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Now that 2024 has shed its skin and the year of the Snake has begun, I am wondering whether 2025 will be the year of the domestic battery.
Over recent decades, we have seen a boom in solar panel installations. As panels became better and cheaper, they became more widely used. What began as a costly school-ruler sized component on a 1950s satellite is now being installed by the hectare across shopping centre car parks.
Today, we can see batteries improving, becoming cheaper, and being used more widely.
Around the world, big batteries are being plugged into electricity grids. And when I say big, I mean big with an extra zero.
In 2014, Forbes reported a battery capable of delivering 40MW for 30 minutes from its 20MWh tank. This was followed by South Australia’s “Tesla Big Battery” which could deliver 100MW from its 129MWh capacity. Today, California’s largest battery can produce nearly one gigawatt (971MW) for three hours (3.3GWh). The Gig is up and running.
Meanwhile, the cost of the batteries in your next car is falling steadily from ~$2,000 per KWh at the turn of the century to less than $100 today. In 2025, many battery cars will become cheaper than similar cars with engines and we can expect a boom in EVs.
Production of batteries is accelerating fast enough to also need an extra zero. A 2023 forecast on Statista expected global production of lithium-ion batteries to increase from 290 GWh in 2018 to approximately 2,000 GWh by 2028. Likely that forecast is already out of date.
At some point these battery trends– increasing capabilities, decreasing costs, and rising production – will lead to the widespread adoption of domestic batteries. Will it be in 2025?
Battery costs
Today, domestic batteries are not widely used. One reason is that costs have not fallen, and their capabilities have not improved significantly.
In 2022, I bought a Tesla domestic battery with a 13.5KW/h tank for approximately $16,000. In round numbers the cost breakdown was $11,000 for the battery, $2,000 for the solar inverter, $2,000 for installation, and $1,500 for GST. With a $4,000 rebate from the Victorian Government, the net cost was roughly $12,000. This translates to an installed cost under $1,000 per KWh or $1,200/KWh without the subsidy.
Since then, the production of Tesla domestic batteries has increased significantly. The Nevada factory that produced 100,000 units in 2021 can now make 700,000 units in a year. You would think that at this scale of production, the unit cost would fall. You would also expect the product to have been improved.
There is indeed a new model Tesla domestic battery on the market – the third in the series.
The Mark 3 offers the same 13.5KWh capacity as the Mark 2 and a marginal improvement in capability. The Mark 3 can deliver power faster at 10KW instead of 5KW. This enables the Mark 3 to support larger aircon systems. The design now includes an integrated inverter which saves some installation time.
However, the Mark 3 still costs around $12,000. The company seems to be keeping most of the production scale cost savings for themselves.
New incentives
Another factor holding back household battery adoption here in Victoria are the incentives which, since 2022, have dimmed.
The multi-thousand-dollar rebate has been replaced by a small no-interest loan. The local scheme offers up to $9,000, repayable in monthly instalments of $183.34 over four years. The benefit is that taxpayers will cover cost of capital and inflation, while the battery owner can pay instalments from energy savings.
However, such a loan would only cover half the cost of a system like mine. If you want to fully fund your purchase through the incentive, you must choose a smaller battery. The Victorian Government estimates an installed cost of $1,500 per KWh of battery capacity (which seems high). On this basis, the loan would fully fund a 6KWh battery.
The problem with this pathway is that you end up with a half-sized battery. The Clean Energy Council suggests a minimum capacity of 10KWh and minimum peak discharge of 5KW.
These days it is possible to buy a Lego-style battery system that can start small and then be increased in capacity brick-by-brick. On this pathway you can end up with a useful 10+KWh battery, but it will cost more – perhaps $2,000 a KWh.
Another problem with the latest incentive is that the loan is linked not the property but to you. If you move, you will need to take the battery with you and re-install it or leave it behind and keep paying off the loan. This would be distasteful.
