Second, they’re based on a highly complex and much-disputed set of calculations of the value that exported energy plays across multiple realms, including reducing the need for large-scale utility resources to meet grid peaks, reducing grid-upgrade costs and supplanting the use of climate-polluting fossil gas. Those values change from hour to hour and month to month, and as the charts above indicate, they’re much higher during a handful of hours in the summer months than at any other time. That forces solar-plus-battery systems to target a small number of high-value hours per year to export as much energy as possible to make up for the majority of hours when that energy will be worth much less. The avoided-cost calculations will also be rerun by the CPUC every two years, adding even more uncertainty to the system.

Solar advocates have been arguing for a gentler glide path” for making the shift from exported solar earning full retail rates to it earning these avoided-cost rates, one that would slowly cut compensation over the course of multiple years. The CPUC’s proposal does offer some customers a higher rate for exported solar during the first nine years of a system’s operation, several cents per kilowatt-hour above the avoided-cost rate. But solar groups argue that’s not enough to soften a steep dropoff in compensation that could undercut rooftop-solar economics and crash the state’s rooftop-solar industry.

Absent any last-minute changes, however, it appears that solar companies will need to find a way to make their businesses work within the structure the CPUC has proposed. Sam Jammal, vice president and chief of staff for major residential solar lender Mosaic, highlighted the increased uncertainty that these changes could force on parties trying to predict payback periods and rates of return on portfolios of net-metered solar-system assets.

We can still finance the products and ensure we can structure affordable monthly payments,” he said. At the same time, we have some concerns about how complicated the state policy may be becoming.”

In a world where solar power’s natural daily generation patterns will earn far less money, batteries become an increasingly important — perhaps central — piece of the rooftop-solar proposition. But when you add in the uncertainty and unpredictability of the underlying rate structures and avoided-cost crediting metrics that will determine that total value, batteries take on an additional role — that of an insurance policy against unexpected change.

That’s because batteries are the most controllable part of the load shape” — the combination of solar generation, energy storage and electricity consumption at every home with a rooftop array. This graphic from Sunrun shows how a battery (represented in green) can store excess solar power and discharge it later in the day to convert a home’s net load” — the amount of energy a home draws from the grid — to nearly nothing throughout most of the day, including what would normally be the time of peak household usage in the evening, when the grid is likely to be under the most stress and electricity costs are highest.

A chart showing an example of Sunrun's home solar and battery load curve
Sunrun home solar and battery load curve example (Sunrun)

Managing that load shape will spell the difference between earning a reasonable payback on your investment in a solar array or not. While Jammal hopes that the CPUC will alter its proposal to enable standalone rooftop solar to achieve reasonable economic rewards, ultimately we think solar-plus-batteries will be the direction the market will go,” he said. What we are going to see — and we’re all going to learn this — is how our partners on the installation side start combining batteries and start combining these electrification products that have their own incentives and their own impacts on whole-home energy use.” 

Is the industry ready for a boom in demand for batteries? 

All of these changes add up to huge opportunities for battery vendors and the host of companies that are integrating batteries into residential solar.

Sunrun was ahead of most installers in marketing batteries alongside solar systems. It’s had particular success in California, where existing rate structures have already been encouraging home storage, and the risks of wildfire-prevention blackouts have made many customers seek out batteries to serve as backup power sources. The company says batteries are added to about 20 percent of the residential solar systems they install in California, compared to an industry average of about 14 percent in the state.

The CPUC’s forthcoming decision, meant to supercharge adoption of batteries with solar systems, could quickly drive those adoption rates far higher, said Sunrun’s Wright. But it’s unclear whether the state’s utilities, regulators and permitting agencies are ready to efficiently support the shift to a far greater number of solar-battery systems than the state has seen before — and whether the broader battery industry and supply chain is geared up to support it.

California has deployed more than 530 megawatts of residential battery systems over the past five years, and demand is growing, Wright said. In fact, there’s far more demand for batteries than the industry can deliver right now, due to well-known battery shortages,” he said.

Solving those supply bottlenecks will be the first challenge for a post-net-metering California market. Recent market signals do indicate that a long-running shortage of batteries for grid energy storage, caused by Covid-related supply-chain disruptions and booming demand for lithium-ion batteries for EVs, may be easing, said James West, senior managing director and head of sustainable technologies and clean energy research at Evercore ISI.

We had a time there where the companies that were financing a lot of this, like Sunrun and Sunnova, and the technology providers like Enphase and SunPower, were short on batteries,” he said. Now they’re able to provide the batteries, at least in a reasonable amount of time.”

