For those playing at home, “opportunity cost” is an economic term, defined as follows:
…the loss of other alternatives when one alternative is chosen.
In particular, looking at my statement about leaving the money in the mortgage offset account, versus buying the system.
I had confidently stated my preference for the financial outcomes of the system early on. As it was likely to save me (at least) double the value of my offset in terms of electricity savings, it looked like an easy choice.
Honestly, opportunity cost was not something I gave much thought to. I decided to invest the money in acquiring a hybrid solar system. I wanted to save on electricity bills, and the money looked well-spent.
What some may not know is Lindsay and I had a fairly long email discussion about the direction of the article. We checked facts and figures,and compared notes in terms of thought process.
The ultimate conclusion is the one that most basic analyses have come to; the Powerwall is not yet considered financially sound in terms of payback, against its warranted 10 years.
Estimates for payback vary widely on how you analyse it, and individual circumstances. I had calculated mine at around 8-10 years, and that looked good after the first bill produced savings of ~ $450 compared to same quarter last year (or about $1800 per annum).
I got to thinking about my financials, since Lindsay’s article. During a subsequent proof read for another article I’ve written (to be published in the near future), I decided to go back and review “opportunity cost” as a thing.
I wondered if I’d made the right decision.
The article on gizmodo was right: while I was going to save on electricity bills, that money would no longer be helping slaughter my loan. By sticking it to the power company, I’d lost the chance to stick it to the bank!
What a conundrum…
I should mention that in the weeks before the install, I’d moved my mortgage to a product without an offset. I still could have dumped the lump sum it the mortgage directly, and let it ride.
But would I? Really?
Even in Aussie dollars, $16k is non-trivial amount of money to the average family. Maybe it was time to have a family holiday? Pay off some other debts? Do some enhancements around the house? Buy a GoT-themed jumping castle? Wait. What?
The point is, while its all well and good to say “stick it in the offset”, there are no guarantees that it would stay there. The problem with ready cash is that there are always things for which it could otherwise be used. Life happens.
DOING THE NUMBERS…
For the sake of this discussion, let’s say the money went into the mortgage, for the Powerwall’s warranty period of 10 years.
Assume the interest rate stays at 4% (unlikely), and we keep any benefits in the mortgage. Under the principal investment of $15,990 the interest saved is $639.60 over the first year. Second year is principal $16,629.60 (adding the savings), which saves $665.18 and so on.
Now, based on rolling the principal + interest over every year, after 10 years we arrive at … carry the three … square the hypotenuse … divide by the tangential inverse of pi …
A total interest saved figure of $7,679.11 from my investment of $15,990.
I’ve continued to pay electricity bills during that time, of course.
Starting with my base usage costs of $1920 from the 12 months leading up to Powerwall, let’s be extremely generous to the retailers, and flag an upward move of 0.5% per year, on average.
That means in the first year the new usage costs are $1,929.60. Second year $1,939.25 – and so on.
Over 10 years, that little hike makes for a total electricity bill of $19,736…
Therefore, despite saving money in my offset, I’m still down by a figure of just over $12k. If the price rise was just 2% per year on average, its more like $21,443.93 paid to the electricity retailer (loss of nearly $14k).
Just for reference, 2% increase on usage costs, for the average of 25 cents per kilowatt hour in these parts, is half a cent.
If the increase was 4% (1 cent per kWh), I’m paying out nearly $24k in electricity. That’s enough to cancel out the interest savings AND put me in the hole for the value of my system!
NOW FOR SOMETHING COMPLETELY DIFFERENT
Man. Who knew an increase of 1 cent could hurt that much?
Let’s take another tack, and look at using the money I save on electricity against the mortgage.
Again, we need to make some assumptions:
mortgage interest rate will be 4% ongoing
$450 saving on the first quarterly bill extrapolates to $1800 per annum
degradation in Powerwall is cancelled out by increases in electricity price
money saved on bills will be put back into the mortgage*
* Again, it probably won’t, but given the opportunity cost matrix assumes that all monies stay dedicated to the mortgage, I say game on!
Starting at Year Zero with a capital position of negative $15,990 we can compound all our numbers moving forward. Remember, we’re adding $1800 into the pot every year from bill savings, as compared to my old provider.
Therefore in the first year, we subtract $639.60 in lost interest from the starting capital position, but add $1800 per year in bill savings. That rolls over to the new amount for calculating the offset in the next year.
This indicates that some time very early in the twelfth year is when I hit payback, under the opportunity cost calculation. That would be the system paying itself off in full, and accounting for the mortgage offset.
DOES IT REALLY MATTER?
Really, these numbers are just an exercise in maths. And a bit of fun.
