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Sustainability without sacrificing lifestyle: The rise of residential Boosting consumption of self-generated , providing peace of mind in a grid event, increased use of , and reduced grid dependency are just some of the benefits associated with home energy storage systems.

This whitepaper explores the drivers, trends, consumer expectations and market challenges, influencing the residential energy storage market.

Eaton – Home Energy Storage 2 Table of content

Introduction 4

I. Drivers for energy storage 6

II. Ingredients for a residential energy storage market 10

III. Benefits of solar-plus-storage 16

IV. Home energy storage as a grid resource – a future benefit 18

V. Sizing solar-plus-storage for optimizing self-consumption 20

VI. Operational and performance expectations of home energy storage systems 25

VII. Conclusion 31

Eaton – Home Energy Storage 3 Introduction

How do we as consumers put a value on something – how do we rationalise that our use or operation of an acquired asset or object is commensurate with our initial investment?

Such a question is best left to the experts that study the psychology of consumer behaviour.

Nevertheless, it is often asked in relation to residential energy storage systems.

These appliances, consisting of batteries, inverter and software controls, which are designed to store surplus solar electricity, have attracted more attention as subsidies for solar photovoltaic (PV) systems continue to decrease.

The value of solar PV can be simply appreciated. A good quality, well maintained solar PV system should operate for 20 years. When feed-in tariff (FiT) rates were higher, payback in year eight or nine confirmed a worthwhile investment.

When trying to place a value on energy storage systems, it is hard to get away from the simplistic, black and white economics bequeathed by the subsidy-enabled solar PV market.

Price reduction is a powerful force when it comes to unlocking new demand and increasing the customer base, and energy storage is not immune to this dynamic. Everyday assets and objects within the budgets of middle-income earners all had their early adopters once.

Eaton – Home Energy Storage 4 Energy storage has arrived at the right time. Ethical and sustainable considerations influence the purchasing decisions of many more consumers than was the case a decade ago.

Additionally, consumers today are more technology-savvy than ever before. Early adopters of home energy storage systems naturally expect these technology-driven products to make a comfortable and secure, yet sustainable, lifestyle entirely possible.

Today, a solar-plus-storage system is likely to be the third largest investment by a household, following a house purchase (mortgage) and a car. Arguably it is crucial these systems are sold and installed by quali- fied and certified installers, to ensure the product meets the household’s energy requirements and is properly and safely installed and commissioned. In 2016 solar PV installed capacity exceeded 100 GW in Europe, supplying 4% of the 28 EU states’ electricity demand = annual power consumption of The Netherlands

Eaton – Home Energy Storage 5 I. Drivers for energy storage

Eaton – Home Energy Storage 6 I. Drivers for energy storage

The modern energy system is in a state of flux. Regulations and policies in place to curb the effects of climate change have led to efforts to reduce greenhouse gas emissions from the biggest emitting sectors, including energy and transportation.

In Europe member states have been buil- ding renewable energy capacity to meet the EU Energy & Climate package directive - 20% - 20% (‘20/20/20 directive’), which includes 20% renewables in the region’s energy mix by 2020. Renweables in energy mix energy in Renweables Energy consumption

Green house gas levels +20%

Picture 1 The 20-20-20 EU policy by 2020

Eaton – Home Energy Storage 7 Incorporating distributed renewable energy sources challenges the traditional electricity system model, which is based on centralised generation. Electricity is generated by large thermal power stations and is transported to the end user, via the transmission and distribution network.

As penetration of irregular, intermittent solar and wind generation increases in grids, voltage issues start to occur and network stability is affected.

Installing more wires to accommodate excess renewable energy generation is costly. Curtailment, the practice of switching off renewable energy generators so they cannot send power to the grid, solves the immediate issue but results in wastage of renewable electricity. Electrochemical energy storage has the potential to address many of these problems and challenges.

Batteries for stationary storage applications are able to store energy in capacities from a few kilowatt hours (kWh) to many megawatt hours (MWh), which can be dispatched within seconds, or dispensed over several hours.

Several battery chemistries are suited to these tasks, but due to significant investments in manufacturing lithium-ion cells to meet demand, energy storage using lithium-ion batteries is becoming affordable for residential energy consumers.

Eaton – Home Energy Storage 8 Picture 2 PV production vs. End user consumption.

