Why Australian battery storage costs may fall 40% in two years

Article from : Renew Economy

Summary:

For the rest, and particularly those in NSW, Victoria and South Australia who come off premium solar tariffs at the end of this year – more than 200,000 households – the question is whether they should order battery now, or wait a while for costs to fall.

Investment bank Morgan Stanley has added some more fuel for thought with its predictions that battery storage costs could fall 40 per cent in two years, largely as a result of an increase in scale in global manufacturing and the local industry.

Morgan Stanley analyst Rob Koh says he expects the average cost of an installed 7kWh battery storage system can fall from nearly $10,000 now to just over $5,000 in 2018.

He note that the commodity inputs into the battery contribute (such as lithium) only around 10-30 per cent of total unit cost, so are not a large driver of end user prices.

Lithium-ion, of course, are not the only battery storage options, but it is the technology that is expected to have the greatest price drop in the coming years, as this graph above illustrates.

Article:

It is the key question being asked by almost every household with rooftop solar, or thinking about installing it: When, and should I, install battery storage?

For some households on premium solar tariffs that last another decade, the question is kicked along way down the road – although some people are proposing that governments seize the initiative and swap the anticipated income from those tariffs to use as a subsidy for battery storage.

For the rest, and particularly those in NSW, Victoria and South Australia who come off premium solar tariffs at the end of this year – more than 200,000 households – the question is whether they should order battery now, or wait a while for costs to fall.

It is one of the big conundrums of the market. Most expect battery storage to be propelled by the “early adopter” market in the next year or so, but there is great debate over when storage costs will fall to fit in with “payback times” considered short enough to create a “mass market.”

That, of course, depends on whether you think that battery storage is going to be an “economically rational” decision, as the incumbent utilities like to paint the issue, or one of desire. Not that many people think of payback times when buying a fancy BBQ, a pool, a lounge suite or a car.

Investment bank Morgan Stanley has added some more fuel for thought with its predictions that battery storage costs could fall 40 per cent in two years, largely as a result of an increase in scale in global manufacturing and the local industry.

morgan stanley battery storageMorgan Stanley analyst Rob Koh says he expects the average cost of an installed 7kWh battery storage system can fall from nearly $10,000 now to just over $5,000 in 2018.

The actual battery pack, he estimates costs around $4,200 now, but will cost less than one third of that price within two years.

Shipping, mounting and inverter costs will also fall. The only element to rise, he suggests, is the cost of labour. (See graph to the right and please click to enlarge. Koh says the figures are based on his and company estimates and are based on a “generic” system. Individual prices may vary considerably).

“We estimate that Australian battery installation costs can feasibly fall by around 40% over the next two years, incorporating battery unit estimates from our global colleagues approaching US$150/kWh (largely a function of manufacturing scale in the electric vehicle market), and moderate estimates for reductions in BoS (balance of system) costs,” Koh writes.

He note that the commodity inputs into the battery contribute  (such as lithium) only around 10-30 per cent of total unit cost, so are not a large driver of end user prices.

The weakest part of the equation is the cost of the inverter, which may not fall as fast, and “other additional installation costs could include a smart meter (with unit costs now around ~$100-200) and a control system and/or software (such as a Reposit Box that retails for around $600). But he also notes that these additional costs may also facilitate increased benefits.

What is interesting about Koh’s analysis is where the battery storage business model works, and where revenue can be obtained.

morgan stanley storage revenueKoh says the important factor in battery storage is the amount paid per kWh.

As battery costs fall from around 100c/kWh delivered to around 50c/kWh, these costs could be outweighed by the revenue gained from the battery itself.

The biggest, Morgan Stanley notes, is from network services, something that many network companies are working on.

The next biggest is solar self consumption, followed by tariff arbitrage (load shifting between high and low tariffs) and then virtual power plants, where the output of solar and storage installations is pooled.

Morgan Stanley also notes the attractiveness of modular installation, particularly with the likes of Enphase, which is offering a 1.2kWh Lithium-Ion battery product, which the company claims can be installed in 40-60 minutes by one person, for an installed cost of $2,000-2,500.

The relatively small unit can reduce demand tariff charges (if available), and incremental battery capacity can be added down the track, when battery and installation costs can be expected to be lower.

battery cost outlookLithium-ion, of course, are not the only battery storage options, but it is the technology that is expected to have the greatest price drop in the coming years, as this graph above illustrates. It is, however, interesting to see the anticipated cost falls in flow batteries, of which Australia’s Redflow is one of the major developers.




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