The unrecognised value of residential battery storage

Written Ben Hutt, Chief Executive Officer, Evergen

A lot of value is being left on the table when batteries are not optimised and orchestrated for maximum benefit.

This piece is somewhat of a reflection of five years at the leading edge of energy innovation in Australia, building Evergen, a world-leading SAAS platform for CER/DER orchestration. When I took the job in 2019, coming from outside the energy industry, I said a bunch of crazy things like “batteries of all shapes and sizes will be everywhere”, and I was widely rebuffed by the establishment. I think it’s fair to say now that we were right, even if we were early, and Australia’s evolving and complex energy system now leads the world in terms of innovation and design (even though we all complain about how slowly the transition is unfolding!). I thank my friend and colleague Dr Stephen Pritchard for helping with some of the technical details in this article :).

Australia leads the world in penetration of rooftop solar installations, the brightest achievement of our energy transition to date. There are a variety of reasons for this success, from government support to the advent of affordable mass produced solar panels. But, there are two factors contributing to Australia’s solar success that I think mean we will see similar uptake in residential energy storage over the coming decade.

Firstly, consumers can avoid paying retail tariffs by self-consuming their own solar generation, and doing so makes each kWh generated by a residential PV system more valuable than the same kWh generated from a utility scale PV system. Secondly, Australian homeowners place a very high intangible value on energy independence, and taking personal action on climate change.

Home batteries help to supercharge rooftop solar on both of these points. By storing excess solar during the day so that it can be used after dark, batteries increase self-consumption of solar energy, and increase energy independence. And the uptake of residential storage is starting to ramp up.

According to Sunwiz, Australia already has more than 250,000 residential battery installations, mostly installed over the last 5 years, including more than 50,000 over 2023. It’s worth noting that these numbers may be optimistic, and differ wildly from those reported in the DER register (which is under-reporting). However, aggregate installed battery capacity across those residential installations is the same order of magnitude as our present level of utility-scale battery storage. This has happened despite the absence of federal funding with only patchy state-based support, and despite the common wisdom that residential batteries are not yet ‘in the money’ (complete rubbish if they are operated effectively!). It’s a good start, and with a modest push, residential energy storage is well placed to grow rapidly and significantly, just like rooftop solar.

There are now over 3.7 million rooftop solar systems in Australia, so approximately 6-7% of households with rooftop solar have a battery. AEMO’s Integrated System Plan (draft 2024)  projects a huge need for energy storage, 33GW/514GWh by 2030, with an expectation that 3.7GW of that will come from consumer energy resources (CER) like residential batteries. This residential storage is projected to rise to 37GW by 2050, which is 65% of the total storage requirement projected by AEMO for then, in line with Australia’s net zero target. We still have a long way to go.

The energy transition must happen at scale and speed, but governments also need to be mindful of using taxpayer funds wisely. Residential batteries are excellent bang for buck of public funding when it comes to driving uptake of energy storage. It might seem counter-intuitive to some that this would be the case, when blocks of funding for centralised projects might seem quicker and less administratively complex to roll out. But we should learn the lessons from the last 25 years of PV installations. The power of private capital in the hands of motivated homeowners is enormous. Just like residential rooftop solar, a rollout of residential energy storage harnesses the determination of hundreds of thousands of individual consumers and thousands of installers. It avoids the at times lengthy and protracted development and administrative processes attached to large front of meter infrastructure projects at the network and utility scale.

To keep the maths easy, let’s assume $10,000 per residential battery installation. With 250,000 residential installations that means there has been investment of roughly $2.5billion in residential storage. State government support to help achieve this is measured in only tens of millions to date. That‘s great value for a government looking to support the energy transition. It’s also a compelling demonstration of the speed and scale of deployment that is possible with residential storage.

Some say that support for residential solar and energy storage amounts to middle class welfare. This is a frustrating characterisation, even though I am of the firm view that equality of outcome is important as we pursue climate solutions. Successive Australian governments have been unable or unwilling to implement a price on carbon, so dating back to the turn of the century, we have directly funded renewables instead. When we provide credits to rooftop solar owners, this is our mechanism to pay for climate action, and doing so has been responsible for a huge chunk of Australia’s emissions reductions over the past 20+ years. Now we need to continue the energy transition by ramping up energy storage to smooth out the variability of renewables. Funding for residential batteries will leverage the huge amounts of capital that Australian homeowners already are putting into adding storage, and will lift the pace of the energy transition to what we need to hit our targets. It’s worth noting that in my view, there are solutions that provide for a just transition and would enable storage and other controllable loads to be deployed on all homes, irrespective of ownership or social status, and could be applied with the support of retailers and networks to social housing and the “under-served” 50% of homes nationally who cannot fund the transition through traditional mechanisms (work in progress).

