How Batteries Will Become Standard in Residential Solar Systems

By Markets Fool.com

In any solar installation, there are two main components. There's the solar panels that turn the sun's energy into electricity (DC) and the inverter that turns that direct current into alternating current (AC) that can be used in the home or sent back to the grid. There may now be another component to consider, and it could upset the industry in a big way.

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Image source: Sonnen.

Where does the battery fit in solar energy?

When batteries were first introduced into the residential solar market, they were a separate product with each installation. SolarCity Corp (NASDAQ: SCTY), for example, would install a Tesla Motors Inc (NASDAQ: TSLA) Powerwall battery and an inverter to connect to the solar system. That setup is changing as inverters and storage begin to become one.

Tesla's Powerwall 2 is the most public step toward solar storage inverters, but it's not the only one. Leading inverter company SMA has combined forces with battery leader LG Chem to create a complete inverter battery system that'll launch soon in Europe and Australia. Sonnen also has an inverter battery solution, leveraging its market-leading position in Germany. Enphase Energy (NASDAQ: ENPH)has what it calls an AC battery that aims to make battery installations seamless.

We're still in the very early phases of energy storage in the home, but it's clear that batteries will start to creep their way into more and more installations. And that'll open up a new world of innovations.

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Tesla's Powerwall. Image source: Tesla.

How do customers pay for the battery?

It's easy to see how a battery/inverter combination would make sense and how it will become a standard component. Electricity generated during the day can be used at night when people are home and batteries can even be used to help balance demand on the grid.

The concept of how batteries being included in residential solar systems sounds intriguing, but it's not clear how the added cost of the battery will make sense financially. There's no net metering concept for batteries and in most locations with net metering it doesn't make financial sense to store daytime energy for nighttime usage (known as energy arbitrage).

However, that could be changing. Hawaii and Nevada have put rules in place that make energy arbitrage more profitable and California utilities are moving toward time of use rates that makes more financial sense for smart energy devices like storage. We don't yet know what the dominant financing or business models will look like for energy storage, but we can start to see that the future will be bright for energy storage. And it helps that it'll be integrated into solar systems.

Energy storage solutions are coming

One of the key obstacles to energy storage adoption is that it's an expensive technology with little financial justification right now. As storage is integrated into solar systems, the cost challenge will begin to dissipate, and as utilities change how they bill customers, the financial piece is falling into place as well. There's a bright future for integrated energy storage solutions and the companies who can make them easy and profitable for consumers.

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Travis Hoium has no position in any stocks mentioned. The Motley Fool owns shares of and recommends SolarCity and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.