Navigant Research Blog

The Battle for the End Consumer: Residential PV and Battery Business Model Innovations in Germany

— June 29, 2017

While solar capacity additions in Germany have collapsed in recent years, the range of innovative residential energy solutions based on solar PV and batteries has blossomed. In recent months, battery OEM SonnenBatterie has introduced a free refills battery solution, while E.ON has introduced a batteryless electricity storage service.

The VPP Approach with SonnenBatterie

Sonnen’s solution, called sonnenFlat, allows the buyer of a Sonnen battery to opt in to sonnenCommunity. This is an independent virtual power plant (VPP) consisting of Sonnen battery owners and Enerix solar systems. The solar and battery assets are optimized to reduce the need to buy electricity from Germany’s wholesale market and to enable participation in Germany’s ancillary services markets.

A residential battery owner joining sonnenCommunity receives a €1,875 ($2,100) discount off the battery price. If purchased together with a PV system, they also get up to 6,750 kWh of free grid electricity on top of the electricity generated by the PV system. This is the approximate number for customers that bought a residential system with 9.5 kWp of PV and a 10 kWh battery, which cost around €27,200 ($ 30,500).

E.ON Envisions a Battery-Free Home

E.ON’s solution seeks to eliminate the battery altogether—at least in the customer’s home. The SolarCloud service offers to store the electricity generated by the customer’s PV system virtually in the grid and return it when needed by the customer (at night or on cloudy days, for example). E.ON charges a €21.99 ($24.60) monthly fee for this service (for a 4 kWp installation). If this service sounds familiar to US readers, that’s because it is net metering—but at a cost.

In essence, Sonnen is offering free electricity with its hardware and E.ON is offering free (virtual) hardware for a flat fee. Both aim to help their customers to reach 100% solar self-consumption (on a net basis).

The Battle for the End Consumer

Although E.ON and Sonnen are very different types of companies, nowadays they are battling each other for the long-term ownership of the customer relationship. From its background as a traditional power utility, E.ON knows that any customer who installs a PV plus battery system at home is a lost customer for at least 10 years (the lifetime of residential batteries). E.ON is therefore willing to use its energy trading capabilities to create a product that replicates what a battery offers.

Sonnen approaches the issue from a different direction. It knows that battery technology is being commoditized and therefore it cannot compete in the long term against utility players without monetizing the services its batteries can provide to other energy users and the grid. Hence, Sonnen has had to become a virtual utility to sell its hardware.

Regulation Matters

This sort of competition between traditional utilities and newcomers is something we expect to witness more and more as the Energy Cloud evolves. It is also important to highlight the key role of Germany’s energy market regulation in allowing this type of innovation. The German market was unbundled years ago with short intraday call auction times (15 minutes). It allows aggregators to participate in the market—and importantly, there is no capacity market. This allows companies like Sonnen to offer free electricity to their customers, which is paid for by trading the customer assets in the wholesale and ancillary services markets.


Self-Consumption Markets Are the Future of Solar

— May 2, 2017

Regulatory changes and the increase in retail electricity prices have made some markets ripe for new business models built around increasing solar self-consumption by adding other energy solutions (like batteries or Internet of Things, or IoT).

In my previous blog, I showed how solar installations can benefit from increasing levels of self-consumption. When this is the main economic driver for solar, we define the market as a self-consumption market. While the blog cited the United Kingdom as an example, that is not the only country in which this strategy works.

European Countries Lead Self-Consumption Markets

Here’s a selection of the most attractive self-consumption markets:

  • Germany: Germany is in a similar situation to the United Kingdom. The feed-in tariff in the country (€0.123/kWh [$0.135/kWh]) is significantly below some retail electricity prices. For example, residential rates cost around €0.30/kWh ($0.33/kWh). To fully benefit from a solar installation, Germans need to displace as much as possible of their own consumption. In addition, Germany offers an incentive to install batteries along solar PV systems. German government incentives cover up to 30% of cost for a PV system battery, making the economics of self-consumption even more attractive.
  • France: Like in Germany, the current French feed-in tariff of €0.1382/kWh ($0.151/kWh) for behind-the-meter installations of up to 36 kWp is below retail electricity prices (€0.20/kWh [$0.22/kWh] for residential customers). So there is also an arbitrage opportunity for installations, although the economics are weaker than in Germany.
  • Spain: Despite Spain’s bad reputation in the renewables sector—well deserved given the retroactive changes to its incentive program and the introduction of the infamous tax on the sun—the country is becoming an attractive self-consumption market for installations under 10 kW. Spain has the best solar resources in Europe. Now the levelized cost of distributed solar is below the retail electricity price, opening an arbitrage opportunity for solar installations with high levels of self-consumption.

Self-Consumption Markets by Attractiveness

(Source: Navigant Research)

US Self-Consumption Markets Are Trying to Catch Up

The economics of self-consumption of solar in the United States are weak given the dominance of net metering as the main tool to incentivize solar. There are some states that are moving away from pure net metering that will increasingly be more attractive to providers of integrated solutions.

One example is Arizona. Per the new settlement reached between Arizona Public Service (APS) and local solar advocacy groups, energy exports of new distributed solar installations in Arizona will not be included in the old net metering program. Instead, it gives all new distributed solar customers the option to take a demand-based rate or a time-of-use rate.

