Transcription
Not everyone can get solar on their property, and it's hard to make a financial return on a battery-only setup. Or so I thought.
In this video, I'll show you how you can get a return on a home battery in under 3 years. That's crazy.
Hi there, I'm Gary, and welcome back to my channel, Gary Does Solar. Just under two years ago, I made this video here talking about the price of home batteries and how they were expected to fall over the coming years. In that video, I presented two charts. The first showed lithium-ion battery prices falling from $75,000 per kilowatt-hour to just $200 between 1991 and 2018, a 97% reduction. Then a second chart showing a further predicted fall from $120 to $80 per kilowatt-hour at the end of this decade.
By the way, for consumer home batteries, you'll likely pay more than that, but you'll still benefit from lower prices over time, especially with new battery chemistries coming to market to compete with lithium. One such chemistry is sodium-ion. And if you haven't seen it already, I highly recommend you watch this interview I did with Eleven recently, where we get into the detail of that technology and how it's expected to disrupt lithium's dominance.
I concluded at the start of 2024 that if you wanted to get a home battery without solar, let's say for environmental reasons or to keep your home appliances going during any power outages, then a case could likely be made for that kind of spend. But if you wanted to get a battery-only solution for financial reasons, it wasn't worth it yet.
Fast forward to today, and I wanted to revisit the topic to see if battery prices had come down to a point where a battery-only installation would be financially viable now. And I have to say, I was pleasantly surprised.
So, before we get into actual figures, how can a home battery save you money? Well, primarily, it's about using it to buy energy when it's at its cheapest, and then using that same energy to power your home when it would be more expensive to do so otherwise. Let's say a home uses 14 kilowatt-hours of energy every day. In the UK, energy costs around 26.5p per kilowatt-hour. So that's a cost of £3.71 every day.
For those who have an electric vehicle in the UK, there are EV tariffs available that offer a very cheap rate of electricity overnight in order to charge your car with. My favorite energy provider is Octopus Energy, and they have a tariff called Intelligent Octopus Go, which offers 6 hours or more of cheap-rate energy at only 7p per kilowatt-hour. And in addition to charging your EV, you can use it to run your home appliances, including, for our purposes here, charging a home battery.
By the way, if like me, you live in the UK, I highly recommend Octopus Energy as your provider. And if you switch to them using my referral link here, you'll get £50 credited to your account. I'll also get £50, which means you'll be directly supporting my channel. Thank you.
Let's say our home battery has a 16 kWh capacity. We could charge it up overnight every night at the 7p rate and then use that energy to power our home requirement of 14 kilowatt-hours the following day. 14 kilowatt-hours at 7p is 98p. And if we subtract that from the cost without the home battery, £3.71, it gives us a saving of £2.73 every single day. That's an electricity bill reduction of 73%. Wow.
But hang on, it's not that simple, is it? We know that you don't quite get out of a battery what you put in due to round-trip losses. And the battery capacity itself might be affected by depth of discharge and also degradation over time. And there's the effect of inflation over time as well. And what if your battery capacity is larger or smaller than your daily usage?
To really understand the financial benefit of a home battery, we're going to have to use a handy utility, and it just so happens I've developed one here. This utility is available to my Patreon members, and you can sign up here to access it. I've kept the cost as low as I can.
Let's first see what the payback time would be using our example if our home battery was a Tesla Powerwall 3. I can certainly vouch for the Powerwall 3 as a product. I really like it, but you'll need to look around to find a good installer. Feel free to use my directory, which contains a list of installers around the UK that I would trust with my own money. Just type get ready4.solar into your browser or scan the QR code here.
Okay, we'll program the utility with appropriate settings for a Powerwall 3. Let's say the battery cost, including installation in the UK, was £8,000. We know that the battery capacity is 13.5 kWh and it has 100% depth of discharge. We'll keep a minimum of 10% state of charge, and we'll assume the round-trip losses are 10%. We'll also assume that the battery capacity degrades each year by 2%. You can see we've already added our daily energy usage here at 14 kilowatt-hours. And for the tariff rates, we'll set the before rate to be 26.5p, which is 0.265. And for the after rate, it's a slightly higher standard rate with Intelligent Octopus Go at 29.86p, but a cheap off-peak rate of 7p. Finally, we'll set the annual inflation rate at 3%.
