Great Home has tracked domestic battery storage developments for many years. Until now our conclusion has been that, whilst the technology has an exciting future, installing storage batteries is primarily a lifestyle choice. They can help save the planet but won’t improve your bank balance if you are already connected to the highly reliable UK electricity grid.
However, recent innovations are starting to tip the financial balance, with new solar panel and battery storage systems starting to achieve a best-case payback of around twenty years, depending on system configuration.
What are the Key Drivers To Improved Payback?
Improved returns are being helped by falling battery system prices combined with the switch to smart meters and more imaginative energy pricing. Achieving a twenty-year payback requires access to half hour prices on both purchases from and exports to the grid. This allows the system to purchase energy when it is cheapest, store it in the battery for later use and export excess energy generation when export prices are highest.
As an example on smart pricing, Table 1 below shows UK half hour day ahead pricing for one particular day: 4 July 2020.
- At 1.30am the grid purchase price was 1.8p per kWh. This would be a great time to buy extra energy to store in the battery.
- At 5pm the export price, known as the Smart Export Guarantee or SEG, was 12.2p per kWh. This would be a good time to unload any excess battery stored electricity produced by solar panels.
Note: Day ahead pricing depends on the specific supplier. In this case grid and export pricing is set at 4pm each day for half hour periods up to 9:30pm the following day.
Table 1: Half Hour Energy Pricing Example
How much energy you can purchase or export in a half hour period depends on your storage battery specification. The Tesla Powerwall 2 has a capacity of 13.5kWh, with a maximum charge rate of 3.68 kW and a discharge rate of 5kW. In any half hour pricing period, a maximum of 1.84 kWh could be stored in the battery or 2.5kWh exported to the grid.
Battery storage has a typical round-trip efficiency of around 90%. That means for every 1 kWh of energy stored in the battery, only 0.9 kWh can be extracted and used. The losses are mainly heat losses in the inverter during the conversion process from AC to DC electricity and back again.
How Is The 20 Year Payback Calculated?
If we assume a domestic energy customer is paying £595 a year for 3,500 kWh of electricity (17p per kWh excluding standing charge). By installing a 4 kW solar PV system producing 3,400 kWh annually, combined with a 13.5 kWh domestic battery storage system (Tesla Powerwall 2) and using a smart meter to switch to half hour pricing for purchases and exports then the overall bill could fall to negative £138.
This gives a net saving on the bill of £733 per year.
Assuming an installation cost for the complete system of £14,500, then the payback is 20 years. Of course, if energy prices rise faster than inflation over the next few years then the payback improves further.
You can calculate other system options using the Great Home Solar Panel & Battery Storage Calculator.
Overall Conclusion
A best case twenty year payback does not make a great investment, particularly since battery warranties rarely stretch above ten years. However it does indicate that the technology has potential, if further improvements can be made. With more widespread availability from suppliers of half hour pricing, together with falling battery storage system costs, an investment in solar panels and battery storage can only become more attractive over time; in particular if government is prepared to cut the 20% rate of VAT on stand-alone battery storage installations. A key element to improve payback will be the development of more sophisticated algorithms for battery arbitrage. Enabling small scale domestic battery storage to play a transparent role in grid services, such as frequency response, would also be a helpful policy.
Detailed System Assumptions:
- Domestic electricity usage of 3,500 kWh per year at a fixed price of 17p per kWh
- Smart meter installed
- 4 kW solar pv array generating 3,400 kWh per year
- Tesla Powerwall 2 domestic battery storage installed with 13.5 kWh usable storage and maximum charge rate of 5 kW and maximum discharge rate of 3.68 kW with 90% round trip efficiency
- Access to half hour variable rate Smart Export Guarantee (SEG) and half hour electricity pricing and using an arbitrage approach to storing/selling electricity. It is assumed that the differential between grid purchase and export pricing is maintained for future years.
Electricity Export Details
(from Great Home Solar Panel & Battery Storage Calculator)
| Energy used: | 3,500.0 | kWh |
| Solar generation: | 3,400.0 | kWh |
| Purchased from grid: | 3,248.5 | kWh |
| Round trip losses: | 324.8 | kWh |
| Energy Exported (SEG): | 2,822.0 | kWh |
| Battery charge change: | 1.5 | kWh |
| Export Payments (SEG): | -£338.59 | (12.00p per kWh) |
The assumed solar output of 850 kWh per year per 1 kW of solar array is a cautious one. Ideally placed unshaded south facing panels in the UK can produce in excess of 1,000 kWh per year per 1kW of solar pv panel. Access to half hour pricing for electricity exports and purchases is a more difficult one to achieve. Currently only one supplier, Octopus Energy, offers day ahead SEG prices but this is likely to change with the wider introduction of smart meters.
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