The same loan would be more attractive if it were linked to the property and paid off alongside the rates. Under this system you would pay the monthly fee until you moved out. The new owners would then continue to pay off the balance (if any). It is unclear why such agreements are not offered for all domestic energy upgrades like heat pump hot water systems, solar panels, and batteries.
In 2024, the combination of relatively high cost – a domestic battery is a $10,000 – $15,000 investment – and a diluted incentive has led to a 17% fall in battery installations in Victoria. The number of installations slipped back below the mark set in 2022.
Nonetheless, in 2024, more than 5,000 households in Victoria spent ~$50m installing batteries in 2024.
What are these households up to? $10,000 – $15,000 would allow you to do other interesting things such as get a full facelift in Thailand or complete a budget kitchen renovation. Why should you postpone those plans and go for a domestic battery?
Let us explore the benefits of installing a battery in Victoria using my domestic system as an example.
To see what my battery has been up to we can refer to the quantity of power generated by the panels, the recent battery activity report from Tesla, the power bills I have paid and compare all that to estimates published by the Victorian Government.
The neighbours
To see the difference a battery makes, we must first look over the fence and see how the neighbours get on without a battery.
According to the Government, a 2-person household in Melbourne in my distribution zone uses 13+KWh each day or 4.8MW across the year. Through some singular coincidence the household next door to me has exactly this use profile.
Let us also assume my neighbours have no panels and no battery. They buy power from an energy retailer at a flat rate across the day set at the local default price of 26¢ per KWh and have an annual bill for power of $1,200. (They also pay a network charge of ~$25 a month, but we will focus on the cost of power.)
This household could install a battery. Batteries work perfectly well in a house with no solar panels. But there are other worthwhile and less costly energy investments they can make.
The most obvious is to put solar panels on the roof.
Panels
In the past, you installed solar panels to earn money from surplus power exported to the grid.
Back in 2009, power in this area cost 19¢ a KWh. To stimulate the adoption of panels, the State Government offered to pay 60¢ for each kilowatt hour exported.
This juicy incentive guided household investment into home electricity generation. In turn, this produced a massive amount of clean electricity displacing generation by coal and gas. Today, one third of Victorian households have panels and these panels generate up to 68% of the midday power in the grid.
As you would expect, the arrival of a large quantity of low-cost power has brought the wholesale price of midday power down, sometimes to zero and at times to less than zero. Retail prices have followed. Today a household without panels can buy midday power from a retailer for 8.5¢ KWh – half the cost in 2009.
Although the 2009 incentive did good at a large scale and gave some lucky households a generous return on their investment, the incentive also embedded unfortunate attitudes, expectations, and behaviours.
The design of the incentive focussed attention on power exports. To maximise your earnings, you would wait until the sun had set and your panels had stopped exporting, before running any electric appliances. Every KWh you could shift to the evening increased your earnings by 41¢.
Nor did the export fee encourage people to switch out of gas appliances. If you had gas hot water or an overnight electric hot water system that did not rely on the panels, so much the better. It’s great, said a friend, I use the export earnings from my solar to pay my gas bill.
Those unfortunate habits can now begin to be dissolved as late last year, the 2009 export incentive scheme shut down. Today a power retailer will only pay 3¢ – 7¢ KWh for domestic exports. Soon export payments will fall to zero. My friend is attending grief counselling and wondering where her next free gas bill is coming from.
Despite the collapse in export earnings, the reasons to install a solar panel system remain strong.
Today the spotlight is on what you can save by using ‘free’ homebrew power. There is also an incentive to switch from costly gas to electric appliances that can run for free on home solar. Both these incentives are correctly aligned for the long term as they will lead to even lower bills and reduced climate damage.
On the plus side, today’s panel systems are much cheaper. At the start of the teens a 5KWh system cost ~$17,000. Today, the cost is ~$5,000. The Victorian rebate of $1,400 suggests a total cost of ~$3,600.
A solar panel system, says the Government, should enable the neighbours to cut their electricity bill by 25% or ~$300.
