Morgan Stanley has predicted a boom in solar-plus-storage in Australia, calling PV a direct substitute for grid power and warning investors that the incumbent energy industry has been slow to react to trends.
The finance group has issued a report, Asia insight: solar & batteries, setting out how Australia is becoming a “testing ground for rooftop solar and household batteries”. In a scenario which will be familiar to readers of Energy-Storage.News and PV Tech, high electricity tariffs and competitive markets, coupled with environmentally conscious consumers mean that industry observers like specialist industry analysts and researchers have already highlighted the region’s potential.
Morgan Stanley said in its 40-page report that it disagreed with the concerns of the sceptical market, which currently appears to hold the consensus that since the economics of batteries are marginal, offering payback times in excess of 10 years, adoption will not come quickly. Similarly, the investment advisory report also demonstrated a belief that Australia’s rooftop solar market still has at least a decade of high installation figures to look forward to.
Sharp fall in costs over next two years
The report’s authors modelled a number of scenarios and predicted that in the highest case scenario, a million Australian households could have installed battery storage systems by 2020, equal to about 6GWh.
“In our view, investments to avoid bills, are highly valued by consumers,” the report stated.
Installed costs for household batteries average out at around AUS$1,500 (US$1,120) per kWh, with “cost per kWh used” between around 50 – 100 cents a kilowatt-hour. Morgan Stanley also predicted a sharp fall – about 40% - in costs over the next two years, driven by a combination of factors including battery costs falling in tandem with the EV industry and inverter cost drops. Battery and inverter comprise approximately 70% of system costs as it stands. Morgan Stanley expects that if system prices can fall to around AUS$5,000, they will have hit a “magic” price point.
'Mainstream market' by 2018
A “mainstream market” will develop by 2018, Morgan Stanley predicted. Increased standardisation of contracts for batteries and the streamlining of the installation process, which equipment innovations such as modular batteries will contribute to, are also expected to drive the market forward. For instance, one distribution network operator, SA Power, in South Australia, is offering batteries at a significant discount as part of Australia’s biggest test of combined solar and energy storage in an established community.
SA Power Networks, which serves more than three-quarters of a million customers through its distribution networks, is advertising the programme on its website and looking to recruit ‘volunteer’ customers. The distribution grid operator is set to issue around 100 Tesla Energy and Samsung batteries to examine the benefits of combining solar and battery storage as a means of deferring the cost of investment in network infrastructure, which will be needed to meet growth in local electricity demand.
The cost of battery storage systems could be between AUS$10,000 and AUS$20,000 retail, but SA Power is offering them to customers “for half that, at less than AUS$3,600” according to reported comments by the company’s head of stakeholder engagement, Paul Roberts.
Morgan Stanley said the success of such schemes could bring expected payback times for solar-plus-storage down to around seven years. Specialist industry observers including Navigant Research and Lux Research have said that they expect to see standardisation of contracts and better scaled utility and grid programmes to drive on progress in the global industry, with this year considered something of a turning point.
Utilities reacting slowly to changing dynamics
The report assesses the different dynamics of Australia’s regional markets, with feed-in tariffs (FiTs) set on a local basis and expiring on different timescales.
The report also states it is unlikely batteries will be supported by government subsidy schemes, but that any top-down measures to stimulate deployment would be likely to have a positive effect on accelerating the market.
It is important to note that the report only takes into account the economics of batteries for solar self-consumption when modelling possible payback periods, for the most part. New business models, such as aggregating dozens or even hundreds of household systems to provide grid or capacity services by forming virtual power plants and joining ancillary services’ programmes could bring down the payback further and change how storage was viewed by investors.
The report also looks at the impact of these market trends on the existing energy mainstream. Taking two of the country’s biggest utilities, AGL and Origin, Morgan Stanley in some detail explains how it believes the two – and their contemporaries – have been slow to react. In limited areas where they had made specific and pro-active commitments to "new energy" strategies, however, they and other utilities had been successful.
“Rooftop solar (with or without batteries) is a direct substitute for grid power, and we think the industry response is at best a defense strategy, not a driver of earnings growth,” Morgan Stanley wrote.
While retailers are losing less money from sales, financing and retaining customers, they are also losing grid energy sales.
In all, Morgan Stanley predicts Australia’s rooftop PV market to number 500MW to 800MW in annual installations going forward, and batteries to be both a powerful driver for and beneficiary of, this continued market momentum.