Residential, or home, energy storage systems are compatible with solar PV because they store the majority of the panels’ output, which occurs through the middle of the day, for the household’s demand during evenings and early mornings.

Eaton – Home Energy Storage 9 II. Ingredients for a residential energy storage market

Eaton – Home Energy Storage 10 II. Ingredients for a residential energy storage market A residential solar PV market

In most instances a regional solar PV market Feed-in tariffs (FiTs) introduced to encourage gets going through installing ground-mounted residential rooftop demand compensate the solar PV farms, because it is a relatively easy PV system owner with a fixed price for every way to develop and build significant amounts kWh unit of electricity exported to the grid of renewable energy capacity. that is above the retail electricity price, provi- ding a reasonable payback for investors. However, those governments committed to FiT payments are reducing as these integrating more renewables into the energy compensation schemes have largely done mix in the long-term have also nurtured their their job of encouraging PV demand, which rooftop solar PV potential, on residential, as has in turn led to the technology becoming well as commercial and industrial, roof spa- more affordable. In many markets installing ce. only solar PV and exporting output to the grid makes less economic sense.

Eaton – Home Energy Storage 11 Picture 3 Average charging and discharging times of energy storage batteries with PV installation.

Countries with a significant base of installed residential solar PV are suitable markets for energy storage. For both existing PV system owners that have recouped their investment through FiT repayments and new solar PV customers, it makes economic sense to couple PV and energy storage to optimise the amount of solar generated electricity that can be consumed by the household.

The established installer industry serving the residential solar PV market, is well-placed to promote, sell and install energy storage systems.

Eaton – Home Energy Storage 12 Subsidies help, but are not critical

Of any EU state Germany has gone furthest to facilitate a residential solar-plus-storage market, by reducing FiT rates to curb investments in solar PV systems alone, while providing grants and interest free loans to help homeowners purchase energy storage systems for retrofitting with existing solar PV, or as part of a new solar PV installation.

German consumers also pay some of the highest retail electricity prices in Europe, which acts as an incentive in itself to maximise energy self-sufficiency. High bills and compensation for PV-plus-energy storage investments has resulted in one of the largest residential energy storage markets in the world. Germany accounts for approximately 75 % of Europe’s residential energy storage demand, with the UK, Italy and France accounting for most of the remaining 25 %. GERMANY is one of the key markets for residential energy storage with 100 MW installed

> 65,000 individual systems

Eaton – Home Energy Storage 13 A combination of a mature residential solar market, with lots of retrofit opportunity, plenty of sunshine, and tax reductions applied to solar PV and solar-plus-storage sys- tems over the first 10 years of operation, means Italy is emerging as an attractive mar- ket for residential energy storage.

Legend Cases 0.059 to 0.111 8 0.111 to 0.133 8 0.133 to 0.163 8 0.163 to 0.218 8 0.218 to 0.309 6 Data not available 1

Data from 2016

Picture 4 Electricity prices by type of user. (EUR per kWh) This indicator presents electricity prices charged to final consumers

Eaton – Home Energy Storage 14 Since 2009 EU retail electricity prices for domestic consumers have risen by an average of €0.16/kWh to Rising energy bills €0.21/kWh in 2016 On average retail electricity prices are expected to continue to increase for many European households. Since 2008, across Europe prices, on average, have risen by a third, according to data from the European Commission.

During this time the market for distributed clean energy generation has grown and with it de- mand for tools and technologies that provide visibility to energy usage and habits and provide consumers with greater control over energy consumption.

average solar PV module prices In 2017 Falling technology costs are as low as €0.30/watt

Both solar PV modules and lithium-ion batteries are subject In solar PV module prices to what economists call the ‘experience curve’. 2012 were around €0.40/watt The high-tech industries that make these goods get better at making them, the more they produce, by enhancements to In lithium-ion (li-ion) batteries manufacturing techniques and processes and development of 1990 better performing raw materials. Sufficient demand can lead cost €2500/kWh to continued reductions in prices, due to upgrades and expan- sion in production capacities. In 2017 lithium-ion (li-ion) batteries cost €165-€117/kWhEaton – Home Energy Storage 15 III. Benefits of solar-plus-storage

Reduced grid reliance Bill savings

Many residential energy customers in By maximising the amount of self-gen- Germany have embraced solar-plus-stor- erated electricity with solar-plus-storage age as a way of gaining independence from the grid system the household is able to minimise the amount and from utilities, a trend that is resonating with that it needs from the grid, effectively providing a hedge consumers in other EU markets, notably in markets against any future electricity price increases. where energy prices have seen increases, such as Home energy storage systems can also realise further the UK, Italy, Norway and France. savings by recharging the battery when energy is cheaper, on variable tariffs, such as during the night and releasing that stored energy when demand and costs are high. Currently, the spread between the highest and lowest prices within variable tariff structures is minimal, however this difference is expected to in- crease as more renewable energy is added to the grid.