Residential energy storage is the golden egg of the energy transition. It benefits the homeowner, but has unambiguous benefits all through the chain of electricity industry participants. Well managed residential energy storage en masse soaks up excess PV to ease high voltage issues on the distribution network, and reduces the need for grid-scale generators to curtail on sunny days. It can also dispatch during peak times, easing the need for grid infrastructure and helping to damp price peaks. However, to do this, we need coordination from regulatory and market bodies such as AEMO and the AEMC, network operators & retailers, asset owners, and the consumers/users themselves. We need to appropriately reward consumers for the value that their energy storage assets create for all.

Sunwiz also found that, at present, only 14% of residential batteries are signed up to a Virtual Power Plant (VPP). While partly due to the way the nebulous concept of a VPP is defined, as the CEO of a company that specialises in providing a platform for visibility and control of a multitude of CER types and manufacturers for VPP operators,

I do agree that a lot of value is being left on the table when batteries are not optimised and orchestrated for maximum benefit. I believe that the term VPP is widely misused and mis-understood, and that in fact the whole electricity system is a giant VPP whether we like it or not.

I know from real-life experience, that energy assets like batteries can generate a lot of value when exposed to wholesale market price signals (whether energy or FCAS), but also that they can generate MORE value when coupled with a solid retail offer that provides these exposures WITHOUT the consumer needing to wear the risk themselves. Ultimately, electricity retailers are better placed to manage wholesale risks than consumers, and I don’t believe consumers should, or need to, worry about what their battery (or hot water tank) is doing at any time. Let the experts do that. In Evergen’s world, our army of invisible robots (sorry Jonas Dias & team) make better decisions every five minutes about the tens of thousands of homes, C&I sites, retirement communities, solar farms, electrolysers, and other devices  than any human reliably could!

We are still in an early phase of the VPP aspect of the energy transition. Retailers experimenting, and working to build trust with battery owners, who are understandably motivated to protect the assets and value that they’ve mostly funded out of their own pocket. Existing retail VPP offers presently focus on keeping it simple to build this trust: offering subscription payments in return for modest battery dispatch actions in the VPP, capped to a number of hours or kWhs per billing period or year. A few offer more compelling arrangements, such as participation in contingency FCAS markets, and exposure to wholesale market energy prices. These products are evolving rapidly and we are delighted to be partnered with so many of the largest utilities and smartest energy minds working in this space, not just in Australia but in many markets overseas.

At Evergen, we began optimising home batteries to assist homeowners create additional value from time of use tariff arbitrage. This mostly involves utilising frequent weather, generation and load forecasts to decide to occasionally charge the battery from the grid during off peak tariffs at night the day before our forecasts suggest that solar won’t generate sufficiently to avoid peak tariff imports. We have continually researched, updated and improved our systems, and are now assisting many retailers to optimise residential solar-battery systems against a combination of wholesale price plus network tariffs, including two-way tariffs. These prices can change every 5 minutes, and battery plans and commands therefore need to be adjusted on this timeframe, and enacted with alacrity. Our experiences suggest that doing so can generate large amounts of value and drastically reduce payback times for residential storage to periods that would shock the established wisdom. We observe that this can be done while limiting battery cycling to comfortable levels, within 0.9 to 1.2 cycles per day on average. We can customise the assertiveness of optimisation to either prioritise limiting cycling, or maximising arbitrage returns or anywhere in between.

For retail consumers, full exposure to the wholesale market can be daunting, which is why retailers use hedging contracts to protect against volatility and hide it from consumers in the form of simple retail tariffs.

But battery owners have their own hedge – the battery itself. More than load shifting or solar generation, batteries specialise in shifting both load and export around. Batteries charge when the price is low or else soak up excess solar to avoid export at such times, or they discharge when price is high to either avoid high usage costs, or else actively sell into a great price. So, battery owners are well-placed to participate in the wholesale market, using the battery to avoid high costs and instead even generate income. 

Exposure to volatility even with a battery to ride the highs and lows is still not for everyone. What I think we will see in the years to come is the creation of retail products where battery owners provide increased permission for retailers to operate their batteries against this volatility to reduce the retailer’s cost to serve. In so doing, the retailer can continue to offer stable retail tariffs that give consumers protection from price volatility while also offering rewards or reduced tariffs. The challenge for retailers will be building and holding the large amount of trust necessary for consumers to relinquish this level of remote control of their assets. This trust will centre on demonstrating to consumers that the rewards they are offered are commensurate with the scope of control they are affording. It is non-trivial to explain automated battery behaviour in a volatile market to consumers and show that the consumer is deriving a sizeable share of the value created from this type of control.

This is a challenge I’m actually really excited about. In my view, there are many innovative options available for energy companies to engender this trust. This innovation spans a variety of areas, from app design to communicate and visualise battery and market activity, to clever code that interprets algorithmic decisions into simple language descriptions for consumers. One of the most compelling avenues is around bundling up solar/battery installation with financing and bundled VPP retail offerings, such that consumers can seek energy independence with little or no up-front cost.

We have a long way to go but I am proud of the whole team at Evergen, all our partners, OEMs, and our customers. This transition is by no means easy, but bizarrely Australia is still leading the way in many respects and whilst we could definitely do more as a nation to make it go faster we should be very proud.