Once they can get the batteries, the next question for solar companies is whether they can get them permitted and interconnected in a timely fashion, Wright said. How quickly can you ramp up what is a profound change in the types and…volumes of applications that are coming in?”

Industry data indicates that it takes about 50 percent longer to permit and interconnect battery-solar systems than it does for solar systems alone, he noted. Many city and county permitting offices are still learning how to process these requests, although efforts to standardize solar permitting processes, including the Department of Energy’s SolarApp, could be adapted to support solar-plus-battery installations.

Another challenge is that adding batteries is more likely to trigger the need to upgrade a home’s main electrical panel, a process that can add months of additional permitting and interconnection time, Wright said. And customers who install rooftop solar are likely also to be in the front of the pack in terms of electrifying their homes and having EVs in their garages,” which will add complications to interconnection and permitting.

EVs and electric heating could add significant new loads to the utility grid — and rooftop solar panels could offer significant relief to those stresses, he said. But how can we get there, and can the system digest that change, and at what speed?”

Making solar-battery systems make economic sense

It’s also important to remember that batteries cost thousands of dollars on top of the cost of a typical home solar installation. Earning back the cost of a battery is far more complicated than plugging it in, programming it to store power at midday and discharge when peak prices begin, and walking away.

That’s why almost every solar-plus-battery system now being sold in California comes with a variety of options for actively controlling and adjusting the interplay of solar generation, energy storage and home electricity use to maximize the overall value of that load shape.” Just what that optimization will look like depends, of course, on a number of factors.

Some of them are starting to become clear — the need to limit exports during off-peak hours and save up energy to discharge when the value of energy exports spike, for example. But others will only emerge in the future, which means that these systems have to be ready to react to change.

That’s the idea behind sonnenConnect, the new grid-interactive” solar-battery program from sonnen, the German battery vendor owned by Shell, and Baker Electric Home Energy, a subsidiary of electrical contractor Baker Electric. It’s one of a growing number of virtual power plant” offerings that are promising customers increased value for their solar-plus-battery systems, in exchange for letting the installing company control how those batteries operate on a moment-by-moment basis.

This is about harnessing solar and harmonizing it into grid operations in order to enable the energy transition,” said Blake Richetta, CEO of sonnen’s U.S. business. To become a firm grid asset, you have to develop this kind of mechanism. Otherwise, you have tens of thousands of batteries doing nothing, sitting in backup-power mode.”

Sonnen has been operating these kinds of residential solar-battery virtual power plants in Germany since 2015, and it has structured similar arrangements in Utah with utility Rocky Mountain Power and in California for some apartment complexes.

SonnenConnect’s value proposition for homeowners and the grid at large is only partly defined at present, Richetta said. The most obvious value will come from balancing a home’s load shape against time-of-use rates and electrification rates, which is a relatively simple matter of scheduling when batteries charge up and discharge against known daily cycles.

But those daily schedules can change unexpectedly, he said. One major example of that is when California’s grid is on the verge of collapse, as happened in the summer of 2020 and again in September of this year, when grid operator CAISO had to institute emergency measures to reduce electricity consumption to prevent heat-wave-driven electricity demand from outstripping available supply.

During these emergencies, stored battery power is far more valuable to the grid at the tail end of a 59 p.m. peak period, after the sun goes down, than at the beginning, when the grid hasn’t yet reached its highest point of stress, he noted. But battery systems that aren’t programmed with this fact in mind might start discharging power at 5 p.m., leaving them depleted later on when they’re really needed.

Companies including sonnen, Sunnova, Sunrun and Tesla are already signing up customers willing to let those companies actively control their batteries to manage these later-evening demand spikes. The avoided-cost rates for energy exports would offer more money for those key hours, which could make it worthwhile to save up as much energy as possible and inject it into the grid at those precise times, he said. That’s just one of a growing number of ways that centrally controlled and orchestrated solar-battery systems can boost their value for their owners and the grid, Richetta said.

There’s clear value in a future of rooftop-solar-and-battery systems that can deliver that power when the grid needs it most, he said. That value shows up in modeling that indicates that the right combination of distributed solar-plus-storage systems can reduce the costs of getting to a 100 percent carbon-free grid by tens of billions or even hundreds of billions of dollars, compared to relying solely on utility-scale clean energy and batteries and high-voltage transmission grids.

If there are aggregations of future solar-plus-storage systems across the state, the system should be able to find value from them during peak times,” Sunrun’s Wright said — and they should be able to compete on the market for the value they provide the grid.”

How can solar-battery systems compete for that value? That will be the subject of part two in our three-part series on California’s post-net-metering future.

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