Eaton – Home Energy Storage 16 Contributing to a better Energy security environment Electricity demand is getting ‘peakier’, where spikes in usage above are In addition to the aforementioned ben- occurring more frequently. efits installing a home storage system reinforces commitments to being greener. By optimising its Integration of distributed intermittent renewable ener- solar PV self-consumption the household is able gy generation, diminishing opportunities for the largest to further shrink its carbon footprint. industrial users to shed their loads, known as , and new sources of electricity demand in the Eco-minded, early adopters, tend to earn higher form of electric cars. These are just some of the develop- incomes. They consciously make decisions that ments that are impacting local networks’ ability to deliver embrace new technology, in order to be seen as a electricity to end-customers, and ensure there is enough pioneer and ahead of the crowd, even when payback capacity for every user at peak times. economics are still being measured. Consequently, the security and peace of mind that so- lar-plus-storage provides is seen as a valuable benefit. Some energy storage systems can be installed to power critical loads, such as lighting, alarm system or fridge, so that in an outage or grid disturbance, households always have power. With a standalone PV system, the solar in- verter the system off when an outage occurs as a safety measure.

Eaton – Home Energy Storage 17 IV. Home energy storage as a grid resource – a future benefit

Eaton – Home Energy Storage 18 IV. Home energy storage as a grid resource – a future benefit

A future benefit of residential energy storage balances the needs of the end-user, with the technology is the ability of these systems to requirements of the grid. interact with the grid, which is worth a brief Unlike solar PV, which grew through a whole mention. new industry of businesses installing and supplying systems from PV panel and inverter An investment in an energy storage system manufacturers, the nascent residential ener- can achieve value for money if some addi- gy storage industry has already attracted the tional value streams can be derived. attention of utilities. This means providing utilities or third party Energy storage, when coupled with solar PV, energy services business with remote ac- could potentially trigger partial grid defection. cess to the spare capacities in these sys- If utilities are able to provide the benefits tems, which could be used to help balance offered by energy storage to customers it is the grid, defer network investments, or even a way to improve their service and prevent trade surplus capacity when prices are high a third party competitor from eroding their and compensating system owners. customer base by offering energy storage The ability for residential energy storage derived services and benefits, like back-up systems to provide grid services is through and optimised solar self-consumption. their aggregation and orchestration via a vir- tual power plant (VPP), which manages and

Eaton – Home Energy Storage 19 V. Sizing solar-plus-storage for optimizing self-consumption

Eaton – Home Energy Storage 20 V. Sizing solar-plus-storage for optimizing self-consumption

Assessing the economics of solar-plus-stor- lifetime, which will result in availability of age has been covered extensively by aca- information on sizing systems based on in- demic papers but information aimed at in- dividual households’ requirements to ensure stallers and end-users is scarce. That’s due profitability. in part to the market being so nascent. In relation to self-consumption, the term self-sufficiency is sometimes used. As the market grows more data on consum- Self-sufficiency measures how much of the ers with home energy storage systems will total electricity needed by the consumer can become available, about consumption pat- be obtained from their own renewable ener- terns and how residential energy storage gy system. systems are used and perform over their

Eaton – Home Energy Storage 21

Sizing considerations

Self-consumption rates for domestic PV systems are on average 30%, due to the mis- match in generation and demand.

As a rule of thumb, for 30 % self-consumption, a building’s annual load demand has to have a PV system to match 1 kW/1000 kWh. So, a home that uses 3000 kWh of electricity a year, needs a 3 kW solar PV system to cover less than a third of the need.

30%

Picture 5 Did you know that you are using only around 30% of the energy produced by your PV set?

An oversized PV system is one with an output that exceeds the needs of the household. The self-consumption rate is reduced as more surplus energy is produced. A few years ago, when FiT rates were at their highest, in order to maximise earnings, oversizing domestic solar PV systems was not uncommon.

