Why Use Batteries in Residential PV Systems?

Abigail Ward, Market Analyst – Solar Research

The solar industry could prove to be an important opportunity for battery manufacturers in the coming years. Batteries will be deployed in a variety of solar applications, but in the near term, it is likely that small residential PV systems will provide the bulk of this demand.

Although volatile prices and regional swings in demand have caused many electronics and energy giants to hesitate on whether they enter the PV market or exit it altogether, a major trend towards the inclusion of batteries in PV systems could open up a new opportunity for companies to take advantage of the rapid growth of this industry. The highly competitive nature of the PV market in recent years, and the rapid progress that suppliers have made in reducing the price of the technology, have certainly put margins and balance sheets under pressure. However, the now highly competitive cost of PV systems brings about a new dynamic in PV demand.

Although many remain focused on exporting electricity from PV systems in order to benefit from government subsidies, an increasingly significant proportion of the PV market is moving away from government incentive schemes; and system owners are looking to minimise the amount of electricity that they export into national grids.

Increasingly, owners of small private PV systems, with PV panels on the roofs of their homes, are finding that electricity generated from their PV systems is less expensive than the electricity that they buy from the grid. This naturally makes it more attractive for the system owner to consume as much of the electricity that their system generates as possible.  Germany, which happens to be the largest PV market and home to 31 percent of the world’s installations, is leading the way with this trend. In Germany’s case, the tariff paid for PV electricity exported to the grid has fallen to around one-third less than the typical residential electricity price, which effectively means that a PV system owner will sell electricity to the grid at one price during the day, and buy it back later in the day at a rate that is around 30 percent higher.

Although PV has achieved cost reductions well beyond those anyone had predicted, and stands to make a meaningful contribution to the global energy mix, the problem with the technology in the residential sector is clear. It provides competitively priced electricity during the day, but the greatest domestic demand for that electricity is generally in the evening. The attraction of storing the electricity produced for later use is clear, and the economics of adding a battery to a PV system are increasingly beginning to add up.

There are a number of battery-based residential energy storage systems that are already  commercially available, targeted at increasing self-consumption of electricity from a residential PV system; and more products are due to be launched in 2013. IHS estimates that just 23 MWh of nameplate storage capacity was globally installed in grid-connected residential PV systems in 2012, with the large majority of this in Germany. However, it forecasts that this will grow to reach 2.1 GWh in 2017, driven by increasing electricity prices, declining incentive rates and decreasing battery prices; by then many other countries will also provide demand. This forecast assumes that the highly anticipated German energy storage subsidy (that will fund up to 30 percent of an energy storage system used with a PV system under 30kW) will still be made available from May 1st, 2013. IHS predicts that lead-acid batteries will be used for most residential storage systems until 2015, when the majority of those sold will shift to lithium ion technology and that other storage technologies will also enter the residential market.

The benefits of using batteries with a residential PV system are not just limited to the system owner. One characteristic of a PV system is that it typically has a peak generation around mid-day, which doesn’t align well with on-site demand. As a result, a large amount of electricity is exported to the grid at this time which increases the pressure on an often already-limited grid capacity. Batteries located at the PV system can be used to store this energy, when generation exceeds demand, to reduce the amount of energy exported to the grid during these peak times.

There are a number of other PV applications where storage can also provide great benefits. For example, batteries can also be used in large-scale PV systems where 100 percent of the electricity generated is exported to the grid. PV energy, like other renewable energy such as wind, is intermittent and is subject to rapid variations with the weather. This can often result in significant grid instability. High-power, co-located batteries can be charged and discharged quickly here to compensate for these fluctuations. This will improve the interconnection of renewable systems to the grid, and support grid stability.

The current use of batteries in PV applications is limited, but the development of these solutions is essential to the PV industry and to the stability of electricity grids as the level of PV penetration continues to increase. Given that solar installations are forecast to grow by an average of 12 percent a year over the next five years, this industry could provide an exciting opportunity for both established and start-up battery-based energy storage companies.

For more information, please contact Abigail Ward with IHS at Abigail.Ward@ihs.com.

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