US residential solar storage still stuck on the launch pad

For all the dealmaking and excitement in the US energy storage market, few homeowners can afford battery systems today and batteries are not yet making much of a difference to residential solar companies, industry sources say.

Following the launch of Tesla’s Powerwall home battery system a year ago, one could have been forgiven for assuming that the residential storage market was on the cusp of a commercial breakthrough.

Many home solar companies, including sector leaders SolarCity and Sunrun, added batteries to their product line-ups, hoping to unlock new ways of making money at a time of growing uncertainty for the industry.

So far it hasn’t worked out that way, executives said at the Intersolar North America conference.

“We’re hearing lots of frothy conversations in the market, but not yet seeing that materialise in a lot of storage installations,” says Stacey Lawson, chief executive of Ygrene, a clean-tech financier based near San Francisco.

Large-scale battery storage is becoming a significant sideline for companies building big wind and solar projects in the US, from EDF Renewable Energy to Invenergy. For residential companies, though, storage is still a tough place to make money.

Despite the dramatic cost reductions seen in batteries, the numbers still don’t add up for the vast majority of US homeowners, says Eric White, president of Dividend Solar, which links would-be solar customers to installers and financiers.

That may come as a surprise to some potential storage customers.

“As soon as Tesla came out and announced the Powerwall, the Elon [Musk] effect set in,” White says. “All of a sudden [homeowners] had this understanding that storage was available immediately and made a lot of sense.”

But the only state in which residential storage makes clear-cut sense today is Hawaii, White says. “The economics are still not quite there in most of the lower 48. Realistically, we’re probably at least two or three years away from having economics that make sense at the residential level.”

A large (though shrinking) proportion of residential customers in the US contract for their PV systems through a long-term solar lease or power-purchase agreement (PPA), the core product of sector leaders SolarCity and Vivint Solar.

But “layering” a battery system into a structure like a solar PPA makes it too expensive for most customers, according to Thomas Plagemann, head of capital markets at Vivint.

“The rate you’d have to charge if you wanted to make an economic return on that capital investment would mean the value proposition would make no sense for customers in most markets,” Plagemann says.

“Storage is a cool thing — it’s cool to have, it’s nice to be more independent of the grid — but it’s an expenditure that’s hard to justify... unless the homeowner really, really wants it.”

The US installed 221MW of energy storage capacity last year, up from 65MW in 2014, according to GTM Research. And the expansion of the American storage market is only beginning: it is expected to reach 1.7GW by 2020, worth an estimated $2.5bn.

But the market is dominated by grid-scale — or front-of-the-meter — storage, which accounted for 85% of last year’s installations. Within the behind-the-meter segment, which is also growing fast, much of the momentum is in the commercial and industrial (C&I) sector rather than residential.

The case for storage at commercial facilities like factories and hospitals is far more compelling today than for homes, says Lawson, whose company provides finance to both sectors.

Many of the fastest-growing American storage companies, including Stem and Green Charge Networks (acquired in May by France’s Engie), focus on the C&I market.

Many residential companies envisage a natural marriage between rooftop PV and on-site storage, allowing for synergies in sales, installation and O&M, and potentially making their core product — solar power — more valuable by making it dispatchable.

In the short term, though, one of the biggest obstacles for residential solar-plus-storage is net metering, still the bedrock of the US residential market.

In states with a net-metering policy, it nearly always makes far more economic sense to flow excess power from a rooftop PV system back onto the grid than to use it to fill an on-site battery.