What’s bad for PV may be good for energy storage in the UK
As DECC moves closer to throttling the UK’s Solar PV industry through the proposed massive reduction in feed-in tariffs (FITs), could this actually be good news for the country’s nascent energy storage industry? Although focusing on self-consumption risks missing much of the prize for energy storage – which is the value energy storage can unlock across the energy system – it could provide a short term boost to the sector.
Currently the owner of a solar PV installation financially benefits in two ways: FIT payments and lower electricity bills (i.e. from self-consumption). Going back to 2010, FIT payments accounted for up to 90% of a customer’s financial return because the FIT subsidy was around 43 pence per kWh (p/kWh) in comparison to a retail electric price of around 12-13 p/kWh. This could be one reason why DECC took the ‘deeming’ approach to export generation where it is assumed that 50% of the generation from residential Solar PV is exported to the grid. (Although no one really seems to know: another theory is that it was the last item on an overly long meeting on a Friday afternoon in Whitehall!).
Anyway, the point is that the 50/50 deeming approach didn't really matter because only a small part of the customer return came from lower bills through self-consumption. Whether the actual level of self-consumption was 30% or 70% didn't really make a difference, so why not just use 50%?
That was then. It's very different today. As FITs have fallen, the proportion of the customer return arising from self-consumption has risen. Given the current FIT level of around 12 p/kWh, about 30-40% of the customer’s return will arise from self-consumption.
And, if the FIT does drop to the proposed 1.63 p/kWh in 2016, it will mean that the position is almost completely reversed from 2010 – lower bills through self-consumption will be the critical component for customers, making up around 80-90% of a customer’s return. So if a customer can increase the level of self-consumption, this can make a meaningful impact on the return from investment in PV.
How energy storage can capitalise
Estimates vary but the level of typical actual self-consumption for households might be 30-40%. And what's the most realistic way to double this? Energy storage.
Assuming this level of self-consumption, a typical customer might save around £400 off the energy bill. Probably not enough to make the PV + storage combination attractive to money-conscious UK customers given current technology costs, but a lot can change – battery costs are on a downward trajectory, import barriers to lower cost PV could be removed and it’s not impossible that DECC might introduce subsidies for energy storage (although I admit it seems unlikely in the current policy context).
A logical conclusion is that PV won't make sense without storage from 2016. The challenge for manufacturers is to innovate and to reach the viable price points for customers to adopt PV + storage. So what's bad for PV may prove good news for storage.
However, as our energy storage research is showing, self-consumption represents only a small part of the value potential and applications for storage. While the current market in the UK (and Germany) may be driven by self-consumption, there are bigger and more interesting prizes within the energy system.