Power Price Hikes Make Batteries Pay In NSW

The bad news is out.  Grid electricity price hikes are coming and likely to hit hardest in NSW, where bills are set to spike by up to 8.9%. With more financial pressure looming, many NSW homeowners are asking: “Is now the time to get solar and a battery?”

The answer to this question for solar is — hell yeah!

And the answer for a battery is — hell probably!

Solar makes sense for everyone with a mostly unshaded roof, or even a moderately shaded one.  A battery is more of an “it depends” kind of thing, but thanks to the following factors:

• The coming electricity price hikes;
• Lower solar feed-in tariffs;
• Increasing solar system sizes;
• Falling battery costs;
• Falling solar feed-in tariffs, and …
• NSW battery and VPP incentives.

Then provided your home consumes as much electricity during the evening peak period as the average Sydney 2-person home does, a home battery can pay for itself in NSW.  By pay for itself, I mean the savings on electricity bills will equal the installed cost of the battery before its warranty runs out.

But be careful!  This will only work if the battery is combined with a solar system large enough to regularly fully charge it.  Also, if you’re part of a 2 person household, half these homes have below-average evening peak consumption.  But the majority of NSW homes with suitable solar can now come out ahead financially by installing a battery that’s reliable but not too expensive.

Of course, saving money is not the only reason to get a battery.  Some place a high value on the backup power they can provide, while others take pride in their environmental benefits.  But if you can have these things while also coming out ahead financially, then in the words of George Orwell…

“That’s totes amazeballs!”

(Note, it’s possible the George Orwell I know is different from the one you’re thinking of.)

Using Sydney as the example location, I’m going to explain why solar and batteries can now make money for the majority of NSW households.

Solar Is A No Brainer

For the average 2 person Sydney home annual electricity consumption is around 5,100kWh and for 3 people it’s 6,100kWh.  If grid electricity is 33c per kWh and they have a 5c solar feed-in tariff and typical electricity consumption patterns, then their annual savings from installing a 10kWh solar system would be:

• 2 people $1,450
• 3 people $2010

It’s possible to get a 10kW solar system that uses lower cost but reliable hardware from an installer who does quality work for $10,000.  If the electricity price and feed-in tariff assumptions hold steady, the solar system will pay for itself in under 7 years for the 2 person household and under 5 years for 3 people.  So if you don’t have solar, or your system is a puny little one installed ages ago, go get yourself a large new solar system immediately.  The less solar you have, the harder the coming electricity price hikes will hit.

How High Will Electricity Prices Go?

Initial reports are NSW electricity prices could increase by from 7.8-8.9%.  I’ll assume they’ll increase 8%, which would push a 33c per kWh price up to 35.6c.

That 35.6c price is for a flat tariff that stays the same no matter the time of day.  To keep things simple, I’ll assume prices will rise and then remain constant in real terms, with all the dollar figures below listed in today’s money.

Solar Feed-in Tariffs

At the moment it’s not clear what will happen with solar feed-in tariffs.  But their trend is to head downwards and the lower they go, the better the return from a battery.  This is because when you charge your battery with solar power you forego the feed-in tariff you would have received from sending it into the grid.  Because batteries are not 100% efficient, you will lose more than 1kW of feed-in tariff for every 1kwh of stored energy used.  If a battery has 90% roundtrip efficiency, with a feed-in tariff of 5c, you’ll need to charge it with 5.6c of solar electricity to get 1kWh out in the evening.

At the moment there are a quite few electricity plans offering feed-in tariffs over 5c in NSW.  I’m going to assume that next financial year 5c will be the highest feed-in tariff on a plan that makes sense for you.

Typical Electricity Consumption

The average Sydney household size in Sydney is 2.6 people.  But no home actually has 0.6 of a person in it.  (Or at least, I hope none do.)  That 0.6 of a person is simply a nightmare that results from using arithmetic.  The most common household size is 2 people, which is the typical household size.  On average, in NSW, the typical 2-person household consumes an average of around 5,100kWh per year.  During a time-of-use tariff’s 6 hour peak period during the late afternoon and evening, they consume roughly six kilowatt-hours.

