by Julian Spector
May 04, 2018

We hosted our first-ever live editorial roundtable for Squared members, where we spent an hour debating whether batteries are really going to take over peak power duties, if the residential market will really take off, and whether the sequence of natural disasters will change the way people plan for and invest in grid resilience.

The Squares who joined us live submitted a slew of queries to keep us on our toes. We addressed many of these in the webcast (archived here), but I promised to get to the rest of them in a future column. Here we go.

Q: I have yet to see battery economics that even come close to gas plants without massive subsidies. As I understand it, solar with batteries is entitled to a 30 percent investment tax credit. Would the Arizona economics you mentioned hold up without the subsidy? 

Storage has thrived in territories that subsidize it, that's absolutely true. California required its utilities to buy storage and arranged public funding for small-scale storage through the Self-Generation Incentive Program. It's notable that the leading commercial storage players — AMS, Stem, Green Charge/Engie Storage — are all California companies primarily operating in that state.

It's also true that the co-located solar and storage facility that First Solar will build in Arizona qualifies for the ITC. That makes it hard to know how storage competes on pure economics. 

Then again, it doesn't have to. The ITC is the law of the land, thanks to a rare instance of bipartisan agreement in Congress. Savvy gas developers exploit the tax code to their fullest possible advantage, and storage developers have no reason to do otherwise.

Storage industry strategists frame their incentives as a temporary tool to help storage achieve enough scale that it won't need any more incentives. That's worked out for solar over the last decade, and storage providers want their turn.

Arizona offers an instructive case study, because the state itself hasn't required or subsidized storage development yet.

When Arizona Public Service inked the deal for Punkin Center, it did so to save half the cost of running new wires out to the remote desert town. First Solar beat out all other resources competing for that peak power contract. You could argue that state exhibits more "pure" storage economics than the more subsidy-happy markets.

Then again, the energy market has never been pure; it's only as free as politicians and energy companies have allowed it to be. The question for storage shouldn't be whether it enjoys subsidies now, but how much longer it will need them.

Q: I've never seen a residential storage system justified using financial metrics. Have you?

Much of the early adoption of residential storage has focused on the emotional sell of clean, self-reliant backup power, which is a different metric than financial payback. That said, the financial appeal of home storage is improving in a few regions where climate and rate structure align.

The business case is strongest where you have a good environment for rooftop solar but less favorable compensation for solar exports than full-on net metering. That combination launched the thriving home storage markets in Germany and Australia.

In the U.S., those stars are aligning in California, where the utilities are switching from net metering to time-of-use rates. The steeper differential between the value of electricity during solar production hours and the evening peak gives customers a reason to buy a battery.

GTM Research analyst Brett Simon found that in SDG&E territory, for instance, solar-plus-storage has a payback period of 5.7 years, and that's without factoring in SGIP money. The time-of-use shifting provides real value there.

Whether customers want to invest in an energy device that takes several years to pay for itself is a different matter.

Q: What does Tesla's increase in Powerwall prices last week do to your trend projections regarding battery storage?

I personally don't make the projections; I just reframe them with incisive commentary.

However, my guess is Tesla's $400 price hike won't register in the macro trend of residential storage deployments.

For one thing, the Powerwall is just one of many offerings for home storage. It's the most well known, to be sure, and it dominates in California, but it's also hard to actually get your hands on one.

Tesla made a name for itself as the lowest-priced option on the market, but early adopters tend to lack price sensitivity for the simple reason that in most places there's very little reason to buy a home battery right now in the hopes of an economic return (see above).

For those buying a Powerwall to show off their hip new tech, a 7 percent price bump won't register. 

The change does reduce Tesla's price advantage, which decreases further when you factor in auxiliary equipment and labor. That could give the competition an opening to pull away customers who had thought the Powerwall was the only affordable option. Those companies just have to get their prices low enough to make that case.

Q: Do you see resi storage taking off in areas where there is still net metering? How about demand charges, such as Eversource's new tariff?

Massachusetts will be the one to watch, because it's got NEM and it's trying to push home storage within that framework, as I reported here.

The state's new solar incentive program will include an adder that pays more for kilowatt-hours produced on systems that have storage. The thing is, that's not tied to price signals to coordinate the use of those batteries with times of system stress. 

The state's energy leader, Judith Judson, framed the adder as a way to "bridge the gap" until rate decision can send more sophisticated price signals.

It's hard to see storage becoming economical for homeowners with NEM, but it could still take off if there's a prominent need for resilience. The nor'easters taking down power in New England this winter might drive an uptick in purchases; I've heard this anecdotally from installers and vendors, but we don't have the hard data from that quarter yet.

Stiff demand charges certainly sweeten the deal for storage.

Utilities typically justify demand charges as a way to collect money from solar customers to offset a "cost shift" from their use of the grid as a battery. By penalizing solar customers, these utilities end up incentivizing solar-plus-storage adoption. The short-term fix could deprive utilities of revenue down the road, if widespread distributed energy assets reduce retail purchases and negate the need to build expensive centralized assets.

Q: Isn't the storm-related resilience problem a distribution issue (trees falling on lines) as opposed to generation and bulk transmission? 

Storms threaten the distribution grid, but generation and transmission have their own vulnerabilities.

In Puerto Rico, the problem wasn't so much generators getting damaged; rather, it was a loss of the transmission lines to carry that power to consumers. Whereas high voltage transmission lines often get sturdy poles and careful maintenance to keep foliage away, the distribution grid enjoys less fortification and can't avoid contact with trees and other obstacles.

In that sense, you're right to single out the distribution grid as the linchpin of grid resiliency. That's certainly a better place to start than, say, stockpiling 90 days of coal at power plants.

Distributed energy resources could also change the way we think about grid resiliency. If every home had solar and a battery, a community might not invest as much money in hardening the distribution grid, because the customer-sited resources would mitigate damage from a local blackout. That's a departure from today's methods of evaluating grid reliability, though.

Q: What do you think about the European market for storage? Do you see some opportunities arising there?

Absolutely. As mentioned above, Germany has a thriving residential storage market. Case in point, sonnen has created a shadow utility by deploying storage in thousands of homes across the country. In the U.S. regulatory environment, the closest sonnen has gotten is a deal to install batteries in a forthcoming Arizona home development.

Just last week, sonnen announced a joint program with Engie to offer solar and storage in France. The promise of solar self-consumption and independence from a monopoly utility could spark a new market there.

At the utility scale, frequency regulation leads the pack. Great Britain and Germany both deployed more than 100 megawatts last year, largely for frequency. Opportunities are arising for integrating wind generation, although I haven't seen a clear business model win out at scale.

Q: From this point forward in the evolution of storage technologies and the market, is it logical for any solar project developer to be designing a project without planning for storage?

We know that all major solar developers are at least considering storage, and it probably gets evaluated in the planning phase of any large solar project. 

That's not to say that it always makes sense to pair storage. The best cases are in sunny environments with abundant solar in the midday hours but sharp evening peaks. The Southwest makes a good fit there. 

Developers need a way to monetize the inclusion of batteries. A utility issuing an RFP for firm, dispatchable energy does the trick. The recent FERC Order 845 could open up the use of storage to get more return on transmission investment, by shipping power at times when the lines would have been underutilized by a wind or solar plant.

It will be a while before storage becomes a regular accompaniment to new solar plants, but its consideration will become routine soon if it hasn't already.