Why Have Home Battery Forecasts Been Staggeringly Wrong For Years?


This article was originally posted on SolarQuotes.com.au, where there are other comments.

When I was a kid, the past wrote checks for the future reality couldn’t cash.  I never got a flying car, let alone a jetpack, and a picture book I had promised me the 2020 Olympics would be on the moon.  Well, it’s 2020 now and we don’t even have an Olympics, let alone a moon colony to hold it in.

But I’m not going to spend time complaining about childish dreams of a Buck Rogers future that never came to pass.  Instead, I’m going to complain about adult predictions made just four years ago by financial analysts and other experts on how many home battery systems Australia would have by 2020.  Some were so far off they were in Olympics-on-the-moon territory.

Future-hype may have left me with the bitter taste of non-existent moondust in my mouth, but the failure of battery-hype has left me feeling drained of all energy.

When predictions turn out to be twice as high as reality, that’s what I call optimistic, but many went way beyond that into crazy-mistic territory.  Only four years ago, Morgan Stanley analysts made a middle-of-the road prediction that, by this year, 1 in 10 Australian homes would have a battery.  They also had an optimistic scenario where they said it would be 1 in 5.

The actual number of home batteries installed at the start of this year was around 73,000.  That’s 1 in 136 homes, so the prediction they thought was reasonable was around 14 times too high.  To be fair, they did have a low uptake estimate of 210,000 home batteries.  That’s only about three times too high.

In October 2016, the Chief Technical Officer of Reposit, a Canberra based battery focused biz, predicted 250,000 home batteries by 2020.

Using my awesome hindsight powers, these predictions seem ridiculous, but there are a number of good reasons why serious people thought they weren’t making fools of themselves.  But there is one main reason why they were wrong and that is…

Home batteries still don’t pay for themselves.

If they were a clear money saver we’d see plenty of them being installed, but they’re not.  Not at this time and not for normal households.  For a typical home, they don’t pay even in South Australia with its high electricity prices and sizable battery subsidy.  There may be unusual households where they currently pay and there are certainly people who find the backup power batteries can provide make them worthwhile.  But as a money saver for most households, they’re not there yet.  Virtual Power Plants (VPPs) may make a difference to this, but they are only just getting off the ground.

Obviously, the people making optimistic predictions must have thought batteries were on the cusp of paying for themselves back in 2016. That has not happened and the experts appear to have suffered from a bad case of premature prediction.  Falling prices and payments from joining a Virtual Power Plant seem certain to make batteries eventually pay for themselves.  It’s just a matter of when. And 2020 is not when.

So why were these smart, serious people so far off the mark?  Firstly, I suspect their predictions were distorted from gulping down some delicious battery-hype flavoured kool-aid.

The second, bigger reason I think they were so far off is they didn’t allow for the fact that, unlike solar PV and lithium battery cells, each modest decrease in price does not result in a significant expansion of the market.  The huge expansion in the market they were expecting hasn’t happened yet and won’t occur until home batteries pass the threshold where they save normal households money.  The lack of an expanding market means not enough battery systems have been installed to drive rapid cost reductions and quality improvements.  The point at which the market will start to expand is still months to years away.

Battery Uptake Graphs

Here’s a graph showing how many battery systems were installed in Australia by 2020 compared to 2016 estimates by Reposit and Morgan Stanley:

When you look at the actual figure, you can see those were some pretty optimistic predictions. But the 73,000 value for systems installed at the start of the year is, in a way, worse than it seems. If I break it down into the number of home batteries installed per year using figures from Sunwiz Energy Consultants, I get the following:

While home battery installations increased year on year until 2018, there was no increase in 2019.  If installations level off at this rate, we won’t have Morgan Stanley’s mid-range estimate of one million installations until 2060.  The zero increase was despite South Australia’s massive battery subsidy of up to $6,000 being in full swing throughout 2019.  Without the subsidy, installations last year presumably would have been several thousand less, and installation numbers would be going backwards.