It would be highly unlikely in either scenario, that spare money would sit in the mortgage that long. There are things to do, and locking up a bunch of money for a few percent interest until I’m in my 50s? Sounds like wasted beer money, or holiday money, or holiday beer money.
Beyond the first year will I really save $1800? What happens when the interest rate on my mortgage shifts?
Trying to cater for all these factors could drive a bloke crazy.
Looking at the opportunity cost is an interesting exercise, but it won’t keep me up at night. I’m hardly tying myself in knots with post-purchase cognitive dissonance either. I have a power bill that makes me smile.
There are also intangible benefits I’ve had on a personal level.
My rough biscuit has been on TV a few times, and across other media, which was a bit of fun.
I have created a little corner of the internet to blather my thoughts into the ether, and I’m flattered that people read it!
One of the best parts has been meeting with switched-on people, who want to make a real and positive change. They have a lot to teach, and I am in awe of the chance to learn from them.
It was with a gentle murmur that the Clean Energy Council (CEC) released its *deep breath* Install Guidelines for Accredited Installers – Grid-Connected Energy Systems With Battery Storage.
Editor’s Note: This post has now been edited for family appreciation. For those who wish to play Sweary Bear, replace any bold-underline-italicised words with whatever pleases you…
It got a bit of coverage on Clean Energy Council but was otherwise under the radar, perhaps due to the relative nascence of these systems that will be both home- and grid-connected.
NCBI also covered the Case Of The Burning Battery reported in March, which should probably raise a few red flags in the industry about cowboy operators, more than anything.
What I’m told by people on the ground is that the inverter caught fire, not the battery. Not that it matters once you’ve seen the way it was wired up (click on the article link), and where it was located (in a garage). You get a bit more of a feel for how it can go wrong, and why guidelines like this are important.
I’d never install battery storage in my garage because the door faces west, and the heat buildup when you park a car in there is what you might call sub-optimal. Throw in the fact that a lot of the battery storage units being imported are operationally rated to 40oC, and it paints a picture of best practice that most consumers should be able to understand understand.
I will point out the Powerwall is rated to operational temperatures up to 50oC, and then cease this smug digression.
As someone who has been enthusiastically engaging with various parties across the industry, as one of the initial Powerwall owners, I was keen to see how the CEC would tackle such a broad area.
There are a small number of systems in existence already that are completely bespoke, mostly in the sealed lead-acid domain (AGM etc). A number of these are off-grid, and therefore not subject to the guidelines.
In my opinion, the Guidelines have been prompted about the move towards consumer-grade equipment, targeting lithium in particular. It does talk about checking electrolyte levels “if applicable”, but these guidelines weren’t hurried about by AGM or flow batteries, that’s for sure.
Battery Storage Guidelines
After reviewing the document (click here for the PDF) the first time, I was particularly concerned by the general direction of the content.
And when I say “particularly concerned”, I mean “utterly livid”.
Page 17 contains the following (and you can see how raw this draft is, based on proofreading skills on par with my own):
That … kind of makes sense I guess. Looking at the options, and with the understanding my battery storage is mounted on the outside of the house, I’m going with “battery enclosure”.
That should be covered by the IP rated battery chassis and the weatherproof IP rated cover I’ve got, right? Right???
Uh…. What the deuce?
Maybe I need to count to ten, take a breath, and read further.
Maybe it isn’t just some nanny state bull dust gone mad, and that mitigation is in the detail.
Maybe we should skip ahead to Page 20 where we see this:
I hasten to point out that both AS 62040.1.1 and AS 62040.1.2 are related to UPS. These storage systems aren’t actually UPS, so do we ignore that or not? And what constitutes “all in one” or the term “such as PCE and control gear”?
Back to Page 8 for more reading on definitions:
Houston, we have a problem. Because we’ve got a lot of battery storage systems out there – and those being introduced – that do NOT meet this definition specifically, Powerwall included.
Some of the other manufacturers have this covered with a single box that I’m aware of, but in terms of outcasts, you’ve also just caged up units like Redflow and I believe Enphase while we’re here.
This is big trouble for manufacturers, who were trying to make batteries appealing using nice cabinets and cases. Now you’re going to need to consider specifications for caging the darn things up, like some kind of sad tiger in an Eastern Bloc concrete zoo, its nobility and grace forgotten.
Installers are going to be even more hesitant. Now all the wiring diagrams have to consider extra metal and framing (pretty good at conducting electricity I hear) as well as adding the cost and trouble to the install process, which will affect end users.
Going further back, into the section on 2 Scope we read:
Again the (possibly incorrect) alignment with UPS standards, and the assumption that all-in-one systems contain everything, basically back to the panels.
Or does it?
But it also states that all-in-one had to contain the PCE, and reference it again on Page 9 under 3.1.5 Combined cabinet/enclosure the words “An enclosure containing both batteries and PCEs” but saying nothing about the inverter.