If the new structure is approved by the Arizona Corporation Commission (ACC), it would set the self-consumption offset rate around ¢12/kWh, which includes a grid access fee that APS solar customers must pay. The new export rate, based on the ACC’s newly adopted resource proxy model, would be ¢12.9/kWh. Although these changes will not be enough to attract investment in expensive technology like batteries, it does send a signal to end users to start behavioral changes to increase self-consumption. It might be enough to encourage some level of IoT investment in energy management systems and automation.

Near-Term Growth Is Unlikely

From a purely growth perspective, self-consumption markets are likely to disappoint in the short term. The extra complexity they present needs to be well understood by solar players. In addition, end users and business models will need to be tested before being rolled out cheaply en masse. The strategies that are successful in those markets—and less dependent on incentives and more so on solar economics—are most likely to rule the distributed solar sector in the future.


Are Inverter Players and Data Loggers the Gatekeepers of Future Residential Solar Services?

— April 5, 2017

Inverter and data logger companies, the little cousins of the solar OEM world, are sometimes seen as playing a secondary role in the industry. The cost of inverters is usually a fraction of module costs and an even smaller fraction of the total installed cost of a residential solar installation. But their location in an installation—between the solar modules and the grid connection—gives their manufacturers an opportunity to play an important role in a distributed energy as a service world.

Who Owns the Client Relationship?

In my Solar as a Service (SOaaS) report, I argue that large SOaaS player like SolarCity, Sunrun, and Vivint Solar need to evolve their offerings to offer advanced energy services. Their hold on the client relationship gives them an advantage against external players offering this type of service. But despite grabbing most of the headlines in the solar industry, the truth is that there are only a handful of large SOaaS players. All of them are active in one market—the United States—and combined manage only between 50% and 60% of all distributed solar installations in the country.

Globally, there is simply no large installer or SOaaS provider with a significant hold on the market. This opens the question of who can own the client relationship in this fragmented world, especially for small installations.

Inverter and Data Logger OEM Providers

It is difficult to see small local installers investing heavily in this type of service, but their OEM providers could. While module manufacturers take the lion’s share of the hardware cost of an installation, their product is essentially dumb. On the other hand, inverter and data logger OEMs do offer relatively smart products.

Inverters and data loggers with monitoring software have been part of distributed solar installations since at least the late 2000s, when distributed solar gained popularity, and in virtually all installations after 2012. Data loggers (external or as part of inverters) and monitoring tools have been used by installers and inverter companies as differentiators in an otherwise very competitive market. While there aren’t any public figures on active users, there are some examples of the penetration in the market. SMA—a leading inverter OEM—has put its user figure at around 250,000 residential end users. Using an average of 5 kW per installation, each company is monitoring around 1,250 GW. Solar-Log has a similar number of data loggers in the field, providing monitoring and other services to around 11.6 GW of installed capacity (including large installations). Other inverter companies like SolarEdge and Enphase have also integrated monitoring services into small-scale products.

Most of the smart monitoring tools have been developed and run at a loss by inverter and data logger OEMs. By doing this, they have inserted themselves in the routines of solar installation owners, as the monitoring tools are the interface between the solar system and the installation owner.

Ideal Candidates

Monitoring tools can become the seed of more interesting energy services if the OEMs keep building the products offered through their tools. Most of them already allow for battery installations along with solar, and some companies are already adding ways to monitor loads and become home/building energy management tools. They could even open the platform to allow third-party service providers through an app store to add other services like generation forecasting, artificial intelligence-based load management, etc. The interface role that inverter and data logger OEMs play in solar installations, combined with their large user base, makes them ideal candidates to provide advanced energy services.


Hawaii Axes Net Metering as PV Surges

— November 11, 2015

While most utilities are just beginning to adapt to the challenges presented by large-scale solar integration, the state of Hawaii has been at the forefront of this issue for some time. Hawaii is in the midst of a residential solar revolution, and with PV now sitting atop 12% of rooftops in the state, it has the highest PV penetration rate in the nation. While this presents an array of benefits, utilities are also being confronted with increased costs and decreased revenue streams. As these challenges and opportunities continue to grow, Hawaii may present itself as a case study in adaptive solar policy.

Earlier this month, the Hawaii Public Utilities Commission (HPUC) issued a ruling that closed Hawaii Electric Companies’ (HECO) net metering program to new applicants. Current customers and those awaiting approval are still eligible for the program, while new customers will be offered alternatives in the form of a grid-supply or self-supply system. A grid-supply system operates essentially as a discounted net metering rate, while the self-supply system is intended for residences that will consume all of their solar electricity and thus will receive an expedited interconnection review. The HPUC also ruled that HECO companies must pursue a time-of-use (TOU) tariff that would allow for variable electricity pricing. TOU pricing offers advantages to both utilities and consumers alike as it provides a financial incentive for customers to shift their energy consumption patterns, and in turn alleviates pressure on the grid.

Hawaii as a Template

This ruling has received mixed reviews across the industry. While some solar proponents have criticized the decision—including the Hawaii Solar Energy Association—others, such as the Solar Energy Industry Association, have highlighted the uniquely high penetration rate in Hawaii as warranting rate changes. As more homes install PV, utilities are left with a dwindling customer base to support their operations costs. According to HECO, $53 million in operations and maintenance costs were shifted to non-solar consumers in 2014. More of these policy changes should be expected as solar and other renewables move from small-scale toward large-scale integration. Policy incentives that were aimed at kick-starting these industries will likely receive pushback as renewables become more competitive in the marketplace. In the future, Hawaii may become the template for other states as they adapt to a more renewable energy based infrastructure.


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