Three Types Of Hype

As I see it, the battery hype that seeped into analysts brains and potentially affected predictions came from three primary sources:

  1. Techno optimism.
  2. Reaction to anti-renewable sentiment.
  3. Deliberate market strategy.

1. Techno Optimism Hype:  Most people like the idea of cheap batteries, cool electric cars and other stuff they make possible.  Thus they view the prospects of home batteries through rose-tinted glasses.

I’m okay with this. Optimism about the future is better than pessimism.  Sure, you may still be screwed when you get there, but at least you’ll enjoy the trip.  This type of hype only becomes a problem when people in charge of other people’s money get sucked into it.  For example, the South Australian government.1

2.  Reaction to anti-renewable sentiment hype:  If you’ve learned a little about how energy markets work — or don’t work — then you’ll know that it’s not necessary to have any energy storage at all for renewables to supply the majority of a nation’s electricity.  While low-cost battery storage would be great, it’s not required.

However, most people don’t even spend a single week of their lives studying energy markets.  As a result, for the past 20 years, whenever a certain type of grumpy old fart has woken up with a burning desire to make the world a worse place…

 

They have gone on the internet and typed something like

“You hippies are a bunch of idiots.  Solar power will never work because the sun doesn’t shine at night!”

To which, for millions of iterations, the traditional response has been along the lines of…

“That’s what batteries are for!”

Which I have to admit is a lot easier than typing…

“There are a range of methods for integrating high penetrations of variable generation into a grid, the utility of which will vary according to geography, latitude, climate, and grid characteristics…”

…and so on for 3,000 words.  But the constant litany of:

GRUMPY OLD FART:  Renewables suck!

PERSON WITH HEART FULL OF HOPE:  Batteries!

Must have been repeated around 100 million times over the past two decades and I think it has convinced both the miserable curmudgeons and people who are pro-renewable, that battery storage is more vital for cutting emissions than it is.

3. Deliberate Market Strategy:  While Australians have been interested in home batteries ever since rooftop solar power started to take off ten years ago, battery hype went into hyperdrive in April 2015 when Elon Musk revealed the original Tesla Powerwall.  It failed to live up to expectations.  Five years and a whole new Powerwall model number later, an unsubsidised Powerwall 2 still doesn’t pay for itself for a typical household.  While I think Tesla is on the right technical track with their battery system, it’s certainly taking its time living up to Elon’s trash talk.

Perhaps the hyping of the original Powerwall by Tesla was simply the result of Elon Musk’s naturally optimistic and sunny disposition?  I can’t say it wasn’t, but I do know confidently acting as though your company has an advantage that will let it beat the competition is a tactic sometimes used to discourage others from trying to compete in the first place.  While I don’t know what was going on in Elon’s head, that is exactly what it looked like to me.

While Elon is not the only CEO to hype batteries, he stands out in this regard.  But I’m sure other companies have hyped batteries to try to obtain an advantage.  The ACT’s battery subsidy may be one result of this.

The Misjudged Home Battery Market

Let me show you a graph.  It gives the price of solar cells in US cents per watt over the past 43 years:

The chart is from Bloomberg and originally only went up to 2015, but I’ve defaced it in red to show the price of solar cells are now down to 6 cents per watt.  Solar cells now are less than one-thousandth of their cost in 1977.  It’s an astounding drop, and on average the price halved every four years.  Note this is just for cells.  If you want a solar panel, you’ll currently pay around 17 US cents per watt at a factory gate in Shanghai.

Here’s another graph.  This one shows the fall in lithium battery pack prices over 10 years:

This graph is also from Bloomberg — although I actually lifted it from this Arse Technica article — and shows the fall in lithium battery pack prices.  Just for fun, I added the price in Australian dollars on the first and last columns using the current exchange rate.  Battery pack prices are higher than battery cells because the cells have been wired together into a unit suitable for use in an electric car or energy storage system.  The graph shows battery pack prices in 2019 were nearly one eighth what they were 10 years earlier.  On average it took them under 4 years to halve in price.

