High inflation is affecting all sectors of the US economy, and this includes electricity rates. If you visit the US Energy Information Administration website, you can see how kilowatt-hour prices have increased by 8.8% on average, from 13.30 to 14.47 cents/kWh. In the case of New York, the average price of electricity increased by 9.4%, from 18.04 to 19.74 cents/kWh. Maine is the state that experienced the largest price increase (40.3%), from 16.42 to 23.03 cents/kWh.
Expensive electricity is bad news for homes and businesses that get all their power from the grid. However, high kWh prices also bring a greater opportunity for savings with energy efficiency measures and renewable generation. For example, a solar panel generating 100,000 kWh in Maine would have yielded $16,420 in annual savings in March 2021, but this number increases to $23,030 at the latest EIA reported prices (March 2022). High kWh prices also improve the commercial viability of batteries and other storage systems, as there are more savings available to cover their costs of ownership.
Reduce your dependence on the local grid with solar power and energy storage.
Lithium-ion batteries have many promising applications in the renewable energy industry as they eliminate the main limitation of wind turbines and solar panels. By themselves, these generation systems cannot supply electricity on demand, only when their respective energy inputs are available. When solar panels and wind turbines are combined with energy storage, your electricity can be used at any time, regardless of wind and sunlight conditions.
How high kWh prices increase battery financial performance
Renewable energy is now more affordable than energy from fossil fuels in many parts of the world, especially after the recent rise in natural gas prices. However, fossil fuels are still difficult to replace, as they can be counted on to generate electricity at any time. Solar panels and wind turbines can beat the cost of grid electricity, but when energy storage is added to the mix, the price advantage is often lost.
As a quick example, suppose your electric company charges 16 cents/kWh and you have a solar panel system with an average cost of ownership of 8 cents per kWh produced.
- Adopting solar energy makes perfect sense in this case, as you save 8 cents/kWh.
- However, if you add a battery system with a round-trip storage cost of 10 cents/kWh, the price advantage disappears. Each kilowatt-hour generated, stored and recovered has a total cost of 18 cents/kWh.
- Under these conditions, the most economical decision is to use solar energy when available and rely on the grid to provide electricity that cannot be generated on site.
However, if the price of electricity increases from 16 to 20 cents/kWh, the energy storage system starts to make financial sense. You are now saving 12 cents for every kWh of solar consumed directly and 2 cents for every kWh of solar stored for later use. Previously, energy storage would result in a loss of 2 cents/kWh.
Using solar + storage systems to avoid future electricity price increases
Commodity prices are impossible to predict accurately, and this applies to natural gas and grid electricity. However, many experts agree that energy prices in general will continue to rise, given global supply chain issues and the conflict in Ukraine. This is especially true during the summer, as air conditioning increases electricity demand and prices.
When the grid is your only source of electricity, there's nothing you can do to avoid price increases. Energy efficiency measures can reduce your consumption, but your energy bills will continue to rise along with kWh prices. On the other hand, a solar power system has a predictable cost of ownership, and the same applies when adding energy storage.
When installing a solar+storage system, most of the cost of ownership is assumed upfront and there are only small maintenance costs over time. Even if you use a loan to install the system, you know exactly how much you will pay over time. On the other hand, there is no way to predict how much your electricity tariff will increase over the next five years. On-site generation not only saves the current kWh price, but also saves any price increases applied over the life of the system.
With energy storage, you can take advantage of low wind and solar costs even when wind turbines and solar panels are not active. The Biden-Harris administration announced a $3.16 billion bill to encourage local battery production, which will be administered by the US Department of Energy. This could help reduce technology costs while making the US less dependent on imported components.
