The ample sunlight and shifting policy landscape in Australia has created ripe conditions for adding energy storage to rooftop solar, and a battalion of companies has moved in to capitalize on the expected battery boom.
The climate and feed-in tariffs helped Australia gain one of the highest shares of rooftop solar adoption in the past decade or so. Now, their mission completed, the tariffs are starting to phase out, which leaves customers without compensation for any extra power they put back into the grid.
Meanwhile, electricity prices have been rising as utilities financed the modernization of the grid. That angers the customers and incentivizes self-supply. Solar has become cheaper than grid electricity in most cases.
The upshot of all this: Australia’s energy storage market will grow 37-fold between 2015 and 2020, reaching an annual installation rate of 244 megawatts, according to predictions by GTM Research. The U.S. storage market, by comparison, is expected to grow only 6.7 times larger in that same period. Even from 2015 to 2016, the Australian market is expected to grow more than 11 percent. It's starting small, with 6.6 megawatts installed last year, but this kind of uptake is unparalleled.
Several storage companies have chosen Australia as their proving ground for new residential products, because the economics are more favorable there than in other countries. More established players have entered as well. The business models and products that succeed Down Under will soon shape markets elsewhere, so it's worth spending some time understanding the dynamics at play there.
Perfect storm
The attractiveness of Australia's storage market arose out of the success of its solar industry. Developers capitalized on a high number of sunny days and similarly high electricity rates to deploy copious amounts of rooftop PV. The nation of 24 million people contains about 9.1 million households, and 1.5 million of them have rooftop solar PV systems. That's 16.5 percent of households using distributed solar, which is likely higher than any other country.
Each state in Australia offered feed-in tariffs that paid residents more than the retail cost of electricity for any solar generation they put back into the grid. That benefit, though, is starting to fade.
"At the end of this year, a few of these premium feed-in tariff schemes are going to expire, so you’re going to see customers that are moving from once getting very high compensation to getting no or very low compensation for their additional solar electricity," said Brett Simon, energy storage analyst at GTM Research and author of a report on Australian energy storage. "When that's taken along with improving economics for storage, you get customers who are going to be better off actually consuming their solar-generated electricity rather than exporting it to the grid."
New South Wales, for instance, will reduce its initial feed-in tariff of AUD 0.60 per kilowatt-hour to AUD 0.048 per kilowatt-hour at the end of this year. People in Victoria who applied before 2012 can keep a premium rate of AUD 0.60 until 2024, but those who applied after that will see a decrease at the end of this year to AUD 0.05.
Customers in the Australia Capital Territory can see a delta of 20 cents between what they pay for electricity and what they receive for their solar exports. In New South Wales, Simon noted, retailer AGL offers a time-of-use rate with a peak tariff of 51 cents. If a household would earn under 5 cents for selling back solar surplus during the day and then pay 51 cents for peak power at night, they have a strong incentive to just keep the energy for their own usage.
Potential solar adopters today can only access the very low feed-in tariffs, so solar alone will take much longer to pay itself off than it did for the early adopters. Adding storage to the equation to consume more self-produced power has become a more attractive proposition.
Storage venders in the country have identified a hard-to-quantify cultural dimension driving customers toward storage. Many customers feel tossed about by changing retail rates and feed-in tariffs, and now they want to liberate themselves from that dependency.
"People want to head toward self-sufficiency -- they don’t want to rely on the networks and the retailers who they think have been ripping them off," said Lachlan Blackhall, CTO and co-founder at Reposit Power, an Australian startup that makes software to enable residents to utilize their storage more effectively and sell stored energy back to the grid.
Reposit's service works with Tesla's Powerwall, LG Chem's Resu 6.4 and Magellan's Res1. The product costs about $600 and effectively halves the payback time on a new battery, Blackhall said. He added that a conservative estimate for payback on a storage system with Reposit is six to eight years in areas with favorable policies.
"From our perspective, if you’re buying a battery and you’re not buying Reposit on it, you’re crazy," Blackhall said. "The additional cost of our technology is halving the payback time."
Developing business models
The advent of grid-connected solar and storage changes electricity customers' relationship with energy. They still consume electricity from the utility, but they also produce some of their own and sell it for money.
The Australian energy retailers and storage vendors are now scrambling to create new business models to reach these new kinds of customers.
"This is a threat to utilities' established business model, and that's why we are seeing a lot of Australian utilities that are starting to offer storage solutions for their customers, who are investigating ways to leverage energy storage, whether it's something like a virtual power plant or in some other form," Simon said. Almost all the major utilities, he noted, now offer some kind of storage product.
These product lines offer a symbiotic relationship for storage manufacturers. The utility benefits from a new revenue stream, which, in the case of storage leases, can be an ongoing source of revenue. Down the road, they can also start to call on distributed storage in aggregate for grid services, without having to invest in new infrastructure themselves.
The utilities offer storage vendors a huge population of potential customers, saving time and money on customer acquisition. The major tradeoff is that utilities have specific boundaries, so a partnership will necessarily be limited geographically. That also makes the vendor's business case susceptible to changes in the partner utility's rates and policies.
"If you're locked in to one utility territory and the utility makes a big change one way or another, that could really affect your business," Simon said. "It could be a benefit for your business, if that utility says, 'We're going to raise rates by this much or add time-of-use rates.' But that's a risk that you take."