Only those who made optimistic predictions turned out to be right about the cost declines of PV and lithium batteries.  Anyone whose estimate was “middle-of-the-road” was dead wrong, while those who made “conservative” estimates should be incredibly embarrassed about them. Unfortunately, it seems the people who made them generally lack any particles of shame.2

Given these circumstances, it might seem reasonable to have expected home energy storage to follow a similar trajectory.  But this overlooks the fact that solar PV and lithium batteries had markets that grew with every single price decrease, while the market for on-grid home battery storage has been shrinking as the supply of eager early adopters decreases with every home battery purchase.  And the market won’t significantly grow until home batteries start saving normal Australians money.

Expanding PV & Battery Markets

The initial market for silicon solar cells was extremely limited.  After being invented in 1954, they only really took off in 1958 when they started to be shot into space as a power source for satellites and probes.3  In the 60s Japan used them for lighthouses and, starting around 1970, they were used in navigation buoys.  The oil shocks of the 70s sparked a lot of interest and investment and, as the price dropped, they began to be used for communications equipment, calculators, off-grid living, on-grid living, utility-scale generation, and now there’s a giant solar farm in India with over 10 million panels.

As lithium batteries came down in price they were able to replace other battery chemistries and were used in power tools, laptops, mobile phones, flying drones, robot crones, and thousands of other uses.  Starting in 2010 with the launch of the Nissan Leaf they were used in production line electric vehicles.  Again, each decrease in price increased the size of the market as worthwhile applications for lithium batteries expanded.

Every time the price of PV or batteries fell increased demand, which increased production and research into how to lower their costs and improve quality further in order to get ahead of competitors.  Unfortunately, home battery storage doesn’t yet benefit from this type of virtuous circle.

The Shrinking Market For Home Battery Storage

While solar PV and lithium batteries faced expanding market opportunities with every price drop, home battery storage does not. Every battery system sold right now shrinks the market.  This is because there’s only a limited number of eager early adopters willing to spend money on a home battery that’s unlikely to pay for itself.  Every time one’s bought, this tiny market shrinks a little more.  Market saturation is why sales didn’t increase at all last year, despite a fat subsidy in South Australia, the state with the highest electricity prices.

While small price falls may encourage a few more early adopters to shell out for a system, the market’s not going to see any substantial growth until the price falls below the threshold where batteries save normal households money.  After that occurs, each additional fall in price will result in the market expanding as increasing numbers of people see it’s worthwhile to get one.  But after April’s 33% cut in South Australia’s battery subsidy and a sizable electricity price reduction likely in July, the point at which batteries start to pay for normal Australians may be getting further away.  Payments from joining a Virtual Power Plant should help, but it will probably also take some big cuts in battery system prices to turn them into money-making machines.

Cheaper Batteries Are Coming

With PV and lithium battery cells we had a world of consumers creating a huge market for these products.  But the market for modern home battery systems is mostly just Australia.  While there are also Americans, Europeans, and others buying them, their suppliers generally aren’t competing on price and so aren’t doing as good a job of pushing down costs as the numbers sold may suggest.  You only have to look at the high cost of rooftop solar power in the US to see what happens when something is marketed as a “lifestyle choice” rather than it being sold because it saves people money.

The miserable market size means we’re not seeing the rapid improvements in home battery technology we would if production numbers were higher.  Because of delays in their development, they have the potential to fall a long way in price.

The three main components of an AC coupled battery system that can be retrofitted to any home with solar panels are:

  • An inverter to change DC power from solar panels and batteries to the AC power homes use — and vice versa.
  • A converter that adjusts DC voltage and allows batteries to be charged and discharged.
  • A battery pack.

