by Julian Spector
February 15, 2019

Distributed storage grew up a lot in the last few weeks.

Market developments have been falling fast and hard like the winter rain in San Francisco, such that we have seen a game-changing home battery acquisition, a new moneymaking scheme for California battery developers and a wholesale market breakthrough, all since late January.

This week, Storage Plus is putting the global tour on pause to dive into these behind-the-meter developments, to tell you who gains, who loses and what you need to know to be dangerous.

Sonnen sells to Shell

This just went live this morning, and the ramifications will take a little while to fully process, but it’s clearly going to reorient the competitive landscape for home storage.

Sonnen already leads the pack in its home country of Germany, where home energy consumption is lower and batteries can be smaller as a result. When it arrived in the U.S. in 2015, the company was hailed as a possible “Tesla killer,” the elusive distinction of unseating the Powerwall’s grip on the American market.

Years later, nobody has managed to unseat Tesla as the presumptive leader for U.S. home storage, despite the many ways in which the company disappoints at market leadership. It has struggled with the basic task of delivering units to customers in a timely manner. It only added time-based controls years after entering the market. It repeatedly jacked the list price for a product that’s been on the market for years.

Mercedes-Benz was supposed to be the challenger that could pull it off, but the German car company pulled out of the market before delivering a product.

LG Chem has made significant headway with its Resu unit, a mainstay of Sunrun’s 5,000-strong BrightBox deployments. But Resu is functional and unflashy; it doesn’t inspire the kind of consumer awareness and devotion that Elon Musk conjures so effortlessly.

And then there’s sonnen. The company wasn’t shy about sitting higher up on the cost curve than Tesla, and pitched itself as a premium alternative that delivered better value.

The U.S. branch doubled down on that vision with its new ecoLinx model, a luxury home automation and backup system that clocks in at $26,000. SVP Blake Richetta likened this strategy to Tesla’s vehicle roadmap: Start with a luxury model that proves out the tech for customers who don’t care what they pay, then bring the product down to mass-market accessibility.

Sonnen skeptics have wondered how it could ever become a mass-market phenomenon when it costs more than the competition. The Shell acquisition creates a compelling response.

Shell has been throwing more money into the cleantech space than almost anyone lately. It shouldn’t have a problem financing a manufacturing ramp-up for sonnen, which would reduce its unit economics.

Shell also recently acquired Greenlots, one of the big three North American EV charging companies. It has said it wants to develop storage-assisted EV charging services; that gives sonnen a new market to explore.

Lastly, Shell oversees a vast energy trading operation, and that skillset makes an intriguing match with sonnen’s ambitions to turn thousands of battery systems in homes into moneymaking grid assets.

We haven’t gotten a granular view into how sonnen operates its community in Germany. It’s fair to say, though, that the skillset required to design and sell smart home storage differs from the skillset of managing real-time power flows across a system. Sonnen has confirmed that it needs a different approach to aggregation in the U.S. regulatory environment, and that’s probably where Shell can provide a boost.

Now it’s possible to imagine Shell piecing together a futuristic mobility offering, where a customer pays a monthly fee for clean power sourced to a home battery that charges a car and includes free top-offs at any Shell station. Or it could subsidize a home battery build-out in deregulated markets so its traders can use the batteries to hedge against price spikes (similar efforts are underway in Australia’s freewheeling energy market).

The caveat here is that corporate integrations can take longer and cause more confusion than expected, and there’s no guarantee that Shell’s disparate business groups can play together as seamlessly as possible.

This interconnected grid edge vision does have strong support from Shell New Energies executives, however. And the staff carrying out the vision have been plucked from a who’s-who of energy storage startups. Shell recently picked up Ryan Hanley to serve as general manager of the Energy Platform; Hanley emerged as a leading proponent of distributed energy as a grid resource in prior roles at SolarCity, Tesla and AMS.

Now he has all the pieces to deliver on that vision: money, connections and a means of deploying batteries, solar and EV charging under a coordinated energy strategy.

NEM for Batteries

California storage developers have a new business model to play with.

The California Public Utilities Commission voted January 31 to approve a proposal known as “Net-metering for Batteries.” The idea, which I covered in detail here, is that solar generation stored in batteries and exported to the grid should be compensated the same way as direct solar exports.