Likely, the neighbours can do better than that. If when the panels are working, the household runs the clothes and dish washers, charges the e-bike and car batteries, and runs the air con, they might be able to cut their power bill in half and lift annual savings to $600. The panels and those savings might last for 20 years. Would you pay $3,600 to receive $12,000?
Once their panels are installed, the neighbours can begin to switch from costly-to-run gas to free-to-run electric appliances.
Hot water
The obvious first candidate is the water heater. (61% of Victorian households use gas to heat hot water.) Over a couple of hours, a heat pump unit will heat 300l of water with only 3KWh of electricity. A high-quality system costs around $5,000 and if the $1,000 Government rebate applies, that would cover installation. The savings will come quickly. Canstar estimates that gas for a water heater costs $600 – $700 each year. This switch will become even more attractive when in a few years, Victoria’s cheap offshore gas runs out and is replaced by expensive imported gas.
All up, the neighbours will have spent less than ~$10,000 on these two projects and achieved annual savings of more than $1,000. They will also have protected themselves to some extent from future energy price rises.
Everyone else is better off as well. By giving the neighbours $2,400 the Government will have triggered a much larger household investment in cleaner, cheaper energy.
The battery
Now the neighbours have solar panels and are cutting their other energy bills by switching from gas to electrons, they can consider purchasing a domestic battery.
Again, we can ask why would they do so?
To answer this question, we can refer to a battery’s several functions.
Most domestic appliances have a single-function – make food hot, keep things cold, or tell you if the house is on fire. By contrast, a domestic battery can do several things. Not as many things as a smartphone or smart speaker, but certainly more than one.
Mojo
The most obvious function of the battery is to be a piggy bank for electricity. These days not everyone has a piggy bank, so let us use the Barefoot Investor term Mojo to describe a bucket of electricity set aside for emergencies.
In Mojo-mode a battery protects you from power outages. Outages can be costly, perhaps you have a freezer full of food or rely on a sleep apnoea machine. Perhaps everything in your house runs on electricity. Maybe you live in an area with somewhat unreliable power. In 2024, The Age reported on frequent and prolonged outages in Euroa and Venus Bay.
Outages are less common in metro areas. In 2023 there were 3 relatively short outages in our area. In 2024, I received no direct Mojo benefit from my battery.
Although there were no outages, I did receive preventive benefit from the battery’s storm watch feature. When meteorology predicts a potentially grid damaging storm, the battery’s storm watch software is triggered. This quickly fills the battery from the grid and halts exports so that, should an outage occur, the battery will be topped up and ready to back up the house. There were 3 of these get-ready incidents in 2024. No doubt there will be more in coming years.
It is difficult to put a dollar figure on the benefit of Mojo backup as people will assess the risk and cost differently. For someone with sleep apnoea who lives in Venus Bay and thinks that in coming years extreme weather events are likely to be more intense and occur more frequently, a battery would seem like a good investment.
Set top box
Another valuable battery function is time shifting. Here your battery acts like a set-top box ‘recording’ midday electricity for use later in the day.
I find I can get 13KWh (or close to it) out of the panels most days of the year but of course only during daylight hours. Meanwhile the fridge is up all night, and the coffee needs to go on before the sun comes up. The battery lets me use my midday power when the sun is not shining.
Over 2024, Tesla reports my battery stored 2.3MWh (from all sources). That averages out to 6.3KWh a day or ~3 complete fills a week. 2.3MWh is roughly half the power the neighbours need (4.8MW). At the default price of 26¢ KWh, this quantity of stored power has a cost-to-buy value of ~$600.
In its first ever annual report to me in 2024 Tesla said the house had been self-powered for 73% of the year, was net zero for 236 days (64%) and that for one third of the year it had been powered by the sun. (This was the case for 19% of battery owners).
Overnight, the house was self-powered for half of the year. This was the case for 5% of battery owners. I suspect one reason this overnight proportion is low is because most fridges use an unnecessary amount of power. You might want to call your fridge in for a performance review.
