Net metering was a key factor in driving the residential solar market to where it is today, but its days are likely numbered across the U.S. Utilities nationwide are having success at convincing state regulators that they shouldn't have to credit homeowners for the surplus power they export to the grid at the same rate they're charged when they consume power from it, which makes sense now that solar power systems are on around 1 million homes. Hawaii, the state with the most rooftop solar per household, has long paid consumers less than the retail rate for electricity, and California recently followed suit.
But when utilities choose to pay less than the retail rate for rooftop-generated solar electricity, they give homeowners an incentive to save their short-term surplus and use it later, performing arbitrage on the difference between the two rates. To use solar energy at a later time (for example, at night) homeowners need energy storage systems. Providing those could be the next growth driver for rooftop solar companies.
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Solar sales could get bigger
Today, most solar installations consist of solar panels, an inverter, and a connection to the homeowners' meter. At an average cost of $3 per watt, a 6 kW solar system costs about $18,000. If energy storage can be made economical for the homeowner, it adds another component to those installation, giving the companies a new product, and a new stream of revenue.
Depending on the size of the energy storage unit, that added revenue could be significant. A single 14 kWh Tesla (NASDAQ: TSLA) Powerwall costs at least $7,000 to install, and some homeowners may want two or more to increase their energy flexibility. Selling and financing those energy storage systems could be a big business for installers, potentially doubling the revenue opportunity of each solar sale.
Installers have more to gain from energy storage
The big difference between solar panels and energy storage for installers is the ongoing operation. Solar panels produce electricity every day, but there's no ongoing maintenance or controls that can add value to a system in the long term. By contrast, someone needs to decide when energy storage systems will be charged and discharged on an ongoing basis, which will be a big business.
Energy storage business models aren't set in stone yet, but look for companies to take a percentage of the cost savings homeowners accrue as a fee for controlling the system. This could be an ongoing source of revenue for companies that can build scale in this space.
The top companies to watch
Tesla's push into energy storage is all about learning how to control the storage systems. It is testing such controls on systems ranging in size from a single Powerwall up to utility-scale installations. Sunrun (NASDAQ: RUN) and SunPower (NASDAQ: SPWR) are also designing their own storage and control systems, which they are slowly rolling out across the country. Rival Vivint Solar (NYSE: VSLR) has partnered with Mercedes-Benz Energy to bring its energy storage product to market.
I think the three to watch in this space are Tesla, Sunrun, and SunPower: They'll be the companies doing the most to control energy storage systems long term. Each has a slightly different model in selling to customers, and depending on consumer preferences, each could take a large segment of the market. With more utilities implementing fee structures designed to kill rooftop solar, energy storage looks destined to become a big business indeed.
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