The higher your electricity consumption during this peak period, the greater the return from installing a battery, but this doesn’t mean you should shift consumption from the daytime to the evening!  Daytime solar will always be the cheapest way to power appliances.

The best way to find out your evening electricity consumption is to get your DNSP to send you a file and use our battery calculator.

Battery Prices

Some good news is home battery prices are trending down.  There are a few holdouts that haven’t lowered their prices for a long time, but I guess some batteries just aren’t trendy.

Installed cost is one of the most important factors in whether or not a battery will pay for itself.  But don’t go buying the cheapest one you can find.  That runs a real risk of expensive problems.  Check out our chart of all the batteries we recommend for guidance.

You’ll also want a quality installer.  If your battery has problems, which is a real possibility, you want someone who’ll come back as many times to get it working right and won’t fob you off with excuses and disappear for months at a time.  But note that installers who take care of their customers won’t be the lowest-cost ones around.

You’ll want a battery that’s reliable but not expensive, with a warranty that won’t end too early if it’s worked hard.  Two examples that come to mind are Sigenergy and Sungrow, but there are a range of batteries that can do the job and I’m not going to try to push you into choosing any ones in particular.  I’m just going to talk about a generic 7.8kWh battery that’s suspiciously like a SigenStor and a  9.6kWh battery that’s kind of like a Sungrow.

I’ll also factor in the NSW Battery Incentive paid to installers who pass it on in the form of lower prices. You can use our NSW Battery Rebate Calculator to estimate how much it will knock off the cost of a battery.  Using a figure of $1.90 per Peak Reduction Certificate, which is at the upper end of the range people have been receiving lately, the installed cost of the example batteries will be:

• 7.8kWh battery — Favorable circumstances $8,319.  Less favourable circumstances $9,819.
• 9.6kWh battery — Favorable circumstances $9,617.  Less favourable circumstances $11,117.

There are also 2 NSW government incentive payments for joining a VPP.  You can get the 1st payment when a VPP joined and the 2nd one 3 years later.  Using the same $1.90 value for PRCs, subtracting the 1st VPP payment gives the following installed prices:

• 7.8kWh battery — Favorable circumstances $8,140.  Less favourable circumstances $9,640.
• 9.6kWh battery — Favorable circumstances $9,408.  Less favourable circumstances $10,908.

If you join a VPP, you won’t just receive the government incentives, you’ll also get payments from the VPP itself. While some VPPs are better than others, at the moment, you can generally only expect to come out around $100 ahead per year.

A Flat Tariff & No VPP

I’ll start by calculating how much how much money a battery will save on a flat tariff, with the following assumptions:

• 35.6c per kWh grid electricity price
• 5c solar feed-in tariff
• A 90% battery roundtrip efficiency that requires it to be charged with 5.6c worth of solar electricity for it to discharge 1kWh

This will result in every kWh discharged from the battery in place of using grid electricity saving 30c  (35.6c – 5.6c = 30c).

If a household installed a 7.8kWh battery and discharged 7.8kWh every night, they would save $854 per year.  Over 10 years that would come to $8,540 — which is more than the $8,319 cost of installation under favorable conditions.

If they instead installed the 9.6kWh battery and fully discharged it every night, it would save $1,051 per year or $10,510 over 10 years, which is more than the $9,617 installed cost under favourable conditions.

100% Capacity Isn’t Realistic

However, its just not possible to fully charge a battery with solar energy up to its stated usable capacity every day and then and then fully discharge it every night.  The main reasons why are:

• Usable battery capacity deteriorates over time: Home batteries are holding up better than they used to, so I don’t think it’s unreasonable to expect them to maintain 80%+ of their original usable capacity while under warranty.  But their warranties typically let them fall to 60% or 70%, so it’s possible you won’t be this fortunate.
• Batteries won’t be 100% drained:  If your home uses an average of 10kWh overnight, it won’t use that amount every single night.  It’s more likely to be somewhere from 5-15kWh.  But sometimes it could be next to nothing because you were out all night or on holiday.  Combined with 10% capacity deterioration, this may result in a household only using a 7.8kWh battery at around 81% capacity and a 9.6kWh battery at around 77%.
• Batteries won’t be fully charged with solar every day: The larger your solar system, the easier it will be to fully charge your battery with solar energy every day.  If your solar system is 6.6kW or smaller and there are people at home during the day, you’re likely to have trouble fully charging your battery in winter and during periods of cloudy weather.  On the other hand, if there’s usually no one at home during the day, a 6.6kW system may work well.
• Partial daytime discharges don’t do much:  If a household’s power consumption during the day exceeds what the solar system can provide — possibly because the sun’s behind a cloud — then the battery can make up the difference and still be fully charged before sunset.  While this will raise a battery’s capacity factor, if you have a large solar system, then most of the time there will be enough solar generation to meet demand.  If you have a small solar system, then you’ll have trouble keeping the battery fully charged.