The Government estimates a battery can increase savings to 50 or 60% of the bill. From a power perspective that estimate seems conservative. With panels, and a battery, I can run for three quarters of the year without buying in power.
Elsewhere in its advice, the Government estimates that that a household with moderate energy usage, with panels and a mid-sized battery (around 10kW) can expect to save on average over $1,400 per year.
The dollar estimate seems high as the neighbour’s power bill is only $1,200. However, in an all-electric house with no gas appliances, power use will probably be higher and so will the benefits of a time-shifting battery.
The Government goes on to say you will ‘receive a return on investment over 10 years’. How much of a return the Government does not say, partly I suspect because there are too many variables including how long the battery will last, the tariff you are on, the power you use and so on. We can however be sure that the rate of return will greater than you would receive from a kitchen upgrade.
I cannot report on the costs I avoided through battery time shifting and self-consumption as the gains and losses from time shifting are obscured by the third function of my battery – trading.
E-bay trading
In power trading mode, the battery functions like a family member who is always on E-bay, making a bit of cash by selling stuff the household does not need and saving money by snapping up bargains.
To enable your battery to trade, you need to replace your power retailer with a trading service such as Amber.
To stay in business the retailer must charge you too much for your power and give you too little for your exports. The robot traders turn that on its head by constantly being on the hunt for a good deal.
In summer, rather than sell your surplus solar panel power at midday, they hang onto it and sell it for a good price after the sun has gone down.
In winter (in Victoria), rather than buy power when it is predicted to be expensive, the robots fill the battery beforehand while the windmills are spinning fast, and prices are low.
The results from all this trading will vary from household to household.
Unfortunately, I do not have all the data on all the flows of power in 2024. I know the panels generated 5.5MWh over the year and I know the battery absorbed 2MWh of that production. The rest we must have used immediately or sold without it passing through the battery.
The battery reports discharging around 0.8MWh to the grid which I understand to be robot sales from the battery. Our imports totalled 0.4MWh, so we sold more power than we bought.
The value of sales varied from month to month. October was top with sales of $202. Total sales in 2024 were $677.
I do not receive a similar cost breakdown but do receive a net cost figure. There was a net cost in June of $110, while in February we came out in front by $65.
Overall, costs were greater than sales, but not by much. My net power cost for the year was $10.
Conclusion
Let us now return to the question we began with. Will 2025 be the year of the domestic battery?
Several factors say yes. Production is rising, there are several good products on the market and competition between suppliers is growing. More and more households have solar panels and the midday export price from dumb solar to retailers will soon fall to zero.
I suggest the brake on battery adoption is not cost. For many households, the several benefits of a battery would be well worth the investment.
However, the cost of a battery is high enough to require a careful decision. This in turn relies on an assessment of the value of the benefits which, unfortunately, are poorly understood. Even when the benefits have been identified, it is difficult to estimate their value as this is obscured behind many variables – some of which we have explored, others we have avoided by sticking with Victorian data.
The many variables have given rise to a negative information loop in which it is difficult for households to decide and difficult for others (including the Government) to provide definitive and compelling advice. By contrast, the old solar panel pitch was a no-brainer, much easier to make and much easier to grasp.
This negative information loop can be broken by a suitable incentive – something more effective than the current Victorian no-interest loan.
An alternative incentive design has been proposed by the Clean Energy Council. They recommend (in Victoria) a rebate of up to $3,500 for up to 40,000 10KWh batteries. This ~$100m investment in rebates would stimulate a ~$400m dollar investment by households in clean and smarter domestic energy systems. The Council says the benefit to everyone else in Victoria would be in the order of $59m.
In addition, the Council argues that the rebates should be coordinated through a national program.
Wait a minute. There is an election on soon.
Maybe 2025 will be the year of the domestic battery.
Harry Barber and his battery reside in Melbourne