The year is not yet over, but 2019 is sure to go down in history as the time when the impact of residential storage transitioned from largely speculative to tangible.
Ever since Elon Musk captured the public’s attention with the notion that normal people could control their own clean electricity consumption using batteries, the actual market presence of these products has lagged behind their prominence in the zeitgeist. But in the record-setting second quarter, the U.S. installed more battery capacity in homes that it did in all of 2017.
These tiny batteries are on pace to outperform the utility-scale market segment for installed capacity this year. That is a remarkable upset given that home batteries typically rate 5 to 8 kilowatts of power capacity, whereas a small utility-scale battery would be 1,000 times as powerful.
The key difference is that residential storage aspires to mass-market scale in a way that large-scale grid infrastructure never will. The 5,215 home batteries tracked by Wood Mackenzie Power & Renewables last quarter were enough to outpace their grid-scale counterparts, but the market is just getting started.
Despite these encouraging signs, residential storage still bears many signs of an infant industry. First and foremost, there has not been a robust ecosystem of vendors competing to supply this product. That indicates limited corporate interest in investing in the market, and limits customers to a paltry handful of options.
Tesla still leads in the public consciousness, but has developed a reputation within the industry for spotty delivery timelines, making it hard to count on. That’s not a typical trait for a market leader — one doesn’t hear Apple devotees complaining about having to wait a year for their new iPhone to be delivered.
But only a few companies have attempted to take the crown from Tesla. South Korean manufacturing giant LG Chem comes closest, thanks in large part to its inclusion in Sunrun’s BrightBox solar-plus-storage package. Tesla and LG Chem have been roughly splitting the 2019 pool of California’s Self-Generation Incentive Program funds, the best proxy we have for gauging market share by vendor. The more expensive sonnen places a distant third, with 1 percent of the SGIP market.
Admittedly, this is far from a complete sample; SGIP-funded interconnections totaled 9.5 megawatts through August, but California installed 27.7 megawatts of residential batteries in the first half of the year. There could be a considerable population of mansion-dwelling sonnen adopters who choose to leave SGIP for the general public.
New contenders are finally emerging to challenge this limited range of consumer options. As I mentioned last week, several new products from serious brands emerged at Solar Power International, including branded packages from SunPower, Panasonic and Generac.
As they filter into the market in the coming months, these entrants will provide more choices for consumers, and more iteration to improve the products and specialize in different aspects. If they deliver on their ambitions — which can never be taken for granted in this market, as the illustrious Mercedes-Benz can attest — they may usher in a new and more dynamic era for the sleepy residential storage market.
Now that there’s an actual field emerging, here are some open questions worth asking of the maturing residential storage industry.
For more discussion of residential storage market developments, check out my appearance on the most recent episode of The Interchange podcast.
Does a residential storage market even exist?
This seems a bit out of left field after the preceding discussion of the residential storage market’s latest achievements, but Interchange host Shayle Kann asked me about it, and it’s worth unpacking.
Yes, WoodMac data analysts identify residential storage as a discrete subset of the overall stationary storage market. But they also tell us that roughly 95 percent of home battery installations come with solar. To be honest, I have scant insight into who is buying home batteries right now, or what their conception of ROI looks like.
Batteries paired with solar gain access to the 30 percent federal Investment Tax Credit. For the substantial portion of customers seeking clean backup power, solar panels are essential for providing clean power in the first place and for refilling the battery when it runs down in longer outages. A standalone battery, on the other hand, would simply run out, with no means of recharging.
Acknowledging that the constituency of standalone residential battery customers is statistically negligible demands a reconsideration of the language the industry uses to talk about itself. It’s useful to know the volumes of batteries installed, but statistics like "attachment rate" — the share of solar customers who add batteries — may become a more useful metric of the market’s growth.
Industry insiders are already foretelling a time when every rooftop solar deal comes with a battery pairing, making dispatchability and resilience an inextricable part of the solar value proposition.
The pure-play storage installer rivals the pure storage consumer in rarity; most instead are solar contractors who add storage to their repertoire to upsell or improve project economics in certain markets. Vendors I spoke with identified installers as a bottleneck to getting their products into customers’ homes; unpacking why that bottleneck exists requires thinking about the demands that storage asks of veteran solar installers.
How time-intensive and complex is the install? How many truck rolls will a finicky battery require? Storage product refinements that streamline these demands will go a long way to expanding the installer population.
Is your product a commodity?
This also gets to the heart of what the product really is. Each brand pitches its own differentiating qualities, but the real variance moves asymptotically to zero.
Any residential battery probably includes: battery cells hooked up to an inverter; discharge capacity in the 5- to 8-kilowatt range; stackable energy capacity, usually between 10 and 20 kilowatt-hours; and software that can operate in islanded backup mode, manage time-of-use rates and assist solar self-consumption. Any product lacking these features doesn’t deserve to compete.
So what can companies compete on? There’s always the chemistry debate of nickel-manganese-cobalt (NMC) vs. lithium-iron-phosphate (LFP) (would you put a flammable chemical contraption in your home?), and the DC- vs. AC-coupled choice, which is more of an engineering question than a matter of personal preference.
Backup power offers more ways to shine, but in reality it’s a lot more complicated than the marketing materials suggest. A 10- to 15-kilowatt-hour battery simply won’t keep the typically roomy middle-class American home up and running for a meaningful period of time; even Tesla switched its website to suggest two Powerwalls as the starting offer. Targeted load-shedding extends the battery life, but that’s a hassle, requiring rewiring a home based on critical loads or investing in hugely expensive smart breakers that allow more advanced control of the circuits. The industry has its work cut out making backup power a seamless, customer-friendly proposition.
That leaves price, which nobody wants to be their battery’s defining factor, but which vendors cannot ignore. This all goes back to Tesla and its aggressive emphasis on cheapness, which others have either struggled to match or strategically obscured (don’t race to the bottom — invest in premium product, safer chemistry, higher value).
Will home storage go the way of the solar panel, descending quickly into commodification, reduced to an offshore manufacturing play? Storage will always be more technologically complex than solar modules, and its value lies more in the range of services it can provide than in its ability to perform one task really well. But within its category, the offerings thus far all aspire to do the same things.
That leaves customers to choose based on upfront price (long-term value being rather difficult for a consumer to model) or the quality of the brand.
What does your brand stand for?
That’s what makes it so thrilling to finally see a few more players put their chips on the table. These companies can pitch similar products but differentiate based on their corporate credibility, their service ethic, installation network or expertise with related products.
Let’s say a homeowner wants a good battery with solar and knows about the Powerwall, but gets nervous about Tesla gutting its once-mighty solar division and overhauling its sales strategy every few months. Now, that customer could check out SunPower, known for its reliably high-performing premium solar panels. Or reach out to Panasonic, another panel maker that has a vast network of installer partners now serving its branded battery product.
A different customer might be more focused on backup power and eager to see a track record of delivering it reliably. That mindset could lead to calling Generac, which has supplied home backup generators for decades. Or perhaps Blue Planet Energy, a startup that grew out of Tetris distributor Henk Rogers’ quest to take his ranch in Hawaii off the grid and power it cleanly by himself.
Sonnen’s U.S. strategy has targeted the luxury home automation market, but the company has also cornered the market for homebuilder partnerships, which enables sonnen to close deals in which the homeowner plays no role. Residents who like batteries in their living room but don't want the hassle of being able to use them can gravitate that way.
This flourishing of brand diversity amounts to a much better experiment than the last few years have provided. It will test how customers respond to a range of pitches and approaches, and allow the industry to more creatively target consumers based on what it learns.
And it gives installers much more to gossip about when the next trade show rolls around.