Taking into account the above factors, I’m going to assume the following capacity factors for the example batteries for a typical Sydney household that consumes 9-10kWh overnight:

• 82% for a 7.8kW battery
• 74% for a 9.6kWh battery

Not being able to use a battery at close to 100% capacity may seem like a major disadvantage, but a silver lining is many battery’s warranties will end early if their full usable capacity is discharged every day, so it’s often not as serious a problem as it may seem.

Using a smaller battery can increase the capacity factor, but smaller ones cost more per kWh of storage, so using a battery smaller than 7.8kWh is likely to decrease the financial return.

Flat Tariff, No VPP, Realistic Capacity Use

With an 82% capacity factor for the 7.8kWh battery and 74% for the 9.6kWh one, the savings over 10 years — using the previous assumptions — will be:

• 7.8kWh battery:  Annual savings $700.  10 year savings $7,000
• 9.6kWh battery:  Annual savings $778.  10 year savings 7,780

As the installed costs under favourable conditions are $8,319, and $9,617 respectively, they’re not going to pay for themselves within their 10 year warranty under these conditions.  But the figures improve if they’re part of a VPP.

Flat Tariff With VPP & Realistic Capacity Use

Joining a VPP can immediately provide a NSW government incentive and another one after 3 years.  There are also VPP payments of perhaps $100 per year.  For simplicity, I’ll assume the 2nd government VPP payment is exactly equal to the 1st.  With a flat tariff, the savings will be:

• 7.8kWh battery:  Average annual savings $836.  10 year savings $8,360
• 9.6kWh battery:  Average annual savings $920.  10 year savings $9,200

So in this situation, a 7.8kWh battery installed under favorable circumstances will have a simple payback period shorter than its warranty at just under 10 years.  The 9.6kWh battery, installed under favourable circumstances, doesn’t make the cut with a simple payback period of 10 years and 6 months.

Time-Of-Use Tariffs

Time-of-use tariffs significantly increase battery savings, but make the calculations more complex.  While they help, these tariffs have issues that make them less useful than you may expect.

Sydney time-of-use tariffs usually have a high peak rate in the late afternoon and evening, a low off-peak rate late at night and early in the morning, and an in-between shoulder rate at all other times.  But some plans only have peak and shoulder rates.

My rules of thumb for selecting a Sydney time-of-use tariff are:

• A 7 day a week peak rate, which is generally better than those that just apply on weekdays
• A peak period from 3-9pm, which is almost always better than plans with a peak period of 2-8pm
• Min-max by having a plan with an expensive peak rate and low rates at other times

A 6 Hour Peak Is More Like 4 Hours

In the Sydney summer the sun can set as late as 8:09pm.  So if your peak period is from 2-8pm, then in summer, your solar system can still be producing electricity by the time it’s over.  Depending on the size of your solar system and your electricity use, there may be summer days where you won’t even need to use battery power during the peak.  This is why having a plan with a later peak from 3-9pm is a definite advantage.

A 6-hour peak period from 3-9pm will average out over a year to around 4 hours of peak without significant solar generation. This will make it difficult for a normal household to use all its stored energy during summer peak periods, while in winter it will be much easier, with sunset around 5pm in July.  The drawback is, this is also the season when a battery is least likely to be fully charged with solar energy.

A typical 2 person home that uses an average of 9-10kWh overnight will only average around 6kWh of consumption during a 6 hour peak period from 3-9pm.  But homes with decent-sized solar systems are only likely to average around 4kWh of non-solar electricity consumption.  Another issue is that homes generally have to draw around 100W or more of grid electricity before batteries start to supply power, so the amount of battery energy that can be supplied in this period is more likely to be around 3.6kWh.

