Quantifying the impact of policy on the investment case for residential electricity storage in the UK
This study examines the role of policy on the profitability of residential batteries in the UK. It identifies six policy measures through industry interviews and quantifies their impact on the investment case using a techno-economic model. The identifed measures are either direct financial incentives or market interventions that enable more services to be performed by residential batteries. The availability of multiple services and revenue streams has the most significant impact on the investment case through the ability to stack multiple revenues, i.e., benefit- stacking.
Figure 1 is an illustration the showcases how residential batteries can provide services for multiple stackholders in the power system through aggregators and thus stack the various revenues for these services to provide more value.
Figure 1 – Benefit-stacking with a residential Battery. Homeowners can supplement the direct benefit they have from their battery (i.e., self-consumption, energy arbitrage if time-of-use tariffs are available) with potential revenues from providing grid services.
The six identified policy measures with a quantifiable effect on the investment case for residential batteries are:
Introducing time-of-use tariffs to incentivise flexibility of end-customer demand
Providing a £1,000 subsidy to part fund the initial capital cost
Reducing the financing cost from 5% to zero to reduce initial investment cost
Introducing a “peak shaving” service to monetise the value residential batteries can provide to the distribution network
Cutting the VAT rate applicable to standalone residential batteries from 20% to 5% to reduce initial capital cost
Removing the “deeming” of solar export tariffs to incentivise self-consumption
Figure 2 quantifies the impact of these policies on returns. The ability to shift demand within price spreads of up to £0.20/kWh could boost returns by 30%, significantly more than a £1,000 subsidy, low cost loans or VAT exemptions. Adding the peak shaving service (on top of self-consumption and demand-shifting with ToU tariffs) will increase returns by a further 8% to 38%. A 'full stacking' scenario would include frequency response to be provided by aggregated residential batteries and increase returns by 60% compared to the self-consumption base case.
Figure 2 – The financial impact of the six policy measures in isolation and combined (where possible) on the lifetime returns of a residential battery compared to the self-consumption base case.
Figure 3 shows the impact of the outlined policy measures on absolute lifetime returns relative to year of installation. Falling battery costs mean that the investment case for self-consumption is unlikely to be attractive before 2032. Enabling demand shifting through the introduction of ToU tariffs and the valuation of peak shaving services can bring that forward by 8 years with batteries stacking revenues from these three services. An addition al subsidy or low cost loan means residential batteries can be profitable already today.
Figure 3 – The evolution of lifetime returns in different stacking scenarios and the impact of a subsidy and 0% loan. Based on 5% cost of capital with the exception of the 0% loan scenario.
Gardiner, D., Schmidt, O., Heptonstall, P., Gross, R. & Staffell, I. Quantifying the impact of policy on the investment case for residential electricity storage in the UK. J. Energy Storage 27, 101140 (2020). (Publication)