Will small scale domestic energy storage change the electricity market as we know it?
In a possible future scenario cheap energy storage will change the energy industry
When it becomes possible to store large volumes of energy cheaply and efficiently, the electricity industry will become very different than it is today. The electricity system of a developed country, such as the UK, is a phenomenally sophisticated technical arrangement supported by a market mechanism for the real-time matching of energy supply to continuously changing consumer demand. Consumers pay a premium for almost total availability and reliability of electricity supply. This finances fast responding, but more expensive, generators and an electricity network sized for maximum instantaneous demand.
When it becomes cheap and easy to store electricity, this model will start to become obsolete. The actual consumption level will become less relevant to market prices which will increasingly be driven by the availability of intermittent renewable sources. A new movable peak will emerge as consumers take advantage of cheaper prices to charge up their batteries. Time of use tariffs (TOUT) will need to become dynamic as they will react to renewable energy generation rather than consumption, a factor which will need to be accounted for in the domestic battery control systems. As a large proportion of this renewable energy will take the form of distributed solar PV, the demands on the electricity grid will reduce.
The need for peaking services will decline and conventional generation will increasingly be made up of base load and some variable generators responding to price signals which vary according to availability of renewable energy. Renewable electricity will gradually displace conventional generators, starting with those with higher marginal costs.
This may seem an improbably far-fetched scenario. However, its viability is based on a relatively straightforward question: when will electricity storage become cheaper than the premium which consumers pay for availability and reliability of generation and transmission and distribution? Our existing system, of course, has a head start in this competition, as all of the capital investments needed to implement it are already sunk costs. As a result, the move to the electricity storage will be gradual. However, there are signs that this movement is already underway.
Small scale energy storage is mostly driven by solar PV
Active energy storage is currently driven partly by grid services, such as frequency regulation, but mostly by distributed PV generation.
Figure 1: Overview of Global Storage Applications 
In many regions, recipients of subsidies for small scale solar PV subsidies have a strong incentive to concurrently implement electricity storage. For example, small scale PV generators in Germany typically receive feed-in tariffs of approximately 10 €c/kWh (7.4 p/kWh), to which the generator is eligible whether this power is self-consumed or fed into the grid. Average household electricity prices are approximately 30 €c/kWh (22.1 p/kWh). However, a solar PV generator which sells excess electricity directly into the market would earn a fraction of this amount. This means that PV prosumers are incentivised to generate and to consume as much as possible of their own generation to avoid importing power from the grid. This incentive is bolstered in Germany by cheap credit and subsidies for battery storage. As a result, it often makes economic sense to install batteries so as to capture excess generation for later self-consumption.
Small scale domestic storage could also save money for consumers on time of use tariffs
Not all homes are being fitted with solar PV. However, a home with a smart meter can in principle go onto a TOUT. With the planned roll-out of smart meters to all UK homes and businesses by 2020, there is a potentially large market for energy storage devices to reduce household bills.
The economic viability of using electricity storage in this manner is based on potential savings as compared to the cost of the system. We have created a simple model to illustrate potential savings in a home. Figure 2 depicts average household weekday consumption in a ‘typical’ UK household which consumes 4,600 kWh per year. We assume for this model that the variance between a high (normally 4-8 pm on a weekday) and low (weekends and week-day nights) electricity rate is 20 p/kWh. This assumes that domestic storage has not yet started to reached sufficient levels of implementation to cannibalise the variance between the high and low TOUT levels.
Figure 2: Average household workday consumption and TOUT simple model scenario
It is assumed that this home is fitted with the facility to store 8 kWh of electricity which allows power to be purchased from the grid at low-cost periods. This model estimates potential savings which range from £0.39 to £1.28 per day, depending on the season. If it assumed that these savings are only possible on weekdays, this equates to annual savings of approximately £213. Assuming a discount rate of 2% over 15 years, this would result in net present savings of £2,728, not including the cost of the storage equipment itself.
It is harder to make small scale domestic storage economically viable based purely on TOUT
German company Sonnenbatterie offers a fully integrated 2 kWh battery system with control software for the equivalent of £3,176. By way of comparison, a Tesla 7 kWh Powerwall, including inverter, would cost approximately £3,600 wholesale in Europe, but could retail at more than £6,000. This does not include any finance costs associated with these capital investments. At these prices our estimates indicate that, even with very cheap credit, unsubsidised small scale domestic storage would not yet be viable purely on the basis of TOUT in our model ‘typical’ home.
The main force behind reductions in battery cost is the automotive industry. Nissan currently offers a Leaf electric vehicle together with a 24 kWh battery for £20,790 or without a battery for £15,790. This seems to suggest that the cost of the battery is £5,000. Note, however, that that the electric vehicle benefits from a government grant equivalent to 24% of its total value. If this is added back onto the cost of the battery plus an additional 15% to account for an inverter and other accessories, an entire domestic storage system could cost approximately £7,133. For consumers who may be deterred by the high capital investment, there are potential alternative models for procuring storage technology. Nissan Leaf buyers who go for the ‘car-only’ option can lease the battery for £70 per month. If this battery was offered without the car and 24%+15% were added to account for government grant and inverter, this would bring the rental price to £107.
A battery of this size and cost could start to become viable with usage levels several times higher than the UK typical domestic consumption values. However, arbitrage of domestic costs could in principle make economic sense if it were possible to aggregate a number of households.
The future could come sooner than we think
All of the technologies required for small scale domestic storage already exist. Its implementation does not require planning permission and it attracts none of the attention of large capital projects. Much of this storage could be quietly installed behind the meter in domestic premises. As a result, the beginnings of a move to the scenario described at the start of this article could happen faster and more unexpectedly than we might imagine. There are already plans for giant factories manufacturing hundreds of thousands of electric vehicles and batteries. With increasing economies of scale, the opportunities for domestic storage can only grow. Electricity market regulators, grid operators, generators, suppliers and investors need to start to consider this scenario and ask what it could mean for them.
DNV GL is placed at the heart of the UK energy storage market and is engaging with stakeholders across the entire value chain. If you would like to discuss the role that energy storage could play in your future then leave us a message and one of our UK energy storage experts will get in touch with firstname.lastname@example.org or email@example.com.
This blog has been developed in a collaborative effort with Matthew Rowe and Alan Birch.
 DNV GL, 2015
 Equivalent to medium 2015 typical domestic consumption values (TDCV) for properties with a multi-rate meter as defined by Ofgem https://www.ofgem.gov.uk/gas/retail-market/monitoring-data-and-statistics/typical-domestic-consumption-values
 Energy Storage News, EASE, December 2015
 All costs shown here include UK VAT of 20%
 All costs shown here include UK VAT of 20%