On-grid domestic battery storage

Exiled_Tyke

1961Nick wrote: »

But you still need to factor energy price inflation into the calculation if you believe energy prices will rise?

My assertion was that other than the initial outlay, there isn't any opportunity cost given that inflation/interest rates are currently about equal. Also the savings that you are making from day 1 of the installation are effectively repaying that capital outlay.

The calculation actually becomes so complex with so many variables that you can make a compelling case either way for battery storage.

A simplistic calculation would be;

6000 cycles x 8.2kWh x 13.23p = £6509

That's £2300 more than the batteries & inverter cost so there's a realistic probability of payback.

As Z and Martyn have suggested it's difficult to speculate about all the factors particularly inflation. However I came up with another calculation which may be of interest. If you were to suppose the the price of electricity were to increase at the same rate as the available interest rate available on savings then the approx 13 year pay back period is lengthened to around 16 years when comparing battery savings to the capital outlay plus lost interest on the capital.

mmmmikey

Hi


I'm working on a spreadsheet that models the effect of differing inflation rates and interest rates on the payback. I have only looked at "normal" ranges on the basis that if we have a major economic shock (like a long period of high inflation or interest rates) in the general scale of things I won't be worrying about my batteries.



This has thrown up a couple of considerations that I don't really think have been touched on much here. Taking the (for me real) scenario where batteries are funded by taking money out of a savings account, the lost-interest cost is easily calculated. However:


1. Lets say that buying the batteries saves me £150 per year off my electricity bill. What happens to that £150? For me it goes straight back into savings and starts acruing interest, which has the net effect of reducing the cost of lost interest. If I chose to blow it on beer and cigarettes, then to do a like for like comparison I'd need to take the same amount of money out of savings to pay for the beer etc., again reducing the cost of lost interest. This makes quite a difference to the overall cost in terms of interest.



2. You have to factor tax in as this too males a big difference - i.e. 2.5% gross is 2.0% to a 20% tax payer (as in my case) and 1.5% to a 40% tax payer (I wish )


So my first thought was that I was going to find the case better than I thought. However, because of the fairly lengthy time period involved and the way things compound, and because interest rates and inflation (in normal circumstances) are closely linked, there is very little difference of any of the middle of the road scenarios - i.e only + or - £200 on the overall payback.



So my own conclusion is that it is perfectly reasonable to ignore both inflation and interest rates when calculating payback times.


The most significant financial factor to me seems to be the rate you are currently paying (and are therefore going to save) for your electricity which is going to vary quite a bit according to whether you are on E7, low user, "standard" tarriff etc.


One last thought on this. I've formed the impression that there are 2 distinct groups of contributors to this forum. Those for who "it makes financial sense" means "it's not going to cost much to do this in the long term" and those for who this means "this is a good investment". My own take is that there are an increasing number of people who will find they can buy batteries with little overall cost (or even just possibly seing their money back) but I'd be very surprised if anyone is yet at the point where this makes sense purely as an investment.

orrery

mmmmikey wrote: »

Hi
I'm working on a spreadsheet that models the effect of differing inflation rates and interest rates on the payback.....

Once you add in too many factors it becomes a matter of what assumptions you make.


If you have solar PV, then the variables become so complex that it is impossible to model without become hostage to the assumptions again. I tried using the 30 minute data provided by the electricity company from my smart meter, but it all becomes too complex to model - a slight change in assumptions can swing the final answer either way.

mmmmikey

orrery wrote: »

Once you add in too many factors it becomes a matter of what assumptions you make.

True, but at the same time if you ignore factors like the cost of electricity over time and interest rates any financial calculation or discussion of payback for something with a 10 or 15 year lifespan becomes meaningless.



Also, even if you choose not to factor them in you are still making an assumption implictly - e.g. that they don't matter or cancel each other out.



My approach to this is not so much to assume a particular value for, say, inflation but more to understand what effect that inflation changing has on the financial case.


Keep in mind as well that protecting yourself against the possibility of rising energy prices (i.e. inflation) is in my view a perfectly rationale and valid reason for deciding to invest in this technology, and therefore in my view is worthy of investigation and discussion here.

Martyn1981

mmmmikey wrote: »

and because interest rates and inflation (in normal circumstances) are closely linked, there is very little difference of any of the middle of the road scenarios - i.e only + or - £200 on the overall payback.

That's one of my conclusions too, and a throwback to economics lessons, that the two tend to match (roughly).

We should however consider anticipated energy cost rises (not inflation linked, but actual and anticipated) as these will push energy prices up by more than normal inflation ..... but ...

