Do Home Solar Batteries Make Financial Sense in 2023?

You’ve installed solar panels, you're now you're wondering “what about a home solar battery?”, “Do they make financial sense?”.

Like solar, consumers will have different reasons as to why they'll purchase a battery: energy independence, environmental and financial – with the latter the most difficult to decipher.

Batteries reduce your electricity bill by charging when energy is cheap and discharging when it is expensive. This is known as load shifting.

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Figure 1 – AGL time of use electricity bill example

To demonstrate how load shifting works, we’ll look at a typical residential electricity bill (figure 1) with a time of use tariff. It comprises:

1. Supply charges (cost of getting electricity to your home); and

2. Usage charges (energy you consume).

Usage chargers makes up the significant majority of your electricity bill, and is where solar and batteries have the most impact.

Batteries can be configured to charge when energy is cheap (off-peak or via solar which is notionally ‘free’) and discharge when energy is expensive (peak times).

The more expensive the energy offset with the lowest cost of charging, the greater the savings.

The other key consideration when assessing the financial case for batteries is the upfront cost.

This is important when assessing the payback period (no. of years for energy savings to repay the cost of the battery).

The case study below will look at the financial case for a solar and battery system by reviewing both the energy savings and systems costs.

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One of the biggest concerns for homeowners considering solar batteries is whether or not they are worth the investment. While the upfront cost of a solar battery system can be high, the energy savings could make it a worthwhile investment.

To illustrate whether a solar home battery system makes financial sense, we’ll look at a customer profile that best reflects:

1. The average energy user; and

2. A common system configuration.

In this case we've modeled the energy consumption (double peak) of a Sydney-based family comprising a working couple and two school-age children.

How a solar battery works

In this example (figure 3), the battery system employs load shifting to reduce the electricity bill. The battery is primarily charged via solar with off-peak grid charging used where it was economically sensible. Key ‘qualitative’ benefits generated by the system include the:

• Overall grid energy was reduced by 71% (refer figure 4 below)
• Almost all peak-hour load was eliminated with the remaining load being mainly early morning (off-peak)
• Carbon offset equates to taking 2.2 cars off the road annually

Analysing the financials: cost, savings and returns

The table below summarises the ideal scenario to maximise the financial case for a battery.

In assessing the financial case for a battery, we have modeled a 13.3 kWh Alpha ESS battery, which is similar in size to the popular Tesla Powerwall 2 (13.5 kWh), however, retails for much cheaper at ~$10,000 installed. The Powerwall 2 retails for $15,000 installed.

As expected, the solar system generates the fastest payback from savings at 5.3 years.

On a stand-alone basis, the payback period of the Alpha ESS battery is 10.1 years which falls outside the 5-year product warranty but falls in line with the 10-year performance warranty. (figure 5).

When running the Tesla Powerwall 2 through the same model, the payback falls outside both the 10-year warranty but within the 15-year operating life of the battery. This means the savings from the battery are insufficient to recover the initial capital cost within the respective timeframes.

As you can see the price of the battery is the most significant factor in your return on investment.

Outside of Victoria, no direct government subsidies exist for batteries as they do for electric vehicles.

On a system basis (solar and batteries), the combined payback is more acceptable at 7.8 years.

This is not far off the payback periods (five to seven years), which saw residential solar installations take off.

Today, there are over 3 million solar rooftop installations in Australia.

While the figures in this case study reflect a specific scenario, the analysis will be applicable in many residential use cases.

Another way of looking at financial returns

Do batteries make financial sense? It depends.

Another way of viewing the financial case for batteries is by comparing it to other types of common investments.

On a 'system' basis, the annual returns generated could exceed average annual returns from shares and property. On a stand-alone basis, the returns from a battery exceed current term deposit mortgage rates.

From the numbers we are seeing, there is a strong financial case for refinancing your home to purchase a solar system, batteries, or both!

When viewed from this perspective, the case for purchasing a battery starts to look compelling.

Although the financial case for batteries is still up for debate, customers are increasingly making decisions on a more holistic basis, including recognising benefits such as backup power (for blackouts and outages) and reducing one’s carbon footprint.

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How does a solar battery increase a home's value?

A solar battery system can increase a home's value to the market in three ways:

1. They can substantially reduce a household's annual electricity bill. In the above example, the electricity bill was reduced by almost $2,000 per annum.

2. They can reduce your reliance on the grid and can be set up to provide backup power. The inconvenience and financial cost of a power outage can be significant.

3. Homes with solar battery systems installed will appeal to buyers who are becoming increasingly environmentally conscious. In the previous example, reliance on the grid was reduced by nearly 80%. In a survey conducted by Origin Energy, "57% of homeowners saying they would pay up to $10,000 more for a home equipped with solar, and 60% would pay at least that much more for a home with both".

How much does a solar battery add to a home's value?

Research from Domain reveals that the investment often pays off as homes with solar installed are valued on average $125,000 higher than those without. Given the average home solar battery system costs between $15,000 to $20,000, this is another financial reason to consider installing a system.

Outlook for battery prices

While the financial case for batteries is still up for debate (largely dependent on individual preferences), what is not in doubt is the improving economics – driven by declining costs (solar and batteries) and increasing electricity prices. Battery prices have fallen by as much as 89% in the last decade.

Notwithstanding the staggering reduction in battery prices, the recent explosion in electric vehicle production has resulted in record levels of demand, which battery supply chains have struggled to keep up with. For these reasons, Bloomberg New Energy Finance is forecasting a slight increase in battery prices in 2023, with prices expected to trend down in 2024 and 2025.

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Image by - BNEF battery price forecasts

The other key factor to consider is the increasing difference in off-peak and peak energy prices. As more solar generation comes online, this may have the affect of pushing down peak/shoulder energy prices but increasing peak prices (when the sun) isn't shining.

When is the right time to buy a battery?

So, when will the financial case for batteries 'stack up' like it does for solar today? We believe it could be soon.

With battery price set to reduce by 25 per cent by 2025, we estimate the same battery will cost $8000.

This would reduce the payback period (based on the profile of the case study above) of a stand-alone battery to 8.0 years. Bring prices very close to that 'sweet spot' of 5-7 years.

Emerging alternatives

The consensus is that electric vehicles will not only be the future of transport, but will also play a large role in the future of energy (energy storage and grid services).

The imminent availability of bi-directional charging with EVs enables vehicle to the grid (V2G) services which in turn enable the use of your electric car to function as a battery storage system.

This potentially provides the same utility value as a stationary battery.

Given electric vehicle batteries are three to five times larger than stationary batteries and the fact that cars remain unutilised 95 per cent of the time, it poses the question: would your money be better spent towards an EV?

In future stories, we will explore the emerging utility value of electric cars where they will provide services across transport, energy storage, and the electricity grid.