Prepare for a Tsunami of Household Batteries

2025Q2

The original headline for this article was prepare for the explosion of household battery uptake – but on reflection I thought this might not conjure the image I was looking for.

Household batteries have had a relatively slow uptake. As at end 2024, there were around 320,000 home battery systems in Australia (Sunwiz).  To put that in perspective, there are over 4.1 million home solar systems, so under 1 in 10 household solar systems include a battery.

Why has historic uptake been poor?

The simple answer is that, historically, battery costs have been too high and the counterfactual (to storage) solar export tariffs have been pretty attractive. 

From the perspective of a residential solar system owner, the value proposition of a household battery is that it allows surplus solar energy, which would otherwise be exported to the grid, to be stored and used in the late afternoon/early evening.  Thus, in simple formulaic terms, the economics of a battery are:

Daily Revenue = BESS Size x (Peak Grid Cost – Solar FIT x (1 + losses))

Importantly, this formula assumes that the household is a net exporter during daylight hours (ie solar production is larger than underlying daytime usage) and that the household has enough afternoon/evening load to use all stored power during the peak period each night (and, hence, the stored power saves grid power costs at the peak grid rate).

When we last wrote an article on household batteries (see the Q3 2023 newsletter) our analysis showed a payback period of around 15 years (undiscounted).  Given that most batteries only come with a 10 year warranty – it is not surprising that battery uptake has been slow!  It has effectively been an option for early adopters and “solar nerds” rather than justified by the economics.

What has changed since

• Feed in tariffs have fallen and are expected to fall further.  For example, the Victorian Essential Services Commission has published a minimum solar feed in tariff for 2025-26 of a paltry 0.4 cents (eg effectively zero).

• Electricity prices have risen (and so the value of self-consumption in the evening peak is now much higher).   It is pretty common to see peak tariffs of close to 40 cents

• Net Battery costs have come down.  In particular, the Federal Home Battery Scheme will reduce battery prices by $372 per kWh.   While costs of different battery systems will vary – we are seeing net of rebate battery costs of circa $400-600/ kWh

  
  

The Federal Home Battery Scheme, which will come into effect on 1 July, will see qualifying battery installations receive 9.3 Small-scale technology certificates (STCs) per kWh of capacity. These STCs are worth $40 each and will ultimately be acquired by the Commonwealth Government – providing an effective $372 per kWh subsidy.  The number of STCs issued will decline over time – roughly halving over the period to 2030.  This decline in subsidy is expected to be aligned with a decline in battery costs, such that net costs to consumers are still likely to fall.

For a customer with a circa 40 cent grid peak tariff, assuming solar feed in tariffs trend to near zero, and a net of subsidy battery cost of $400-600/ kWh, this implies a payback period of 2.7 to 4.1 years.  This is highly attractive and Infradebt would expect this will drive a step change in battery uptake.    This view is mirrored across the residential solar space, with some pundits forecasting over one million residential battery installations over the next five years.

What are the implications of this for the broader electricity industry?

It will take time for the rollout of household batteries to have a meaningful impact – a few hundred thousand over the next year won’t make much difference.  However, looking three to five years out, we would be expecting to see quite substantial impacts.   For example, one million household batteries over the next five years – which we would see as quite achievable – would be something like 10GWh of additional behind the meter storage.    This is meaningful in the context of utility scale BESS build out.   A potential 10GWh of residential batteries should be compared to the crica 9GW/18GWh in utility scale batteries under construction.

To provide a further point, household batteries – net of rebate – are now getting quite cheap in per kWh terms.    Net costs of household batteries are $400-600/KWh.   This is very competitive compared to recent costs of 2hr utility scale BESS projects – where costs are much closer to $700KWh (full cost including construction, BOP, development fees).   In this context, it is worth remembering rooftop solar was able to outcompete utility scale solar (through feed in tariffs and STC dynamics) and there is similar prospect for batteries.    While residential batteries may not be able to access FCAS markets, they do have access to highly predictable arbitrage revenues created by design of residential time of use tariffs. However, for market participants, it’s important to recognise that household solar and storage can be aggregated into virtual power plants (VPP) – VPPs can access FCAS markets, and importantly can be used by retailers for hedging purposes.

The final point we would make regarding the mass uptake of residential batteries, are the implications for the grid (and distribution companies in part).  A household with just solar would normally get 30-40% of their electricity from their solar and the balance of their load from the grid.   Once you have a battery, it is pretty easy to get to 90%+ self-sufficiency.   Under current network charge arrangements, where most of the cost of the distribution network is recovered via volumetric network charges, this means this type of household would be paying very little for access to the network.  This missed revenue will need to be recovered elsewhere, which if it is via increases in volumetric network charges, will just further incentivise behind the meter solar and storage. 

For utility scale investors with dispatchable plant, with the growth in household storage, one market implication will be a change with both the evening peak shifting and flattening – rationally consumers will self-consume their stored energy first before accessing the grid. 

This long-term challenge – which is a direct threat to the viability of distribution networks and also goes to the heart of the social-equity challenge between solar (often richer detached home owners) and non-solar (often poorer apartment dwellers and renters) participants in Australia’s electricity system – is something that has been obvious for some time (for example, see “Solar + storage = long term cap on electricity prices” from our Q2 2015 newsletter) but will require engagement from policy makers to resolve.