So which is it? If “all-in-one” different to “Combined cabinet/enclosure”, then why does the former need to contain the inverter but the latter contain only to the PCE hardware? Does that not automatically create overlap or confusion about where the document’s specifications sit?
Why aren’t inverters caged up or in a separate “battery room”? They’re just as dangerous as battery storage after all. We don’t have all those power switches and isolators for the fun of it – they are to keep the system safe to work on, and the people safe that work on them.
Are the “all-in-one” systems required to have suitable locks under the Australian Standards? Which AS document? This document doesn’t address physical locks required for these enclosures at all. If someone gets an enclosure, battery room, or fenced off area, is it OK to just leave it unlocked? The document doesn’t say. It does assume a lot, though.
My head is starting to hurt. I imagine a few industry insiders are looking sideways at this document, and wondering how they’re going to meet the bureaucratic mish-mash this could turn into.
I understand from speaking to a few people in the industry, that the CEC put this together in consultation with various stakeholders, and that its very raw. I think another round of reviews is required urgently, because this becomes a requirement, not a guideline, as of 1st October this year. Less than 5 months away.
No-one is putting a cage around my Powerwall. No-one is putting a safety sign on it, or near it, either.
The document makes multiple references to ensuring “unauthorised personnel” aren’t permitted access to the battery equipment, and that is a good point.
Rather than putting that on something as quaint as a sign, I’ll just use some common sense: if you’re on my property without my permission, you are unauthorised to be there, much less get close to my solar equipment or other possessions.
If you do not leave immediately, I will authorise my good friend, Mr Pickhandle, to assist you in any way we see fit.
As scientific bodies continue to explore and model the effects of climate change, the technologists, disruptors, and entrepreneurs are seeking ways to combat it. The use of renewable power in the form of wind and solar is one of the key areas.
However, a valid criticism of renewable energy is stability: if the sun doesn’t shine, and the wind doesn’t blow, solar and wind are in under-supply. If the sun DOES shine brightly and the wind picks up, the renewable energy grid produces oversupply.
This situation is prominent in the California “Duck Curve”. The belly of the duck is over-generation from solar, while the head of the duck is the consumption ramp for night-time domestic use.
As domestic and commercial solar uptake increases across the world, there is a genuine risk to existing grids. Trying to address this issue alongside a mix of traditional power generation is difficult. Large, traditional generators cannot uplift generation, or halt it, at short notice.
I believe the natural solution is widespread adoption of storage technology.
Domestic storage will mature rapidly over the next 5 years, as household battery options become cheaper, due to vertical integration of the production process. This will be particularly true in established Western housing markets, particularly those dwellings with rooftop solar options.
It also enables the concept of virtual power plants for retailers to access power stored in domestic appliances. In the future, consumers will engage in peer-to-peer trading via blockchain and other smart technologies. The net result is to lower the need for a traditional “grid” and the associated maintenance for poles and wires.
Industrial storage will see positive disruption to hi-tech engineering solutions, using renewable generation. Efficiency has a large role to play here, as innovation across multiple sectors leads to better production engineering.
The volatility of frequency required for running many heavy industries can be offset with larger scale storage. These battery systems act like a buffer, or regulator, in order to provide assurance of stability. Large storage can also be deployed by energy networks in order to back up local power infrastructure.
Transport storage is a key area for addressing carbon emissions. While cars are the major playground for this technology right now, the move to heavy transport, agriculture, and public transport offers a range of other benefits.
I call it “Transport storage” because it offers more than just a way to move people or goods from one place to another. There is the opportunity to place domestic, industrial, and transport storage in synch, to produce a more efficient outcome for renewable energy.
Consider the California Duck Curve I mentioned before. This is the result of “too much of a good thing” when we have an over-abundance of solar PV! What if there was a way to mitigate this?
The average shopping mall in most countries has a roof space in the hundreds of square metres. They also contain hundreds, if not thousands, of car spaces.
If we add solar panels on that roof space, and storage in the basement, we can effectively create a curve smoothing apparatus by plugging in a suitable number of EVs during daylight hours. A similar system could be used by places of work for the benefit of employees.
Such a system would draw not only from the local (mall rooftop) power, but also spill excess renewable energy into recharging the transport network in other places. This might take the form of powering connected public transport – like electric buses or trains – on site, or via the grid.
All the while, this large-scale storage and renewable generation helps flatten the belly of the duck during the day. When people return to their homes at night, they can cut the head off the duck using their domestic storage.
Storage, along with the associated smart management technologies, provides the cornerstone for a renewable energy future. The combination of increased efficiency, and reduction of fossil fuel burning, is undeniable.