Several companies have taken that gamble. AU Optronics is working with AGL in multiple states to offer a 7.2-kilowatt-hour lithium-ion battery system with a 3-kilowatt inverter. Panasonic is tackling the geographical boundary problem by partnering with three retailers, Ergon Energy, Red Energy and ActewAGL to sell a 2-kilowatt/8-kilowatt-hour lithium-ion system in a two-year pilot program. Samsung SDI is doing a trial run with 3.6-kilowatt-hour lithium-ion batteries for customers of Origin. Tesla is also selling the Powerwall with Origin.
In the other primary sales model, the company that makes the storage systems sells to a developer or a distributor, which sells to the customer or to a solar installer to carry out the deployment. A very small number of sales so far involve the storage vendor selling directly to the end customer.
These channel partnerships allow the storage manufacturer to leverage the existing relationships of the more customer-facing partner companies. For the developers, the storage gives them a new product to sell to their existing base of solar customers who are losing their incentives to export. Enphase, LG Chem, Redflow and Samsung SDI have all opted to go this route.
Special use case: Mining
The majority of storage installations will be residential for the next five years, but there's a special value proposition in the commercial and industrial sector that's worth highlighting.
The mining industry holds a special place for Australia: it makes up 8 percent of GDP and in recent years produced more than half the nation's exports. These mines, often situated at remote rural sites, have a problem, though: They rely on off-grid diesel generators for power, and supplying and maintaining them accounts for up to 30 percent of operating costs.
As such, some mines have decided to reduce their energy costs by installing solar-plus-storage.
"For the time being, the goal isn't to fully take over for diesel, but to displace some of it, to use solar-plus-storage in place of diesel for part of the day, but not necessarily a full day," Simon said.
The Weipa bauxite mine in northern Queensland constructed a 1.7-megawatt thin-film PV plant to offset up to 20 percent of the site's diesel-generated electricity, with storage and more solar capacity planned for 2017. Once complete, the project is intended to power all daytime operations at the mine.
The DeGrussa copper and gold mine in Western Australia completed a solar-plus-storage project earlier this year, a 10.6-megawatt solar farm paired with a 6-megawatt/1.5-megawatt-hour lithium-ion battery project with a six-year power-purchase agreement. The mine owner, Sandfire Resources, has said the installation will supply 20 to 25 percent of the mine's electricity needs and cut 10 to 25 percent of power costs. French renewable energy company Neoen owns the facility, which was developed by juwi Renewable Energy.
Players in the landscape
As noted above, the global battery heavyweights are at work in Australia. LG Chem, Panasonic and Samsung all have a presence there. So does Tesla, which is younger and has less volume but has succeeded in making itself the public face of home batteries with the branding around the Powerwall. There are a few newcomers to watch in Australia as well.
The American microinverter company Enphase chose Australia and New Zealand as the launch site for its new residential storage system. The modular AC system is designed to give customers the benefit of fast installation and a high degree of choice in how much capacity they install. Enphase has received preorders for 70,000 battery units for the first year and has shipped hundreds since the product went live in August, said Greg Wolfson, senior director of the storage product line. The product will become available in the U.S. by the end of this year.
The company had considered launching the battery in Hawaii, but decided the market there was slower, in part due to regulatory logjam around the self-supply policy, Wolfson said. Australia offered an instant market, thanks to the high solar penetration and the collapse of the tariffs.
"In Australia, it's not because there's any incentive, it's actually the removal of an incentive," Wolfson said. "It's a retrofit market. There's a sea of people that are kind of clamoring at the gates, 'Give me my storage!'"
The Australia launch gives Enphase a large market to serve before opening its product up to the tougher American market. Whether or not momentum from one continent translates into sales in another remains to be seen, but the cash flow from Australia can only be a good thing for the company as it builds its U.S. presence.
A homegrown storage company is also launching a new product there this year. Flow batteries typically require a larger footprint and are designed for commercial- or utility-scale application. Brisbane-based Redflow claims the title of "world's smallest flow battery" with its 10-kilowatt-hour ZCell battery for residential use. The ZCell is scheduled to start installation in October.
Barriers remain
The heady demand for storage looks promising, but storage vendors have a few structural challenges to overcome.
Prices for energy storage continue to fall, which creates a potential hang-up for vendors: How do you convince a customer to buy a system now when it might be cheaper in six months?
"We’re in an early-adopter phase of the market -- some people are buying into the storage revolution for other reasons beyond just the cost," said Blackhall of Reposit Power.
The sell is also easier for existing solar customers who would lose money by waiting to install batteries -- once the storage is in place, the savings can begin.
The hot, sunny climate that makes Australia so attractive for rooftop solar also poses a risk. Many of the battery systems are installed outdoors, so the stakes are high for making sure the cooling systems work effectively to prevent sub-par performance, or worse, a fire. A lot of companies are working hard to ensure their products are safe, Simon noted.
"All it takes is one malfunction to be a black eye for the entire industry," he said.
The fear of battery fires, or actual fires from even one battery maker, could prompt the government to put in place extra requirements for backup safety systems. If the government goes too far with "overbearing regulation because of safety concerns," compliance might be affordable for large commercial or utility customers, but not for residential ones, Wolfson said. He added that Enphase chose the lithium ferrous phosphate combination precisely because it is safer than other lithium-ion chemistries.
"If the regulators go that route, that will really put the brakes on," he said. "We're trying to stay out in front of that. We're trying to do as much testing as we can to prove to regulators that it's a safe solution."
These issues face storage developers around the world, but they might come to a head first in Australia if the residential battery saturation grows anywhere close to its solar penetration. An industry can't scale up this precipitously without some kind of risk.