Now that policy has become official (technically, it goes into effect once the utilities submit their advice letters explaining the new arrangement), solar and storage developers need to weigh the potential revenue to be gained from battery NEM.

California has switched to time-of-use rates, meaning solar exports at midday, when the wires are flooded with solar, don’t pay as much as they used to.

NEM for Batteries allows projects to save that solar power and export it in the evening during the peak tier bracket, when they will get paid more. That’s also when the grid actually needs the power, which is why utilities supported this measure.

In the past, interconnection agreements forbade battery customers from exporting to the grid and required equipment to ensure that, said Josh Weiner, president and CEO of design engineering firm SepiSolar and a proponent of NEM for Batteries.

“You would be [committing] a legal violation of your agreement, and you physically wouldn’t be able to do it,” he said.

That meant networks of batteries could tap into grid services only by reducing demand behind the meter, rather than the more valuable service of delivering capacity to the grid. The ability to export is a crucial enabling factor for distributed batteries to play a meaningful role in grid services.

To access this new revenue, though, operators have to forgo charging their batteries from the grid.

To qualify, the system needs firmware or software controls “certified to a national standard or a utility-approved interim testing procedure” to guarantee that any exports earning NEM payments came from renewable generation. Otherwise, batteries could charge from the grid and try to claim the credits, which would run counter to the purpose of NEM.

Charging from the grid, though, provides valuable flexibility for a battery.

“The question becomes, especially for larger systems, whether it's worth it to go on NEM and get credit for export at peak hours but be unable to charge from the grid, or focus on grid services which usually requires flexibility to charge from the grid,” said Brett Simon, senior storage analyst at Wood Mackenzie Power & Renewables.

If the battery is participating in a capacity contract with a utility, it needs to be charged and ready whenever the dispatch signal comes. That may not be doable in all cases if it only charges on solar.

If a homeowner loads up on solar and discharges through the evening, only to find out a heavy snowstorm is bearing down that night, grid charging could make the difference between losing power or keeping it on.

Developers and installers will need to run their own calculations on what makes sense for a given project. So far, the first big name to jump on board is NEXTracker, which worked on the policy and got the first UL-verified firmware to comply with this policy. 

Now, NEXTracker can tap NEM for Batteries with its NX Flow product, which combines solar trackers with DC-coupled flow batteries from Avalon; the coupling around a single inverter makes it easier to design for no grid imports.

NEM for Batteries means developers can oversize their solar capacity while staying below the 1-megawatt interconnection limit that ensures expedited processing by utilities, Weiner said. Excess power gets shuffled to the battery for delivery later. Guaranteeing charge from solar also makes a clean case for claiming the federal Investment Tax Credit for the whole system.

On paper, this looks like a commonsense mechanism to align the incentives of solar and storage developers, customers and the electric grid at large. If it lives up to that promise, other states should take notice.

Speaking of other states, Massachusetts regulators finalized Order 17-146, clarifying the use of energy storage on net metered facilities and who gets the capacity rights for storage. The order largely upheld an earlier compromise among stakeholders, which I detailed here.

Sunrun breaks open capacity markets

Also in New England, Sunrun broke open a new use case for aggregated home batteries when it won a capacity auction last week.

The home solar and battery installer has to deliver 20 megawatts to the New England ISO in 2022 by installing roughly 5,000 BrightBox systems across the region by then. That’s even bigger than the 3,000-home contract Swell Energy won with Southern California Edison in 2016.

Sunrun's win marks a maturation of the home storage industry, or at least Sunrun’s business: It’s now competing in wholesale markets, where it doesn’t need to secure pilot projects or utility approval to earn revenue from serving the grid.

This also means that small-scale batteries plunged into the melee of traditional resources vying for a contract, and they were selected when others weren’t. The clearing price was $125/megawatt-day, or roughly $3.8/kilowatt-month. 

Now the thing to watch is how Sunrun shares the revenue with its customers, and how participation in the capacity contract affects customer experience. In theory, a savvy aggregator can pull from a large network of batteries without preventing the homeowners from doing what they want with the equipment, but this needs to be proven in the field before it should be believed.