The Pacific Northwest is preparing for a heatwave that is anticipated to break record-high temperatures that may stress an already severe electricity system.
Previously, backup generators were the only option. Now that solar companies offer batteries in conjunction with a residential solar system, consumers turning to them as a way to ensure power resiliency could be a big opportunity in the future.
“You can definitely see the inflection that is being caused when consumers are exposed to these types of scenarios — situations that put their home at risk of losing power or where they have already lost power,” said Michael Grasso, Sunnova’s executive vice president and chief market and growth officer.
With more and more extreme weather events making headlines, companies such as Sunnova predict an increase in battery sales.
Customers can also use their batteries effectively while the grid is operating normally, thanks to sophisticated software systems. For example, in states with time-of-use pricing, the battery can be charged when electricity prices are low and then used to power the home when prices are high. Furthermore, in some states, net metering — or when solar energy owners are credited for the power they add to the grid — can make having a solar system with storage an especially appealing option.
Extreme weather puts a strain on the power grid.
In a tweet about the impending heat wave in the Pacific Northwest, the National Weather Service Seattle stated, “It’s not so much a matter of what temperature records we will break. What isn’t going to be broken?” The National Weather Service Portland described the expected temperatures as “unprecedented,” predicting that the heat wave will break several “daily, monthly, and possibly all-time records.”
The temperatures are dangerous for the millions of people who do not have air conditioners, and they may also cause an increase in power demand. The U.S. Drought Monitor, is exacerbating the situation and putting a strain on hydroelectric power plants.
Extreme weather isn’t limited to the West Coast; in February, Texas experienced a major power outage that left millions of customers without power, and tornadoes and hurricanes have disrupted grid services across the country.
Backup systems are in high demand. Unsurprisingly, there are increases in areas directly impacted, but the frequency of grid stresses is prompting users in other parts of the country to take precautionary measures. Economic benefits are also a driving force behind adoption.
“The unfortunate fact is that our current power system was designed for yesterday’s weather, and now we’re dealing with tomorrow’s weather,” said Jason Burwen, interim CEO of the Energy Storage Association, a Washington-based trade group. Extreme weather is “pushing past the limits of the existing power system,” he says, adding that it has put many “households and businesses in a position where they suddenly feel like they need to have more control over their fate.”
Goldman Sachs analysts recently stated that the rate of adoption of residential storage has surpassed their expectations. Penetration is significantly lower than the already meager foothold that rooftop solar has established across the United States, but many see this as a sign of a massive growth opportunity ahead.
According to Goldman, first-quarter battery deployments increased 155 percent year over year due to lower costs, increased solar adoption, and consumers seeking grid reliability. According to the firm, the market will grow rapidly this year and will surpass $1 billion for the first time in 2022.
Making a Nanogrid
When the central grid goes down, a solar system must also have on-site storage in order to function normally. Rooftop panels will not operate on their own if service is interrupted because power cannot be returned to the grid to protect utility workers repairing wires.
You can continue to power your home if you have storage by disconnecting from the grid and forming a nanogrid. If it’s sunny, the panels will continue to generate electricity as usual, but if they’re not producing enough or it’s night, the stored energy in the battery can be used.
Multiple batteries may be connected to the same system, and no two setups are same due to varying home sizes and consumption rates. Given the many factors, views vary on how long systems can remain functioning.
According to Joe Osha, senior energy analyst at Guggenheim, it is critical for consumers to control their expectations. “It’s not as if you simply put one of these things in and you’re suddenly bulletproof,” he pointed out. While systems may be very complex, he claims that in general, the energy storage will power a few essential loads — the fridge and a few lights, for example — rather than the whole home running normally.
Sunnova’s Grasso said that the company’s dealers work with clients prior to installation to determine the precise power requirements and then design the system accordingly. He said that an average setup would provide a client with 10 to 12 hours of electricity at a somewhat decreased capacity.
However, according to ESA’s Burwen, the precise details of how long the system can operate aren’t the most essential aspect – ultimately, consumers want confidence that they can power critical components of their house.
“A lot of people simply want to make sure they can get through whatever is thrown at them without having to toss away all of their food,” he added.
The cost of an energy storage system varies greatly, but according to Grasso, a typical battery costs about $15,000, which is in addition to the approximately $30,000 a client would commit to rooftop solar. These prices may rapidly rise as more batteries and panels are added.
While systems may be purchased outright, power purchase agreements are more common, and many firms provide financing with no upfront cost. Furthermore, the systems include complex software that not only regulates what particular items are powered in the case of an outage, but also manages and shifts a customer’s load while the grid is functioning regularly to reduce energy costs.
Companies that have been exposed
The home storage ecosystem includes a variety of businesses, ranging from rooftop installers to inverter manufacturers to battery manufacturers themselves.
Solar equities as a whole have had a rough year, after generating record gains in 2020 that exceeded 500 percent in certain instances, and Wall Street analysts are largely optimistic on the sector, saying the drop offers a buying opportunity.
Supply chain problems and increasing raw material costs may impact in the short term, but experts believe there is potential for patient investors and those prepared to pay now for future development.
Goldman recently identified Enphase Energy and SolarEdge as having the greatest storage leverage, with sales accounting for 10% to 15% of total revenue over the next several years. Both equities are rated as buy by the company. Meanwhile, Citi initiated coverage on the two companies on Thursday, naming Enphase its “top choice” and assigning a buy recommendation to the business, while rating SolarEdge neutral.
In addition to their specialist inverters, Enphase and SolarEdge provide battery alternatives.
On the installer side, Goldman predicted that Sunnova’s battery attachment rates — the number of residential solar customers that choose storage — would “rise quickly in 2021,” with the firm having enough supply to meet demand. The stock gets a buy recommendation from the firm, and it is also on its conviction list. Sunrun, another installer, is also rated buy, and the firm anticipates Brightbox system installs to more than quadruple year over year in 2021.
Morgan Stanley recently named the business, the biggest home solar installer in the United States, the “most attractive clean energy stock” in its covering universe.
“Sunrun is a beneficiary of multiple megatrends,” the company said in a recent letter to clients, “including increasing utility prices and decreasing renewable energy and storage costs, grid dependability effects from climate change, and consumer demand for clean energy.”
On Thursday, Stephens began coverage of solar stocks, rating every single company, including Enphase, SolarEdge, Sunnova, and Sunrun, as overweight.
Another company to keep an eye on is Generac. The business has used its brand awareness as a manufacturer of backup diesel generators to expand into renewable storage systems. In contrast to the downturn in pure-play solar companies, Generac shares have risen 74% this year and reached a new high on Thursday. Part of this is due to increased demand for its diesel products as a result of the Texas freeze. According to Bank of America, sales are up 300 percent this year and 3,000 percent between February and June compared to the same time in 2020.
When Guggenheim’s Osha first covered the business in June, he dubbed it “his greatest concept in the distributed energy industry.”
“GNRC is the industry leader in residential backup power systems, and the market is expanding fast. Recently, the business has started to penetrate the home solar inverter and energy storage markets. “We don’t believe the market recognizes GNRC’s full competitive potential,” he added.