Eaton – Home Energy Storage 22 Thanks to energy storage systems on the market, self-consumption rates in the region of 50-70% are possible.

70%

Picture 6 Using batteries to store the produced energy increases your self-consumption up to 70%.

However, this figure is subject to many variables. For instance, self-consumption rates will be higher in regions with more sun – higher levels of solar radiation – as well as seasonal changes, with a lower rate in winter and a higher rate in summer. Based on experience in Germany, the most established solar plus storage market, averaged over a year, 70 % is realistic. However, the precise self-consumption level for an individual household can be impacted by a variety of factors, including the size of the PV installation, the type of energy storage system, battery capacity and the energy consumption and usage habits of the household. To achieve this level of self-consumption, the battery’s capacity should match the PV array’s output. A 3 kW solar system would require a battery with a usable capacity that is in the region of 4 to 6 kWh. Exact sizing varies depending on the specifics of the energy storage system available. For providing back-up, more battery capacity is needed.

Eaton – Home Energy Storage 23 VI. Operational and performance expectations of home energy storage systems

Eaton – Home Energy Storage 24 VI. Operational and performance expectations of home energy storage systems

Depending on the installation configuration, energy storage systems can either be installed on the alternating current (AC) side or direct current (DC). Usually for a retrofit PV installation the system is AC-coupled and in a new installation when the PV system is connected directly to the energy storage system inverter it is DC-coupled.

PV Panel DC Junction unit xStorage AC Junction unit Kilowatt meter Public utility

DC AC

AC

Picture 7 One of the examples of energy storage configuration – DC coupled. AC Load - All house

Eaton – Home Energy Storage 25 anel D ntion nit

nvete

toae ntion nit iloatt ete bli tilit

D

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Picture 8 One of the examples of energy storage configuration - AC coupled.

oa ll oe

Due to the wide range of residential energy storage systems available on the market, it is critical that the industry ensures consumers are fully aware of what these systems can and cannot do. There is a wide variation in systems that are available. Some are simple systems that will connect the battery to the solar PV system, so it recharges with solar PV electricity. The more advanced home energy storage systems use lithium-ion batteries, which cost more than lead acid, but will need to be replaced fewer times during the energy storage system’s lifetime. Advanced energy storage systems also have a bidirectional inverter. Unlike grid-tied solar PV inverters which convert DC electricity generated by the panels into AC electricity for the grid and household circuits, bidirectional inverters, allow electrical power to flow

Eaton – Home Energy Storage 26 to and from the battery modules, from the solar PV modules as well as the grid. In principle self-consumption works like this: as soon as solar generation output exceeds the household’s actual demand the surplus electricity has to be directed into charging the battery. In addition, to avoid buying electricity from the grid, as soon as a household’s consumption exceeds the solar PV array’s output it has to be supplemented with the electricity stored in the battery. To do so, the energy storage system has to be able to supply power from the battery at the same time as the solar PV system. Residential energy storage systems do not take homes off the grid. Solar PV coupled with energy storage minimises the customer’s exposure to the variable pricing of grid electricity. Trying to achieve 100 % levels of self-sufficiency, or total grid defection, would require vast amounts of PV modules and batteries, and be cost-prohibitive, unless you live too far from a grid connection, such as a remote farm. If the system is needed for backup, more battery capacity is required. The value the customer places on back-up needs to be carefully considered and differs in terms of location, whether in rural or urban areas for example.

Generally, all loads – lighting, appliances, electronics and other items that need electricity for power – can be connected. However, the higher the consumption the shorter the back-up time in case of a . Therefore, lighting, modem, TV, the kettle and the refrigerator will run longer in case of power outage as opposed to washing machines, tumble dryers and dishwashers, which use a lot of energy during their operation. Every home setup is different. Different makes and models of the same type of appliance, like a refrigerator, use different amounts of energy due to their efficiency, year of manufacture and other factors. Powering loads also depends on the size of the battery installed, the amount of energy generated during the day by the PV system and the battery being fully charged on a sunny day.

Eaton – Home Energy Storage 27 However using a generic example for a home with 200 W lighting (with xStorage Home):

approx. 18h 4.2 kWh

Running time of 200 W of lightning approx. 27h 6 kWh

approx. 33.7h 10 kWh

While systems are sold quoting the nominal battery capacity, it is more important that potential customers are aware of the usable capacity, as batteries should not be 100 % discharged because of the impact that this has on their operational lifetime.

