Tesla Battery Day 2020: a 56% cost reduction in battery technology in only three years. With this innovation, Tesla will develop an electric vehicle model that will cost US$25,000 (around AU$35,600). The Model III is currently the most affordable Tesla car, starting at $39,990 (around AU$56,900).

There are two main ways in which cheaper batteries can create a larger market for solar power. Stationary battery systems could be used for homes and businesses at night, and the demand for electric vehicles can be expected to increase as their prices drop. All these battery systems require charging, and solar generation offers low electricity costs with zero emissions.

Australia offers a favorable combination of abundant sunshine, low solar array costs and government incentives. Local electricity prices are also among the highest in the world, which means that onsite generation is very valuable. With low costs and high savings, a solar power system is an excellent investment – an asset that lasts over 25 years, with a payback period below 3 years in many cases.

Taking Advantage of Low-Cost Batteries with Larger Solar Arrays

Surplus generation from solar panels can normally be sold to electric companies. However, the feed-in tariff they pay is often lower than the kWh price they charge. This means that surplus generation from solar panels is less valuable than the consumed output. For example, a consumer may be paying 30 cents/kWh for grid electricity, while getting a solar feed-in tariff below 15 cents/kWh.

When feed-in tariffs are unfavorable, home and business owners may limit the number of solar panels to avoid surplus generation. However, affordable batteries allow higher savings from a larger solar array. Instead of selling kilowatt-hours at a low price, they can be used to charge stationary batteries and electric vehicles. Electricity consumers that are subject to demand charges can also use batteries to avoid consumption peaks and increase their savings. Thanks to the modular design of solar panels, an existing installation can easily expand its generation capacity along with a battery and EV charger project.

The advantages of a solar PPA also apply in this case: the building owner signs a contract to purchase solar generation for less than the local tariff, achieving immediate savings. The PPA provider is responsible for financing and maintenance, ensuring that the solar power supply stays available. Existing PPAs can be expanded, and battery systems can be bundled in contracts.

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