By Martin Ammon, EuPD Research-
Before the introduction of lucrative subsidy schemes, most PV installations included batteries as part of off-grid systems for domestic usage or as backup power supply in rural regions.
PV system owners have also used the generated power for night storage heaters. Increasingly PV systems are being incorporated into the household heating circuit, functioning as a supportive energy source, suggesting that PV is becoming a complementary energy source, allowing for a balanced energy supply together with other renewables.
Therefore storage technologies are critical to the continued growth of PV electricity generation in the long term as feed-in tariffs (FIT) continue to reduce. Many of the storage batteries targeting PV are designed for use within the residential, domestic rooftop market.
Integration of PV storage in household electricity circuits
The emergence of the self-consumption market, where PV and battery systems enable the consumer to store and later use the electricity their panels produce, rather than export it to the grid has created a need for new system designs, based on whether the installation is a new PV and integrated storage system, or the storage is being integrated into an existing PV installation.
For new PV installations with integrated storage solution the wiser option is to have a DC-coupled battery. Here, the battery is connected to the circuit prior to the conversion to AC, where a specific inverter, featuring a charge regulator is used.
For a PV system that already exists integrating an AC-coupled battery only requires the addition of a second inverter. However, the additional conversion back to DC leads to further efficiency losses.
Most commercial residential PV storage products use lead-acid batteries, which account for the largest battery segment. As a result lead acid batteries are cheap and reliable. However, in the coming years lithium-ion batteries (LIB) will supercede lead acid technology. The growth potential of the self-consumption market is attracting global and regional players. Many of the early mover suppliers that are addressing the self-consumption market with lead acid batteries now will be in a position to supply more sophisticated LIB technology under an established brand in future. Business cases outlined reveal that both technologies are likely to exist next to each other in the short and mid-term. Long-term LIBs will become the superior choice, once cost competitiveness has been achieved, which could be in the region of five to eight years.
Economic feasibility – the case in Germany
Because LIBs are less mature in terms of technological advancement and economies of scale, the potential for annual cost reductions is likely to be considerable. Also FITs, which are assumed to decrease based on the latest EEG revision – to be potentially eliminated post-2015 – will impact the profitability of future solar storage investments. The assumptions shown in table 1 have been applied to feasibility calculations for investment projects in the near future.
<< Table 1: Assumptions of near future developments >>
The following diagram shows the results of the feasibility calculations under given assumptions. Due to the smaller investment costs of lead batteries and the relatively late accruing replacement costs, PV systems with lead-acid batteries have a higher rate of return than systems that use LIBs. According to EuPD Research‘s assumptions the compensation for electricity fed into the grid will stand at zero in 2020, in turn reducing the profitability of PV systems without storage.
<< Figure 1: IRR calculation of PV systems and storage solutions >>
Compared to an alternative investment with an interest rate of 2%, integrated storage solutions are almost a profitable investment already today, excluding inflation rates.
Today the rate of return on a PV system without storage based on the current FIT is around 7%.
By choosing the expected internal rate of return of an investment as an adequate value for an investment comparison, PV with either lead-acid and LIB technologies are less profitable than a PV system without storage.
However over the long term several factors will ensure that the rate of return from a PV-storage system will be higher than that of a PV installation today. By 2020, PV and storage costs will continue to reduce and the price of electricity will increase. In addition it is unlikely that there will be a FIT for PV by 2020. This means that the rate of return will be 7% for PV storage, while the return of return for a PV system without storage and without the FIT will be 5%. While it is possible to use up to 25% of electricity generated by a PV panel without storage, using a battery pushes this up to 58%.
Drivers & barriers
There are several drivers but also challenges concerning the successful development of a market for storage systems for PV applications. From the viewpoint of the PV system operator, the investment in a PV and storage system can provide independence from the grid and long term rising fuel and electricity prices. The indeterminacy issue of PV electricity generation is overcome as power can be stored and used when it is needed.
Because storage systems are a comparatively young technology, investment costs are high and system lifetimes are limited and operators/consumers have to factor in battery replacement costs into their investments and there is little public experience and therefore acceptance of such technologies, compared with the PV market. However, in future, PV systems that incorporate storage solutions will become more competitive and mainstream. Already PV producers are expanding into storage, through joint ventures and alliances with battery companies to provide systems that combine PV and storage.
About the author
Martin Ammon, Diplom-Volkswirt, works as Senior Research Manager at EuPD Research and is responsible for the economic analysis and modeling of renewable energy markets. His operational tasks cover both the functional and personnel responsibility in the market and policy advice division.
Before joining EuPD Research Mr. Ammon worked in the field of policy advisory for several years and was responsible for several economic studies. He is currently doing his doctorate with a dissertation on the topic of “Grid parity of photovoltaics in Germany” at TU Freiberg.
About EuPD Research
EuPD Research is an international research company focusing on B2B market analysis. We provide our clients with a wide range of qualitative and quantitative research services. With the help of methodological professionalism combined with in-depth market knowledge, we provide practical, future-oriented business solutions and ensure that our clients receive a return on their research investment.