Eaton – Home Energy Storage 28 The charging time of the energy storage system depends upon each system, as it is based on the inverter charging power in combination with battery capacity. The table shows approximate charging time for various systems (xStorage Home) with different inverter efficiencies:

Charging time at full power Battery nominal capacity (kWh) charge of the inverter Hybrid inverter charging 4.2 6 10 power (kW) with

3.6 72 min 102 min 132 min

4.6 58 min 82 min 102 min

6 44 min 62 min 79 min

Many systems on the market are asymmetrical products, due to differences between the PV output, the power output and the input power. Systems that align these are better equipped for tariff optimisation and for provision of grid balancing services, that latter via aggregation, or VPP platforms. Decisions about choosing an energy storage system depend on a range of factors, including whether the system will be as a retrofit or will be installed with a new PV system. The household must also need to have a clear understanding of its overall electricity consumption, and of the various individual loads as well as its back-up needs.

Eaton – Home Energy Storage 29 However there is other important criteria to consider as well. Systems should come with warranties or guarantees. Warranties indicate the operational lifetime based on various factors, such as the environmental conditions the battery operates in as temperature has a direct impact on the performance and total energy discharge – known as cycles. The potential of energy storage, and subsequent hype, has created a market crowded with players, some of which are energy storage start-ups or new subsidiaries of busi- nesses with core operations in other industries. Some of the companies offering home energy storage systems today can be expected to have exited the market five years from now. Reputable energy storage system manufacturers will have access to proven, high performance lithium-ion battery modules with warranties in place that cover the bat- teries. It should be clear in terms of what happens if a battery does require replacing within the warranty period. Suppliers with longevity and a deep understanding of power supply equipment and technology will have the requisite experience to develop energy storage systems that are reliable, straightforward to install and operate and meet the required safety standards in relevant national markets. Well-established providers can give the necessary support to installers ensuring they provide end-users with the best customer experience, including after sales services.

Eaton – Home Energy Storage 30 VII. Conclusion

Eaton – Home Energy Storage 31 VII. Conclusion

Market challenges

As a potentially disruptive technology, on- has rapidly moved from the pilot stage and commercial deployments are happening across all segments – utility, commercial and industrial, and residential – in many global markets.

Large, utility-scale in-front-of-meter energy storage projects have their place and value. However, behind-the-meter deployments, including residential as well as commercial and indus- trial, let all possible stakeholders – energy customers, local utilities and grid operators – derive benefit, whilst underpinning the transition to grids where renewables make up a higher proportion of energy generation. This requires an evolution in regulations and policies that By 2050 one in two people recognise the unique characteristics of energy storage in residential and other behind-the-meter applications. producing their own electricity

Too much choice, not enough information

Energy storage systems are expensive investments. Therefore installers should be clear on all aspects concerning their performance and operation. Working with a reputable manufacturer

Eaton – Home Energy Storage 32 that provides full product training is a key first step for any installer seeking to expand their business and commercial offering with residential energy storage.

Households will have confidence in a system that integrates seamlessly into their home’s electrical power supply and is set up to work autonomously generating bill savings, optimising use of solar energy and providing back-up when required.

Because energy storage systems are integrated directly into residential electrical systems, careful attention should be paid to systems that meet the highest electrical safety standards in each jurisdiction the product is available in.

Working with the right energy storage partner will ensure the batteries are always supplied by a vendor partner that manufactures to highest quality and that the batteries and power conversion components have been fully integrated and tested. Selecting the right energy storage partner will provide peace of mind during the operating of the system, through servicing and maintenance agreements that will ensure the system’s optimal performance throughout its lifetime.

The benefits of energy storage, in terms of what these systems can do and, just as importantly, what they cannot do, should be made clear to consumers. Over-selling the technology will not benefit the market in the long-term and will only put consumers off.

Eaton – Home Energy Storage 33 Eaton is a power management company with 2017 sales of $20.4 billion. We provide energy-efficient solutions that help our customers effectively manage electrical, hydraulic and mechanical power more efficiently, safely and sustainably. Eaton is dedicated to improving the quality of life and the environment through the use of power management technologies and services. Eaton has approximately 96,000 employees and sells products to customers in more than 175 countries. For more information, visit Eaton.com.

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