Victorian battery subsidy plan. Trying to make sense of it.
Story from The Age Newspaper
By Paul Higgins
15 September 2018
Why I can’t make any economic sense out of the battery subsidy plan
It looks like the state is subsidising people to lose money, with the Victorian government announcing a battery subsidy program for people on less than $180,000 household income.
The government is saying, “A household installing an average 11 kilowatt battery could save around $650 a year on their electricity bills, boosting the savings they are already making with solar panels.”
Let’s assume that you can buy an 11kW battery system for $9676 (although it is likely to be more than that fully installed). You will be subsidised 50 percent of the cost, leaving your out-of-pocket cost at $4838.
The savings you’ll make from using a battery are impacted by many factors. These include how many times the battery is fully charged and discharged in a year, how much you are currently paid for selling your surplus power back to the energy company that supplies you (your feed-in tariff), what you pay for energy from the grid, and the losses involved in storing and discharging the energy.
For the purposes of calculation, I’m using the solar system we have in our home:
- We have a 9.86kW solar panel system with an 8.2kW inverter system.
- Our feed-in tariff we get for excess power we sell back to the energy company is 10¢ per kilowatt hour (kWh).
- Our current tariff for using energy from the grid is 18.48¢.
If we have excess power from our solar panels and we store it in a battery and use it later (instead of buying power off the power company), then we save money but less than you might think.
Every time we put power in the battery we forsake the 10¢ we would have been paid for feeding it into the grid. When we draw power from the battery later in the day, we save the 18.48¢ we would have paid the energy company. This means we can only count the difference of 8.48¢ as a saving.
However, the actual result is even worse because of energy lost in storage and discharge of energy with the battery. Simply put – I get less out of the battery than I put into it.
Let’s be generous and say we have 85 percent efficiency. This means that I only get back 0.85 of a kWh of every kWh I put in. That means my actual saving is only 5.7¢ for every kWh I put into my battery.
Even if we assume I can put in 11kWh every day, that is a saving of only $229 a year compared with the government claim of saving $650.
The reality is actually worse. There is no way I can put 11kWh into the battery every day unless I have a huge solar system. In our system (which is larger than most), we only sold 3.8kWh per day into the grid in June and July because that was all we had spare. This is the most the battery would get on average during those 60 days. In the 45 days from the middle of April it was 8.75kWh per day on average.
Let’s be generous again and assume that those 105 days are the only days in a year when I cannot store 11kWh in my battery. Crunch the numbers and now my total savings are only $199 for the year.
To achieve that saving I had to spend $4838, so it takes me more than 24 years to get my money back.
As money in the future is worth less than money now because of inflation, the picture is even bleaker If we do an internal rate of return calculation on the investment (which allows for the time value of money) over 15 years then I get minus 5.51 percent return.
That’s right, I’m losing money on the investment, not saving. Much better to put my money into my house mortgage.
I have been more than generous here because I have assumed there is no degradation in battery performance over 15 years, which is ridiculous, along with other assumptions.
The government seems to be subsidising people to lose money. If anyone out there wants to give me $4838 on the basis that I will give it back to them over 24 years, please get in contact. That is the true “pub test”.