Sometimes I get over-excited at cheap stuff in ‘the middle-of-Lidl’ (perhaps a sign of getting old…). But earlier this year it was very much with a professional energy policy hat on.
Sadly it wasn’t in the UK, but an online advert for Lidl Germany and specifically €299 for a small 2.24 kWh battery.
Batteries’ falling cost curve is well documented. But the availability of small plug-in storage for homes represents something incredibly novel and exciting. They might also be on the cusp of take-off in the UK with Octopus’ planned 2027 release of the Nook Cube. Critically, these batteries should be both vastly cheaper and more convenient: being genuinely small (‘shoe box size’) and incredibly simple, just plugging into a regular 3 pin socket, avoiding the significant hassle and cost of professional installation.[i]
The significance of these batteries arises from another trend that makes me particularly excited – the increasing variance in smart tariff consumer electricity prices. Below is the Octopus Agile tariff (that follows wholesale prices) for Wednesday 5th August 2026.
The first thing that jumps out is negative prices from 10am until 4pm, driven by big solar PV generation. Negative prices. You get paid to take electricity off the grid. Incredible! But the key point is the large trough-to-peak spread. As more and more renewables produce energy when ‘they’ want, not when it is currently demanded, this variation in prices is likely to increase.
Now combine these two trends and consider a thought experiment: how much would you benefit from a Lidl-style plug-in battery if last Wednesday’s price profile happened every day of the year, charging up at negative prices and using the battery to avoid buying electricity later in the day?
Depending on the assumptions it would be in the region of 40p-52p on the day, so £147-£190 a year. As a return on a €299 (approximately £270) investment this is quite sensational, paying for itself in under 2 years.[ii]
Of course, a day in early August is not representative of the year-as-a-whole, since there is much less solar in the winter, but at the same time more wind. But the ability to move demand around across the day still pays off. An excellent, more systematic analysis by the Resolution Foundation last year covered shifting demand using a quite conservative peak-to-trough 12p difference. This study didn’t include plug-in batteries in their report last year, such is the rapid pace of technological change, but even with conservative assumptions of an upfront cost of £450 and a 12p spread, such batteries would still generate a return around £60 p.a. (or 13% tax free).
The Government seems to have only partially noticed this opportunity. The 2026 Warm Homes Plan did discuss batteries,[iii] but was more focused on 4 kWh batteries that require professional installation. The benefit of these small easy-to-install plug-in batteries also appears to be a blind spot for the modelling by the Government’s official climate watchdog, the Climate Change Committee (CCC).
All good things must come to an end…
Will this price pattern and the amazing opportunity for small batteries continue?
First, on negative prices. These have been increasing in frequency and intensity on Octopus Agile (see table 1 below). Whilst it is difficult to know how much of this is a genuine trend due to increasing renewables rollout, or noise from the weather and/or loss-leader pricing, negative prices are also now widely observed in wholesale markets in the UK and other jurisdictions.
Table 1: Octopus Agile negative prices
| Time period (YTD 1 Jan to 6 Aug) | Frequency of negative prices (hours) | Average price when negative (pence) |
| 2024 | 71 | -1.81 |
| 2025 | 89 | -1.80 |
| 2026 | 146 | -3.72 |
However, I suspect negative prices are probably going to be temporary. Commercial grid-scale battery storage has exploded in recent years (see chart below) and continues to grow, which combined with increasing inter-connector flexibility, will surely gobble up most negatively priced electrons before they can reach consumers.
But a significant spread between peak and off-peak prices may still remain for a while, certainly if we assume the face pace of renewables deployment continues, and if commercial storage and interconnectors are slowed by deployment bottlenecks and long lead in times.
….but nearly everyone’s winner (maybe)
There will be two categories of winners from smart tariffs and small plug-in batteries.
First, the early direct adopters who get the benefits described above. But take-up is unlikely to be equal. Both financing and information savviness would point to lower take-up from low-income consumers. Upfront costs are non-trivial given nearly a third of the population have under £1000 in savings though I suspect it could probably be awareness that could be a larger initial problem.
However, critically it is not just the wealthy and savvy who will benefit. So much of our electricity system and its associated costs are geared around meeting peak demand.[iv] Reducing this means spending less on electricity supply capacity (either renewables or fossil fuels) to keep the lights on. In addition, home storage is particularly useful as it cuts peak demand in the local low voltage network, so reducing the need for investment in reinforcement.[v] Anything that cuts the cost of the electricity system overall will thus help all electricity consumers, including those without smart tariffs and plug-in batteries.
And the cost of this system – already too high – looks set to increase. The CCC has estimated that we need to be spending £22 billion in 2029 on electricity supply to hit net zero. If all of these costs were ultimately borne by households, the average cost would be around £740.[vi] Brutal.