.... NAO predictions are now for only a 10-20% rise through the 2020's, before falling back again as we enter the 2030's. Now, 20% sounds a lot, but that's on wholesale costs, so about 1p/kWh, which for retail prices might be about 7%, but uncertain, and spread over 10(ish)yrs.

So worth acknowledging, but over a 20yr battery lifetime, probably of little to no significance, over a 10yr period for bank balance re-building, perhaps worth considering 0.5%pa, but then we are down to small known unknowns!

orrery

mmmmikey wrote: »

Keep in mind as well that protecting yourself against the possibility of rising energy prices (i.e. inflation) is in my view a perfectly rationale and valid reason for deciding to invest in this technology, and therefore in my view is worthy of investigation and discussion here.

Being a bit of an anorak, I'm not sure that I need a rational and valid reason. However, the variability of the assumptions means that you can only ever get an indication of the ball park you are in.


I'm not sure of the protecting against future energy rises argument - given that battery prices are likely to fall significantly, making the decision easier in the future.



We just need to accept that we are currently in an era of long paybacks where those who go for it will be the techies and early adopters - who are necessary to help the price curve develop.

mmmmikey

orrery wrote: »

We just need to accept that we are currently in an era of long paybacks where those who go for it will be the techies and early adopters - who are necessary to help the price curve develop.

I certainly agree with that and consider myself a bit of both



Returning to more technical matters, a question relating to long paybacks I'd be interested on views on if I may.....


If a battery has an expected life of 6000 cycles you can presumably reasonably assume a life of 16 and a bit years if you assume 1 cycle per day (i.e. 6000/365) or is there some other factor that limits this? Similarly, if (as in my case) you only use enough power in the summer to use half the power and use a cycle every two days, lets say leading to 300 cycles per year in total, can you reasonably assume a life of 6000/300 = 20 years?

Martyn1981

mmmmikey wrote: »

If a battery has an expected life of 6000 cycles you can presumably reasonably assume a life of 16 and a bit years if you assume 1 cycle per day (i.e. 6000/365) or is there some other factor that limits this? Similarly, if (as in my case) you only use enough power in the summer to use half the power and use a cycle every two days, lets say leading to 300 cycles per year in total, can you reasonably assume a life of 6000/300 = 20 years?

Out of my depth here, but I think you might class those two small cycles as less than 1 whole cycle.

The 'damage' isn't proportional, so in the summer months a half cycle that avoids the bottom and top (let's say 35%-85% cycle), will have less than half an impact.

I did ask the off-gridders and some early adopters and those playing with batts on the Navitron Forum a few years back about mini or micro cycles, that got nicknamed Marts-mini cycles:-

I asked if tiny cycles as demand and generation fluctuate and the batts kick in to supply a few W's, then charge back up, let's say you are generating 1.5kW and drawing an average 500W for say a washing machine, but said machine is fluctuating from little W's to 2kW's when heating.

The answer I got was that these micro-cycles are of little concern.

But, just to be clear, it will also depend on the size of the batt, so assuming a biggish battery 5kWh+, as a small 2kWh battery would 'feel more pain' from those micro-cycles.

Sooooooooooooooooooooooo many factors!!!!!

mmmmikey

Thanks Martyn


Something else just dawns on me that (for some) could hugely erode the case for batteries when used to save solar energy. Not sure if this has been discussed much here before (but that could be a limitation of my search skills!)



If you have a smart meter installed and are then required to move from deemed export to real export payments, then any solar power you use to charge your battery ceases to be "free" for the remainder of your FIT agreement. So instead of every kWh you use saving you 12p-ish (assuming a typical single rate tarriff) you'll be saving 7p-ish (i.e. 12p - 5p export tarriff). This is clearly going to make a huge difference to payback times.



On the up side, smart metering does have the potential to allow you to use your battery to benefit from time-of-use tarriffs as and when they are introduced, but that seems to me to be very much an unknown at the moment.


Smug comment - I'll be alright as my sums are based on the 15p difference between my E7 night and day rates

zeupater

mmmmikey wrote: »

... Smug comment - I'll be alright as my sums are based on the 15p difference between my E7 night and day rates

Hi

However, depending on your PV array, battery size/specification & household energy consumption you may actually find that it's actually far cheaper to totally forget the idea of E7 and simply seek out the best single rate tariff to suit the reduced consumption level over a 12 month period .... I've already touched on this a number of times over the past few months so you may be interested in reviewing some of the posts!

HTH
Z