Last week RenewEconomy covered the Clean Energy Council’s Accelerating the Uptake of Battery Storage report, which makes a compelling case for why market reform is more important than subsidies in driving battery storage adoption.
People love incentives (and the solar industry has a love/hate relationship with incentive application deadlines). Alongside sorely needed market reforms, I’m sure that some of us would argue that a battery incentive program would help to kick the market into gear.
So just for a bit of wonky (if slightly unimaginative) fun, last week I decided to have a look at what form battery storage incentives could take – particularly if they were to be somehow shoehorned into the Renewable Energy Target’s Small-scale Renewable Energy Scheme. What if home battery storage systems could create STCs? This would surely help to push down battery storage system prices, which remain the main barrier to uptake at the moment.
The primary purpose of the RET is to support the deployment of new renewable energy generation capacity. The RET offers an indirect incentive for solar PV systems less than 100kW in the form of STCs under the SRES. This incentive has enabled Australia to achieve some of the lowest solar PV installation prices in the world. Since batteries don’t generate electricity themselves, it’s debatable whether they should actually fall under the SRES umbrella.
However, we could think of them as a way to augment the capacity a small-scale solar PV system so that solar energy can be put to more useful work (instead of being exported into the electricity grid, where it is less useful to all involved). Most batteries would be discharged most frequently after dark, in a way bringing daytime sunlight to households even after the sun has set. Although it may admittedly be a bit of a stretch, let’s assume this counts as extending generation capacity, thereby earning a solar+battery system a greater number of STCs than a solar only system.
(Thanks for reading! Please keep in mind that this article was written mainly as a thought experiment and a jumping-off point for a broader conversation about battery incentives.)
STCs for battery storage – How could it work?
If we theoretically agree that home batteries should receive incentives under the RET, then there are two main questions to look into: Which battery storage systems should be eligible to create STCs, and how many STCs should they be allowed to create?
Creating eligibility rules
First off, there would need to be some rules to ensure that batteries are being used ‘for good’ (i.e. to extend renewable energy capacity) instead of ‘for evil’ (e.g. for retail tariff arbitrage using coal-fired energy from the grid). To this end, it’s clear that a battery bank should only be allowed to create STCs if it is attached to a new or preexisting solar PV system (or perhaps a small-scale hydro or wind generator). Additionally, we’d want to make sure that the battery bank is appropriately sized for the PV system at hand so that the battery capacity is actually being used in conjunction with the solar (and not being charged mainly with the grid).
To do so, there are a number of questions that would need to be addressed: How much energy does the solar system produce per day? Will the solar panels generate enough electricity to fill up the battery bank (from its lowest allowable depth of discharge) on a regular basis? Would the solar panels be able to completely charge the battery even when the solar resource is at its lowest, in the dead of winter? The answers to these questions would help policymakers to craft a framework for eligibility rules.
As an example, we might say that the total STC-eligible battery bank capacity for a Sydney home with a north-facing 5kW solar system should be no greater than about 17kWh – roughly the amount of energy that system would produce on the average day in July. Given the fact that at least some of the solar energy will undoubtedly be consumed directly by the home, there may be a case for limiting the STC-eligible battery capacity to half this amount (about 7 or 8kWh) to be conservative.
It also bears noting that there would of course be an overarching requirement that the system is installed by an accredited professional using accredited products – as is already the case with solar PV.
Calculating STC volume
While the ability of batteries to make solar energy available during non-daylight hours arguably has value from a renewable generation capacity perspective, that value can be tricky to quantify. For solar PV, these maths are already done and are fairly straightforward (see the Clean Energy Regulator’s STC calculator). A 5kW solar system in Sydney, for example, creates 103 STCs when installed. Currently trading at about $39 apiece, these STCs translate into a ‘discount’ of about $4,000 – or about 30-40% off the up-front cost of a system.
When it comes to small-scale solar, the RET is conservative about how STCs are doled out – you only get 15 years’ worth of STCs when you install a system, even though the system should continue to produce energy for 25. Essentially, the federal government decided to err on the side of caution, hedging against the possibility that not all of these systems manage to generate as much energy as expected (because of shading or malfunction) across their lifetimes.
There would therefore need to be a standard way to calculate how much renewable energy a particular battery product can support. Not all batteries are created equal; they have varying lifepans and lifetime energy throughput figures. The City of Adelaide, as home to one of the only up-and-running battery incentive programs in Australia, is worth looking towards for ideas about dealing with this issue.
Adelaide’s formula for calculating the battery subsidy value is as follows
Adelaide City Council Battery Storage Rebate =
kWh discharge per cycle (at manufacturer’s depth of discharge)
x lifetime discharge cycles (end of life 80%)
This formula is a good starting point because it includes all the relevant specifications that (at least hypothetically) determine a battery’s lifetime energy throughput. It also standardises some of the figures that are often be bandied about (e.g. a definition of end of life at 80% original capacity).
Much like the calculation of STCs, it doesn’t take into account actual operating conditions (heat? humidity?) or possible future downtime (e.g. due to failure), and as such should probably be given the same conservative ‘derating’ of about 60% that solar systems get on their STCs. A RET-based program for supporting batteries might even take into account the respective performance of different types of batteries in different climates.
Now, let’s take Adelaide City’s formula and apply a 60% derating. Then let’s fit the specs for Tesla’s Powerwall into the formula. We’ll have to fudge the numbers a bit, as no Powerwall spec sheet that I’ve seen gives DoD or cycle life to 80% end of life (EOL for the Powerwall has been given to me as 60%).
7kWh x 85% DoD x 3650 cycles = 22MWh
22MWh x 60% = 13MWh, or about 13 STCs
If 1 STC = $39, total incentive value = $507
This final number is a bit of an anticlimax given the preceding 1,000-word buildup: You’d be hard pressed to argue that $500 is a generous incentive for a battery storage bank ($10,000 is a reasonable figure for a fully installed 7kWh lithium-ion battery bank). But it is arguably a fair one in terms of the degree to which it supports additional renewable energy generation – modestly boosting the case for the hypothetical argument above. Were the federal government to implement battery-friendly segment to the RET (quite unlikely under current conditions), they might even consider introducing a temporary STC multiplier only for batteries to offer greater support in the early days, much as was once the case for small-scale solar.
Is a RET-based incentive the best approach?
All of the above begs the question of whether the government should approach battery storage incentives through the RET at all. There are quite a few downsides to this avenue – the complexity of the above speculation, combined with the the rather paltry total incentive value that results might convince you that it’s more work than it’s worth. Instead, if any incentive is introduced it all, it might come more in a form more along the lines of the one offered by the City of Adelaide: a straightforward rebate on the cost of a fully installed solar system. In any case, whatever incentives do come into play in the end (if any), the hope would be that market reforms such as those suggested by the CEC will help to bridge the gap from the other end.