Battery storage has been hailed as a cheaper option for the energy industry, but a new report by Energeia argues that the industry has several challenges to overcome before it can be widely deployed.
In their report, Sound and Fury: The Outlook for Australia’s Distributed Energy Storage Market to 2025, Energeia explores if ‘Distributed Storage’ (DS) will truly become cost effective and who it will benefit.
The report finds that the idea of cost effective storage put forward by the industry has several shortcomings.
The Australian storage market has seen a quickening of storage developments with a host of retailer and electricity network trials, including announcements by major local players such as AGL and Origin Energy.
While this has prompted the media and equity analysts to announce the imminent arrival of cost effective storage, Energeia’s report dispels what the current crop of storage companies are saying with respect to the main $300 million opportunity. Instead, they see the ultimate winners being those whose strategic positioning best reflects the fundamental economics of storage.
The report suggests key shortcomings include neglecting to discount future cash flows, converting costs to Australian dollars, and ignoring real world constraints to theoretical returns. The analysis shows the main regulatory barrier to be the lack of truly cost-reflective tariffs.
For example, the report argues there are limitations to the Tesla storage system and that Tesla “currently lacks the functionality needed to capture most storage service revenue in Australia, making it uneconomic despite its market leading cost per kWh price tag.”
Energeia’s research also analyses the market’s key drivers, barriers, customer segments, technologies, products and industry players to gain insight into its medium to long-term outlook.
The majority of new battery units are designed to drop into an existing solar PV circuit to reduce system costs by sharing the inverter. The report says that “unfortunately, solution developers have yet to fully understand DS economics, and none of the units provide a cost effective solution due to some combination of functional and cost gaps. However, the emergence of bolt-on software solutions may help address current functional gaps.”
Another key finding is that while the industry is rapidly expanding, most of the growth is in product manufacturers and suppliers and not in storage service providers. Product market concentration is low, with only Sunverge’s solution winning more than one trial at this stage.
Energeia’s research shows cumulative Australian DS market investment of $300 million and annual installations reaching 55,000 nationally across residential and commercial segments by 2025.
While some of this demand will come from existing solar PV customers looking to leverage their investment, the vast majority of demand is expected to come from those customers with the right kind of load profile and those able to access a truly cost reflective retail and network tariff.
Read Sound and Fury: The Outlook for Australia’s Distributed Energy Storage Market to 2025 here.
