IN DEPTH: Charge of the PV batteries

Looking up at the dark clouds that blanket the sky over Berlin for much of the year, it is difficult to fathom how this Northern European country with its relatively cold climate ever became a champion in solar energy.

Yet Germany now has more than 35GW of PV installed, more than any country in the world — largely due to the feed-in tariff (FIT) programme that helped to launch a mass market for solar modules across the globe.

Now the country is trying to set the pace again with an incentive scheme for PV battery systems — a move that could kick-start a revolution in the solar universe.

Since May 2013, Germany has granted owners and buyers of residential solar installations up to €660 ($906) per kW for solar battery systems via its KfW development bank, up to a maximum subsidy of €3,000.

The programme — limited to €25m in its first year, and then €50m until the end of 2015 — was designed to help develop the technology and to learn how storage systems could help stabilise the grid.

Manufacturers of solar battery equipment are already betting on a rapid-take off in sales.

“We can count on a market growth of 20-30% a year [in Germany], optimistic studies see even more,” says Armin Schmiegel, portfolio manager for innovations at Bosch Power Tec.

Bosch may have given up on manufacturing PV modules, but its Power Tec unit is expecting to profit from a solar storage boom kicking in around 2016.

“And from 2017 on, we expect that the market share of solar systems sold with storage will become dominant in Germany,” Schmiegel tells Recharge.

It is beginning to make more sense to install a PV system with storage than without, despite the extra costs involved. The FIT — paid for PV energy sold back to the grid — has fallen from €0.481 per kWh in 2002 to between €0.09 and €0.13 (depending on the size of the installation). At the same time, electricity bills are rising rapidly, with households currently paying utilities close to €0.30 per kWh. Storing and using more self-generated electricity would thus save consumers a significant amount of money.

Germans are expected to add about 3GW of PV this year, which would bring overall installed capacity to above 38GW. Once a total of 52GW is reached — possibly in 2018-19 — no more FITs will be paid at all for new installations, German legislation stipulates.

The closer Germany gets to this FIT cut-off point, the more likely there will be a run on PV installations with storage systems, Schmiegel reckons. “In the coming two to three years the point will come where people buy PV only to avoid getting into the final rally [thus avoiding the risk of not getting any FIT payments],” he says.

Growth in the solar storage market is inevitable, partly because it is starting from such a low base.

Bosch Power Tec says the number of systems it sold in 2013 was in the low three-digit range, but that it expects sales to quadruple this year.

Schmiegel believes that the annual market in Germany will reach 30,000 units in two years’ time.

Bonn-based market researcher EuPD expects an even more dynamic development, with storage system installations in Germany rising from about 5,000 last year to more than 40,000 in 2016, and over 100,000 units from 2018.

Unsurprisingly, the number of companies selling solar storage systems or related products is soaring. At last year’s Intersolar trade show in Munich, there were just over 200; this year there is set to be about 260, organisers tell Recharge. Such companies include PV manufacturers, developers, battery suppliers, inverter makers including SMA Solar and pure-plays such as E3/DC.

The main constraint to the take-off of the solar storage market, however, remains the elevated price of the systems, EuPD points out.

But the cost is rapidly coming down. At last year’s Intersolar, one industry executive told Recharge that even with Germany’s subsidy programme it would take up to 17 years to break even on the investment for a 4kW storage system. Another said smaller storage units would take 20 years to pay off and were more of a “lifestyle” option for enthusiasts seeking self-sufficiency.

E3/DC — one of the most respected storage providers among installers, according to a EuPD poll — says that one of its lithium-ion systems would pay for itself in about 12 years, while admitting that its products are not the cheapest on the market.

“Storage systems are definitely profitable,” E3/DC general manager and founder Andreas Piepenbrink tells Recharge.

A large solar storage plant costing €20,000 would provide a price per kWh of €0.20, or €0.18 including subsidies. Even smaller storage systems would still achieve an electricity price of about €0.25/kWh — cheaper than the €0.30/kWh charged by utilities, a figure that is expected to rise and rise in the coming years.

SMA Solar, which has just unveiled its first PV inverter with an integrated storage system, tells Recharge that clients often mention their desire to protect themselves from future energy price increases. Buying a storage system is a hedge against such rises, says Volker Wachenfeld, the company’s senior vice-president for hybrid and storage.