Time-Of-Use Prices

Looking at current time-of-use retail plans that meet my three rules of thumb, I see there’s one with a 7-day-a-week peak period from 3-9pm with a high peak rate of 58 cents.  The shoulder rate is 30c and there’s no off-peak rate.  At the moment, it offers a solar feed-in tariff that’s over 5 cents, but I’ll assume it drops to 5c next financial year.  If electricity prices rise by 8% the plan will have the following characteristics:

• Peak rate 62.6c
• Shoulder rate 32.4
• Solar feed-in tariff 5c
• Savings from using 1kWh of battery storage rather than grid electricity during peak period 57c
• Savings from using 1kWh of battery storage rather than grid electricity during shoulder period 26.8c

Payback With Time-Of-Use Tariff & No VPP

To calculate the savings with a time-of-use tariff and no VPP, I’ll assume an 82% capacity factor for the 7.8kWh battery and 74% for the 9.6kWh one.  I’ll assume the smaller battery will be able to supply an average of 3.4kWh during the peak periods and the larger battery 3.5kWh.  Their remaining available capacity is discharged during the shoulder period.  For the two batteries the savings would be:

• 7.8kWh battery:  Average annual savings $1,000.  10 year savings $10,000
• 9.6kWh battery:  Average annual savings $1,080.  10 year savings $10,800

So the 7.8kWh battery easily pays for itself within its 10 year warranty period if installed under favourable conditions and also just manages it under less favourable conditions.  It’s payback periods are:

• 7.8kWh payback period under favourable conditions (installed cost $8,319):  8 years 4 months
• 7.8kWh payback period under less favourable conditions (installed cost $9,819):  9 years 10 months

The 9.6kWh battery makes the cut when installed under favourable conditions but doesn’t quite make it under less favourable conditions.  Its payback periods are:

• 9.6kWh payback period under favourable conditions (installed cost $9,617):  8 years 11 months
• 9.6kWh payback period under less favourable conditions (installed cost $11,117):  10 years 4 months

The battery’s payback can be further improved under this situation by charging the battery during the cheap period when there isn’t enough solar output to give it an adequate charge and then discharge it during the peak.  But as there’s no morning peak to take advantage of in Sydney, the benefit won’t be large.

Payback With Time-Of-Use Tariff & VPP

If the batteries are part of a VPP then the money this brings in lets them pay for themselves under both favourable and less favourable conditions:

• 7.8kWh battery:  Average annual savings $1,136.  10 year savings $11,360
• 9.6kWh battery:  Average annual savings $1,216.  10 year savings $12,160

Under both favourable and less unfavourable conditions, the 7.8kWh battery pays for itself in well under 10 years:

• 7.8kWh payback period under favourable conditions (installed cost $8,319):  7 years 3 months
• 7.8kWh payback period under less favourable conditions (installed cost $9,819):  8 years

The 9.6kWh battery also pays for itself within its 10 year warranty period:

• 9.6kWh payback period under favourable conditions (installed cost $9,617):  7 years 10 months
• 9.6kWh payback period under less favourable conditions (installed cost $11,117):  9 years 6 months

Batteries Worthwhile For Typical Electricity Consumption

Thanks to government incentives, falling prices, and VPP payments, it now makes financial sense for the majority of NSW homes to install batteries — with a few caveats:

• You get a time-of-use electricity plan.
• Your peak period electricity consumption is at least equal to the average for a 2 person home.
• You use a reliable but lower-cost battery.
• You have a solar system large enough to regularly fully charge the battery.

As long as you meet these conditions, and electricity prices remain reasonably high, you can expect to make money by installing a battery.  As there are already plenty of homes with suitable solar systems, or enough empty roof space to install a suitable system, plenty of people in NSW should now give serious consideration to buying a battery to help beat the high cost of electricity.

You can wait and hope battery prices fall further, but that’s a gamble because you run the risk of future price falls not being enough to make up for savings you receive from installing sooner.

If you’re thinking about going ahead with a battery, check out our comprehensive guide for more detail.