Plug-in batteries could also be a far cheaper than many supply side options. Take Sizewell C which is looking to cost at least £38bn to deliver an extra 3.2GW of capacity and adding £17-19 to an average household bill. I calculate that reducing the evening peak by 3.2GW would require around 2.4m optimised plug-in batteries. At £450 per battery this would come in around £1bn (or 3% of the cost of Sizewell).
Where this ends up is of course very uncertain. The more people take up plug-in batteries, the smaller the evening peak and the smaller the benefit, in turn reducing the incentive. It will also depend on all the other whole-system parameters such as the pace of renewables supply deployment.
Stay away VAT man!
So plug-in batteries and smart tariffs – what can the Government do?
First, adjust perspectives. Battery storage should be about making things simple and easy to use, and here 2 kWh plug-in batteries have many benefits over 4 kWh.
Second, plug-in batteries are small agile tech, so a key lever is for deregulation, and for Government to get out of the way, bar ensuring a decent minimum safety standard.
Is there a case for subsidising plug-in batteries which are clearly so beneficial to direct users?
Yes, at least initially because of the large indirect benefits of a cheaper electricity system. Nearly all tech roll-out follows something like an ‘s’ curve in deployment, needing to break out from low-level niche early adopters to the mass market.
So the best option would be to prime early deployment as quickly as possible using the tax system. My understanding is only professionally installed batteries are currently exempt from standard rate 20% VAT. This should be extended to novel plug-in batteries as they arrive on the market to create a fair playing field. A relatively short sunset period (say to 2029) would be relatively fiscally cheap, potentially even entirely ‘negligible’ in terms of the fiscal rules, and in the longer term might even ‘pay for itself’ fiscally as a lower price energy system increases economic growth, reduces inflation and thus debt interest spending and perhaps even rein in DESNZ infrastructure bids at the next Spending Review.
VAT would also be the most useful lever as it could probably be operationalised quickly, helping to get the small plug-in battery market up and running alongside Octopus’ Nook Cube roll-out next year. This could be a big bang moment for the product, not just to help Octopus but stimulating a wider competitive market. Hopefully in a year’s time we will all be getting excited at seeing plug-in batteries in the middle aisle of our local discount retailer.
Calculations
Operating benefits: If you charged up on Octopus Agile between 13:30 and 14:30 on the 5th August 2026 you would have been paid -4p per kWh. Now you don’t want to run your plug-in battery to extreme charge or discharge to keep it in good health, so only using 60% of battery capacity gives 1.34 kWh of usable space. If you substitute for the expensive peak use between 18:30-19:30 (average price 35p per kWh) the battery would have saved 52p on Wednesday. 1.34 kWh is actually quite typical electricity consumption from my own household over the evening, so not unreasonable. If that happens on 365 days a year you are looking at a £190 return.
Arguably this is overstating the benefits as the 35p peak rate, is 9p than the current OFGEM price cap (26p)[vii]. Though adjusting for cherry picking the negative prices and somehow keeping the OFGEM price cap for the peak for a 30p spread still leads to a 40p saving on the day, and theoretically a £147 return.
Upfront cost: €299 converted fairly badly at 0.9 to the £ would have cost £270. Assuming you need to add some extra bits like an inverter, which a quick check on Wickes is £150[viii], would perhaps point to a more realistic price for the Octopus Nook Cube around £450.
Fiscal costs: Assuming a cost of £450 * 20% standard rate VAT = £90. The threshold for negligible policy costings recently increased to £10m p.a. and fiscal costings below this are not included in the OBR’s assessment of the fiscal rules. This implies more than 110,000 units would need to be sold in a year to induce a non-negligible costing.
[i] By way of comparison Octopus do offer battery only installation but with prices starting at £3,947 for a smart 5 kWh battery that requires professional installation.
[ii] In reality you’d probably need to pay a bit more than €299 and I suspect the Octopus Nook Cube will be a bit dearer. But even a 50% mark up to £450 it would still give a payback period of less than 3 years.
[iii] The Warm Homes Plan contains 62 mentions of ‘battery’ or ‘batteries’ compared to 52 mentions of ‘insulation’ and 29 mentions of ‘boiler(s)’ and encouraging for this author just five mentions of ‘hydrogen’. But as an example of the focus on large 4 kWh battery see illustration on page 26.
[iv] Dieter Helm has for many years been excellent at pointing out the importance of system cost not marginal cost. A good example being this recent article.
[v] The CCC have estimated that around 20-30% of the cost of upgrading the electricity supply system will come just from network reinforcement (Chart 7.5.7 CB7 main report), large amounts of which may be unnecessary if more load is stored at the local low-voltage network level during the off-peak.
[vi] In practice, much of this would directly fall on businesses, although a substantial share would likely be passed through indirectly via higher consumer prices.
[vii] https://www.ofgem.gov.uk/information-consumers/energy-advice-households/energy-price-cap-unit-rates-and-standing-charge
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