Grid-connected solar storage systems boost the self-consumption rate of an average four-people household to more than 60%, compared to 30% for a PV installation without storage, a study by the Fraunhofer ISE institute finds.

As most solar power is generated around midday, when the sun’s energy is most intense, storage systems can help smooth out Germany’s so-called midday generation peaks. These occur when solar energy from more than a million rooftops floods the grid, pushing electricity from other sources out of wholesale markets, causing a collapse in prices and dangerous losses for utilities, as Recharge reported in April.

Grid-connected battery systems could reduce such peaks by 40%, Fraunhofer concludes, increasing the overall capacity of power grids by 66%.

A massive build-up of solar storage systems could therefore reduce the need for a large-scale — and hugely unpopular — expansion of the German grid, for which the government has earmarked a dizzying €10bn.

However, the Christian Democrat/Social Democrat coalition in Berlin has proposed a reform of the renewable energy act (EEG) that will undermine the economics of self-consumption. The draft by energy minister Sigmar Gabriel, which is being debated in parliament, would extend the renewable-energy surcharge — currently paid by power generators to finance the country’s renewables expansion — to self-consumers.

The proposal, which faces opposition by some of the states in parliament’s upper house, stipulates that micro-generators such as PV rooftop owners, would have to pay what the industry is calling a “solar tax” or “self-consumption levy” of about €0.032/kWh, half the rate power consumers have to pay for electricity bought from the grid.

The German industry federation BSW Solar argues that the levy could choke the micro-generation market at a moment when self-consumption is more attractive than it has ever been.

But under Gabriel’s proposal, rooftop PV installations of up to 10kW — which make up most of the residential capacity — will be exempt. Owners of mansions with large systems, as well as businesses, would be hit by the levy.

Piepenbrink reckons that 90% of the storage systems it sells function with PV capacities below the 10kW threshold, but he is still outraged.

“It’s as if you had to pay taxes on tomatoes you’re planting yourself,” he grumbles.

If the levy becomes law, it could push back the moment when the economics of PV storage make sense, says IHS solar research manager Sam Wilkinson. He does believe, however, that the storage incentive programme will help the technology’s deployment to take off.  

While analysts and companies, by and large, hail the incentive programme, its set up isn’t ideal. Homeowners don’t receive an upfront grant, but rather an indirect subsidy — worth 30% of the cost of the system up to a maximum of €3,000 — that helps to pay off a low-interest loan from the KfW. As the KfW does not have any branches, customers have to fill in forms at high-street banks that do not benefit from the arrangement and have little interest in getting involved.

“It’s linked to an incredible amount of bureaucracy,” Piepenbrink says, adding that the loan application is as complicated as a tax declaration.

In the year since 1 May 2013, the programme only supported 4,000 storage systems, providing subsidies of €10m, even though funds were available for double that amount, the BSW points out. The solar group believes, however, that payments will be significantly higher this year.

For PV battery systems to take off outside Germany, other nations will need to follow its lead.

“It’s probably gonna take incentives in a few other countries to really drive the global industry forward,” says Wilkinson.

One country that recently also has introduced an incentive programme for energy storage is Japan. Paying an upfront grant of up to $10,000 per system, the Japanese plan is more generous. With still very generous FITs for solar in Japan — up to ¥37 (€0.27/$0.36) per kWh — it is not in homeowners’ interest to self-consume their electricity, Wilkinson explains. But with the energy sector still in post-Fukushima crisis, people have genuine concerns about the stability of the grid, especially in the wake of another natural disaster.

The growth of PV battery systems in the US will largely be driven by state mandates, such as in California, where investor-owned utilities must procure 1.3GW of energy storage by 2020.

“Utilities have to meet it, but they don’t have to own all the actual storage,” explains Lux Research analyst Matt Feinstein, adding that utilities can encourage customers to invest in solar batteries.

IHS forecasts that Germany and Japan this year will account for almost a quarter of the global PV storage market, with each installing nearly 100MW.

Although the take-up of PV battery systems will largely depend on government policies, Wilkinson is in no doubt of the market’s trajectory. He predicts that there will be more than 6GW of grid-connected energy storage (including non-residential) worldwide by 2017, rising to 40GW by 2022. With 4kW household storage systems selling for about €8,500 ($11,660) per unit, it is no wonder that so many companies are racing to get a foothold in the sector.