When does it make sense to go off-grid

Consider a household that already has enough PV to cover their personal use, just not always at the times they want to use it. They might consider going off-grid by buying batteries, etc.

This is the situation I'm in. We use about 3 kWh/day, and are exporting, on average, about 7-8 kWh/day -- so we certainly have plenty of power. If we went off-grid, we'd probably want at least 5 days' power, so 15 kWh storage. I haven't priced this exactly, but I think such a system would be at least AU $8000.

What would this save us? Well, currently our exported power is sufficiently above our consumption that I estimate our bills will be $0 henceforth (ie. I think we are exporting enough power to pay for our consumption and the grid connection). Therefore, there's no benefit to us doing that!

In fact, at current electricity prices, I can't think of a situation where doing this would be justifiable. Perhaps if we were paid significantly less (ie. as the difference between what we pay to use power versus what we are paid for supplying power becomes greater, such a system would become more attractive. What sort of difference would be needed to make this worthwhile?

I'm assuming a fixed cost of $8000 to take ourselves off-grid. I recognise that for most people (because of their greater consumption) it would be more expensive. However, in that case their savings would be greater. It's not proportional though: because we use so little power, the connection fee makes up a sizeable proportion of our bill.

Exploratory model

I have done some basic modelling of how variations in our electricity billing would affect the payback of a basic off-grid system.  There are two main components to our bill -- a quarterly service fee (connection fee), and a charge per unit of energy (kWh) used. I've modelled a range of fess and tariffs, which are shown in the table below. Different connection fees are shown across the top, and different tariff structures (the difference between our consumption tariff and the Feed in Tariff (FiT)) are shown down the side. The values in the middle is the estimated ROI for the appropriate fee-tariff combination. My belief is that the "difference in tariffs" will go up, while the basic consumption tariff stays about the same and that the quarterly connection fee will also go up. There is talk of increasing the cost of connection, so that "solar users pay their fair share" (factually incorrect: it's not that houses-without-solar subsidise houses-with-solar, but that houses-without-airconditioning subsidise those with airconditioning. Utilities don't want to discourage consumption. These articles discuss in detail.). Also, the cost of off-grid battery storage is likely to decrease markedly in the next few years, but for simplicity I've only considered an $8000 system.

I've colour-coded the data, and believe that the red ROI levels are uncompelling. The orange is marginal but might be considered by someone who was passionate about being off-grid. The green results are starting to look economic.

I modelled the payback on the basis of varying the difference in consumption tariff and the FiT. At the moment, we pay AU$0.35 / kWh for electricity we use and get AU$0.24 / kWh for electricity we export to the grid. The difference is AU$0.11 -- but I expect this to increase in the future (especially when the FiT decreases in 2016). I've also modelled changes in the quarterly connection fee. Now, it is $70/quarter, but I think it's likely to increase.

Results

With our current tariff structure, I estimate the ROI for an off-grid system to be 6% -- this is not compelling. If the tariffs remain the same, but the quarterly cost increases to $130, I estimate the ROI to be 9% -- still marginal. Similarly, if the quarterly cost remains $70 but the difference between import and export pricing rises from AU$0.11 to AU$0.22 (quite possible in 2016), then I estimate the ROI to be 9%. If the difference between import and export pricing rises to AU$0.30 AND the quarterly cost increases to $100 (I consider this reasonably likely in the next 3 years), then the ROI is 12% -- this is starting to look like it could worth doing. Couple that with a 25% decrease in the price of off-grid systems in that time (given that some people are predicting a 50% decrease in price by 2020, this seems plausible) and the ROI is 15% -- I would consider doing this, and I bet a lot of other people would too.

Caveats

One caveat is that because we use so little power, changes in the quarterly connection fee have a big affect on the ROI. For households that use a lot more power, this will be less important and only the "difference in tariffs" will have much effect.
A second caveat is that this model does not consider any on-going expenses associated with maintenance of an off-grid system.


This post was written by Angus Wallace and first appeared at guesstimatedapproximations.blogspot.com.au