Summary: Many people get caught up in the hype, status or sales pitches of new products or services that, while expensive, promise to save you money in the long run. Unfortunately, most will never actually pay off given that the money could have been invested elsewhere. And even products that have the potential to deliver long-term savings are easily crippled if you overspend or make sub-optimal choices.
In this post, I'll use the example of the various technologies, products and services marketed as offering long-term savings on home energy costs. The majority of consumer decisions are far from optimal and there is much to learn about how to do your research properly upfront and understand things like opportunity cost, payback time, return on investment, and full lifecycle costs.
Details:
1. Despite the hype, basic calculations reveal that home battery storage is not remotely close to delivering a long-term net benefit, let alone being among the best solutions
Even with the benefit of actual data relating to their own household, some people refuse to correctly or honestly figure out if an investment makes financial sense. Mistakes they make (often willfully) include:
- Not factoring in all capital costs (they often focus just on the positive operating cost savings)
- Not accounting for required upgrades and replacements (e.g. switching from gas to electric appliances, heating and hot water)
- Not factoring in full lifecycle costs including installation, maintenance, upgrades and disposal
- Ignoring the cost of additional time and effort required
- Dismissing the opportunity cost of all expenditure related to the investment (e.g. putting the cost of a Powerwall into long-term financial investments with say 5% yields or, even more obviously, investing in energy efficiency and conservation measures)
- Forgetting to factor in capital replacement (e.g. buying a new Powerwall after it reaches the end of its effective life)
- Incorporating imaginary and unrealistic benefits (e.g. figuring their house will be worth more with a 10 year old Powerwall when it will just be 10 year old technology that no-one wants)
- Deliberately refusing to disaggregate the costs and benefits of separate components or decisions in order not to expose the shortcomings of their favoured component (e.g. given the right setup and circumstances, solar panels will typically have a positive payback in Australia, but Powerwalls never do. Treating them as a package masks the fact that the financial benefits would be superior without battery storage.)
- Relying on the most favourable cherry-picked circumstances to claim net benefits when these circumstances are neither typical nor desirable (e.g. battery storage, or even acquiring a large number of solar panels, only approaches being financially justifiable when household energy consumption is very high. But it is much easier and smarter to simply reduce household energy consumption.)
- Conveniently eliminating inconvenient facts such as displacing costs elsewhere (e.g. Nick Pfitzner keeps neglecting to mention his annual gas bill which I imagine is at least $600 a year and could be much higher).
I estimate Nick Pfitzner's household has already spent well over $20,000 on solar panels, inverter, the Powerwall, energy management hardware and software (e.g. Reposit hardware), installation, replacement and integration, additional hardware (e.g. extractor fans), new electric appliances, professional labour services and various other related costs. And this is just the setup costs. As discussed above, these costs will keep adding up over time (e.g. upgrading and replacing hardware, ongoing maintenance).
But their annual energy bill (electricity and gas) will be at best $600 a year less than our household's (our annual energy bill is around $1,600). Our household spends nothing on energy generation, storage, management or sale. We treat energy as a service and just ensure we use the cheapest possible provider and minimise our consumption.
Instead of trying to run our own gold-plated energy infrastructure we just keep that $20,000 invested and it yields at least a 5% annual return ($1,000). Indeed, our cumulative savings from not wasting money on such bogus "household investments" over many years are much higher than $20,000 and the annual yield will permanently cover all future energy bills.
Contrary, to what the popular media might suggest, most expenditures on discretionary technology, products and services are just expenditures, not investments. There are a few genuine investments (insulation, double glazing, etc) but they tend to be boring, not shiny new technology. And the most worthwhile cost-saving investments are lifestyle changes (e.g. smaller homes, eliminating unnecessary appliances like clothes dryers).
2. Examples of bogus cost-saving investments
- Battery storage
- Electric cars
- Virtually all hyped gadgets
TBC...
Further Info:
ABC
> Tesla Powerwall: What's the verdict from the family who installed Australia's first unit?
The Guardian
> From solar boom to bill shock: Australians face loss of rooftop payments
Gizmodo
> This Aussie Family Pays 59 Cents A Day For Power Thanks To The Tesla Powerwall
> When Tesla's Powerwall Can Save You Money
> Tesla Powerwall: Number Crunching Pricing And Payback Times
Choice
> Powerwall payback
Catalyst
> Battery powered homes
Unleash the Powerwall
> Billing Awesomeness Powerwall Style
> Powerwall ROI in Prospect – Part Two
One Step Off The Grid
> To add battery storage, or not to add battery storage…
ATA
> Grid-connected batteries economically attractive by 2020
> UBS: Tesla Powerwall can deliver 6-year payback in Australia
> Morgan Stanley sees 2.4m Australia homes with battery storage
YouTube
> Fully Charged - Clint Luna
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