These days a reliable 5 kilowatt solar inverter may cost around $1,500 at the factory gate.  Throw in the converter and we’ll say it’s a nice round $2,000.  According to the graph of battery prices I included above, in 2019 they cost $232 Australian per kilowatt-hour.  If we assume in 2020 they are now 13% cheaper, then 10 kilowatt-hours will cost $2,000.  If we add a 20% retail margin, 10% GST, and allow $1,200 for installation and after-sales service4 then we’re looking at around $6,500 for a fully installed 10 kilowatt-hour battery system.

I know a guy with a Powerwall 2 and it saves him on average under $2 a day on his electricity bills.  But some households will get more value from a battery system than he does and it should also be possible to get some value out of joining a Virtual Power Plant, so a battery system at this price should be able to pay for itself.  What’s more, it requires no advances in technology, all it requires is for the components to be put together in a well designed, reliable unit and mass-produced at low cost.  So home batteries that pay for themselves are already baked into the technology cake.  It’s just a matter of when we will get them.

As for when they’ll arrive, your guess is as good as mine.  Actually, it’s better than mine, since you’ll know what your guess is while I’m too chicken to tell you my prediction after putting so much effort into mocking bad predictions.

Footnotes

  1. You would think that after the giant blunder of naming their state South Australia when 3 out of 5 states are even more southerly, they’d be careful not to make any more significant mistakes.
  2. There’s plenty of old graphs out there that show solar getting cheaper for a couple more years and then mysteriously levelling off as if $2 a watt was the best that could be dreamt of in our philosophy.
  3. But no one probed Uranus using solar cells.  Even today I wouldn’t probe Uranus with them.  I’d definitely want a radioisotope thermoelectric generator for that job.  Preferably at the end of a long boom.  But I would consider probing Saturn with solar cells.
  4. Allowing $1,200 for installation and after-sales service isn’t much, but I’m assuming future battery systems will be much simpler to install and much more reliable than current systems that require a much higher installation cost to keep the installer’s business viable.

 

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About our Guest Author

Ronald Brakels is a writer for the SolarQuotes blog and is currently based in Adelaide.

You can read more of Ronald’s blog articles here.

3 Comments on "Why Have Home Battery Forecasts Been Staggeringly Wrong For Years?"

  1. Thankfully a bit of basic honesty here – “Home batteries still don’t pay for themselves” – that’s despite the obscenity of taxpayer subsidies, but the fundamental problem that batteries eventually die (probably within 10 years) has been ignored. So has the reality that sophisticated electronic equipment failure is very expensive to rectify. Neither battery replacement or equipment repairs/replacement will be subsidised.
    People will be shocked when these realities hit home.
    Many other serious flaws in this article e.g. “— then you’ll know that it’s not necessary to have any energy storage at all for renewables to supply the majority of a nation’s electricity” – not even worthy of comment.
    Its time the rose-coloured glasses were discarded.
    Nuclear is the best option.

  2. I think the author misses the mark. In fact his own website carries a spreadsheet of home battery prices and I believe an examination will show that installed home battery prices haven’t fallen. I would venture a guess that the forecasts made by Morgan Stanley and many others were predicated on an assumption that residential battery prices would fall leading to greater uptake every year. Energia is another, very well respected by me, forecaster who had a similar idea.

    A better question that the author might have investigated is given that both auto and utility scale installed lithium battery prices have fallen very significantly in the past four years why is it that home battery prices have been static or in some cases increased?

    In my opinion the story is more interesting than the author has made it.I look forward to more articles on the topic here at Wattclarity.

  3. Great to see forecasts being revisited and the reasons for the differences to actuals being analysed. There’s not enough of it, especially done with a sense of humour like Ronald’s. There’s no doubt that most electricity customers are economic rationalists who will only buy a battery system when the financial savings are obvious. But so many of today’s battery owners are looking for supply reliability when the grid goes down, or just the warm, fuzzy feeling of using all or most of their PV generation. The question I ponder is… how many of those people are out there, how quickly will that sub-market grow, and what could make it grow, or shrink?

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