A new report by the consulting firm McKinsey has modelled battery storage costs and predicts that demand for grid-supplied electricity will fall sooner than predicted as batteries get cheaper and cheaper. 

The report looked at the incentives homeowners in Arizona would need to leave the grid and modelled two scenarios: 

  1. Partial defection, where some homeowners generate and store 80% to 90% of their electricity on site and use the grid only as a backup
  2. Full grid defection, where homeowners use solar and batteries for almost all of their requirements but have a and a small electrical generator as back-up. 

Based on current price trajectories, it will make economic sense for residents of Arizona to leave the grid completely, full grid-defection, around 2028. And partial defection could make economic sense as soon as 2020.

Arizona isn't Invercargill, but McKinsey points out that these economics are already at play in places where electricity costs are high and solar is popular such as Australia and Hawaii. And that many other states such as California, Nevada, and New York will be close behind. 

Here in New Zealand we can see these conditions prevailing in regions with high electricity costs and high sunshine hours much sooner than many think. 

The thrust of the McKinsey report is directed at utilities, the electricity distributions companies that are responsible for delivering electricity to our homes and businesses, and sends a clear warning to "disrupt themselves—or others will do it for them". Utilities around the world have sought to slow the uptake of solar and storage tactics such as time-of-use pricing, demand charges, and reducing the price paid for electricity exported back to the grid, and New Zealand is no exception. Unison's "solar tax" being a case and point. 

SEANZ have been saying this for a long time, and the McKinsey report agrees - regulators and utilities need to find new ways to recover their investment in the grid. Access to the grid for smaller volumes of back-up electricity will become more valuable than a charge per kilowatt can return and consumers will demand to be able to sell their excess electricity into the market at a fair price.The future electricity market looks something like the "as-a-service" models being adopted across many markets. Rather than being charged per kilowatt our electricity might come as a bundle something like our phone and internet does now, with a flat rate to access electrons when we need them and probably bundled with other services like in-home electricity management apps, an Electric Vehicle, and our internet. 

Battery prices are falling fast, the impacts will be widely felt, and will be sooner than we think. 

McKinsey sum up the changes: "Battery storage is entering a dynamic and uncertain period. There will be big winners and losers, and the sources of value will constantly evolve depending on four factors: how quickly storage costs fall; how utilities adapt by improving services, incorporating new distributed energy alternatives, and reducing grid-system cost; how nimble third parties are; and whether regulators can strike the right balance between encouraging a healthy market for storage (and solar) and ensuring sustainable economics for the utilities. All this will be treacherous territory to navigate, and there will no doubt be missteps along the way. But there is also no doubt that storage’s time is coming".

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The full report from McKinsey can be accessed here