Blog #2: Examining Porter’s Forces on Australia’s Residential Battery Industry

Residential battery power storage systems, relatively new to the market, are becoming quite popular. They complement residential solar arrays by storing homeowners generated power for use on demand (and provide a benefit for the grid where evening battery usage lightens the load during peak hours).  The US installed 13MW of residential battery systems in 2017 [1] compared with 17.8MW (residential) in Australia [2], despite having a population thirteen times its size.

Based on my interest in the early adoption of the home battery in Australia, I wanted to examine Porter’s forces of substitutes, suppliers, threat of entrants, rivals, and customers to see if this model would provide insight to an Australian company considering whether to enter this industry.

Residential battery storage is a substitute for other methods of providing electricity.  There is a switching cost to adding a home battery; an Australian based RedEarth Energy’s home battery will cost you around $10,000 USD. [3] While this is surely a significant deterrent in some locations, Australia is rural and has fires, extreme lightening, and heat events, all of which cause black-outs.  Because of the reliability batteries provide in these circumstances, they become an excellent substitute to the traditional grid.

Australia produces 47% of the world’s lithium and has significant reserves of other key battery materials.  Despite this, “99.5 per cent (of an estimated $213 billion) of the value of Australian lithium is added through offshore electro-chemical processing, battery cell production and product assembly.” [4] It would be reasonable to assume that an Australian based company could establish a competitive supply chain advantage.

Multinational investment has been significant, but with a heavy focus on car and electronics batteries.  Tesla does make a home battery called the “Powerwall,” and is the default heavyweight.  That said, battery breakthroughs made elsewhere are likely to benefit all producers, and the home battery hasn’t been heavily focused on, providing an opportunity for new entrants into the market without a piling on.

Considering the early position in this product’s life-cycle, the rivalry between organizations is still developing, and there are few if any retaliatory incumbents.  Because of how new the product is, there is low penetration, this is a positive sign for entry.

From a customer’s point of view, if the unique benefits the battery can provide are substantial enough, it will justify the purchase.  Their main alternative is the power company, with whom they have no bargaining power.

A few other factors to consider that affect the forces above are that the Australian government has been quite supportive of renewable energy, first with its solar program, and now through battery rebates.  Further, Globenewswire predicts double digit growth in this industry through 2027. [5] Based on Porter’s competitive force analysis I consider there being a favorable case to be made for entering the Australian based residential battery industry.

[1] https://www.utilitydive.com/news/us-residential-storage-capacity-sees-317-growth/531585/
[2] https://onestepoffthegrid.com.au/australians-installed-22661-home-battery-systems-in-2019/
[3] https://www.smartcompany.com.au/industries/energy-resources/redearth-tesla-home-battery/
[4] https://thenewdaily.com.au/finance/finance-news/2019/05/27/lithium-industry-boom-australia/
[5] https://www.globenewswire.com/news-release/2020/03/02/1993387/0/en/Global-Residential-Energy-Storage-Market-Size-Share-2017-2027-Growth-Trends-Key-Players-and-Competitive-Strategies.html#:~:text=The%20residential%20energy%20storage%20market,period%20from%202019%20to%202027.&text=Increasing%20demand%20for%20Li%2DIon,the%20residential%20energy%20storage%20market.