Now, if we look over at the chart on the right, you can see two lines. The gray line represents the cumulative electricity cost over 15 years without a home battery. And the green line is the same, but this time the home battery is saving us money. The green line starts at £8,000, as this is the upfront cost of the Powerwall 3, but the slope of that line is less than the gray line due to the cost savings provided by the battery. And where these two lines cross is where that original £8,000 investment is paid back. This happens in just over 9 and a half years. Not a great financial return by itself, but if you're buying the battery for environmental and/or home backup reasons, it's actually pretty good. After 10 years, you're not out of pocket anymore. And of course, the battery will likely continue to operate for many years still. Bear in mind, though, that the capacity of the battery will continue to degrade, as you can see in the chart below. And actually, I think they're finding degradation rates on modern batteries are not as high as they first thought. So, it's worth checking the datasheet to see what the degradation rate actually is.
All right, this is all fine, but I'm conscious I haven't delivered on what I promised in the video thumbnail, a payback in 3 years. So, let's look at another cheaper battery. But before we do that, if you're getting a lot from my videos, please can you take a few seconds to like and subscribe, as this really helps the channel. Thank you.
Okay, here's the battery we're going to look at. It's from a company called Fogstar, and it has a 16.1 kWh capacity, and it costs just under $2,000 in the UK. Now, I don't know too much about this particular battery, so I can't vouch for its quality or reliability, but if you have firsthand experience of it, please let me know in the comments, as this will help people who are considering such a battery.
All right, let's use the utility again to see what the payback for this battery would be. Now, the Fogstar battery requires a separate inverter and of course would need to be installed. So, let's add another £800 to cover both, making it £2,800 total cost. The capacity size is larger than the Tesla Powerwall 3 at 16.1 kWh, but its depth of discharge is slightly less at 95%. I think we can leave the other settings the same as before.
And if we look at the chart on the right, you can see that we get a payback in just under 3 years. I mean, that's incredible. But what's even better is that with the battery paid off, it's pure savings going forward. And over the next 7 years, that profit is the difference between the two lines. At year 10, that's £15,887 less £8,952, which is £6,935. Or to put it another way, if we invest £2,800, after 10 years we'll get back nearly £10,000. And of course, even after 10 years, the battery will likely continue to operate, albeit at decreased capacity, providing a continued return of £2,000 a year until it dies.
Of course, this is just a modeling utility, and in the real world, who knows what's going to happen. Energy prices may continue to go up, or they may come down eventually in a world full of renewables. Inflation may also increase or decrease. I have no idea. Overnight cheap rates could change, too. There's no way of knowing. So, if you're going to use this utility to make a buying decision, just be mindful of these things. I'm relatively comfortable, though, that even if half the assumptions turn out to be wrong, there's still a good chance you'll get your original investment back in 3 to 4 years, and anything on top of that is a bonus.
Now, even though I deliberately looked at a low-cost battery, it won't be long before the prices of the premium brands fall to the point where a financial investment into a home battery becomes viable without the need for anything like solar panels. And the modeling I performed only looked at self-consumption. It's also technically possible to export energy stored in your battery to the grid and get paid for it. But unfortunately today, if you have a battery-only setup, I'm pretty sure your energy provider will take a dim view of you importing and then exporting that same energy back to the grid. See my video here where I talk about the issues around what is called "brown export," energy exported to the grid that cannot be verifiably traced to a renewable source such as solar panels.
But there might be another avenue for you to generate revenue, and that's by handing over control over part of your battery to a third-party provider who can aggregate hundreds of thousands of batteries like yours to provide energy management services, including frequency and voltage management and also energy trading with the grid operator. That's actually the subject of a video I'm working on just now, and it could really accelerate the roll-out of home batteries around the world.
In the meantime, if you'd like to hear more from me about battery-only solutions for those who can't get solar, here's a video I made looking at the topic in depth. Thanks for watching this video. I'm so excited about how fast technology is progressing in the home renewable space. With prices falling as they are, I can see a time when almost every home will have a battery installed, even if solar is not an option, unlocking cheaper, cleaner, and more reliable energy for everyone.
As always, a big thank you to my Patreon supporters who make my videos possible. You can get access to the utility I was using earlier by signing up here. I've deliberately kept the pricing as low as I can. Please don't forget to like and subscribe. And if you watch to the end of this video, you'll find other ways to support me if that's of interest to you. Cheers for now.