Report emphasizes need for storage-friendly policy shifts after solar saturation

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Customer-centric solar is a major untapped opportunity, with 167 million households and 23 million businesses worldwide able to host their own clean power generation by 2050, according to a joint report by research firm BloombergNEF and Schneider Electric. These implementations will deliver major decarbonisation benefits, but policy and tariff design will be critical to enable them.

The report, “Realizing the Potential of Customer-Sited Solar,” finds that the rapidly falling costs of solar technology have already made it beneficial for homes and businesses to generate their own power in some markets. In Australia, for example, the payback period for households investing in solar energy has been favorable since 2013, ie less than 10 years. As a result, adoption has already taken off, with more than 2.5 gigawatts of residential solar power in 2020 alone.

These solar installations can generate economic returns for the guest houses and businesses, as well as broader benefits in terms of carbon emissions reduction, peak load reduction and employment.

“Customer-centric solar is a huge opportunity that is often completely overlooked. Thanks to falling costs and policy measures, it is quickly deployed in some markets. The massive increase in scale is very likely,” said Vincent Petit, head of the Schneider Electric Sustainability Research Institute and SVP of Global Strategy Prospective & External Affairs at Schneider Electric. “This is vital to the decarbonisation of the energy sector and offers huge additional benefits to consumers. It is time to embrace this transformation.”

Kickstart the market

Experience shows that the adoption of solar energy mainly takes place when there is an economic argument for the households and companies that invest in the technology, usually in the form of high internal returns (IRR) or short payback periods. In regions where the economy has not yet reached such tipping points, policymakers are introducing targeted incentives to create favorable market conditions and bring the rollout forward.

An example of this is France, where existing incentives mean that residential solar can achieve an internal rate of return of around 18.5% (a five-year payback period), and commercial installations an IRR of 10.4% (or a nine-year payback period). years). This has led to a gradual growth of the market to approximately 500 MW of installations in 2020.

An important consideration in the early stage of market development is to avoid an unsustainable boom. Policy designs need to consider that the cost of solar will continue to fall over time, and moderate support to reflect these changing dynamics.

Solar energy for new-build homes and businesses

The economic case for adding solar energy during the construction of new buildings is particularly strong. This is because soft costs, such as marketing and sales, as well as labor and construction costs, can be reduced while the benefits remain the same. In California, the economic case for adding residential solar to existing homes is already good at 20% IRR, but the new report estimates that figure is twice as high, at 40% IRR, when solar is added on the point of construction. In France, the IRR for residential solar could be increased to 28% when added during new construction.

Introducing energy storage and flexibility

As solar markets develop and mature, policymakers and regulators should gradually shift their focus towards unlocking flexibility and encouraging the adoption of energy storage. This is because high levels of solar energy use can lead to excessive energy production during the day, while also potentially destabilizing the power grid. At this stage, adding energy storage becomes valuable as it allows the renewable electricity to be stored for use in the evenings.

“The evolution of customer-centric solar is to add a form of flexibility, which has the ability to unlock much higher solar penetration,” said Yayoi Sekine, head of decentralized energy at BNEF. “The most obvious form of flexibility is batteries, but energy storage will come in many forms, including shifting demand and the use of electric vehicles.”

Tools to encourage energy storage include adjusted export tariffs (the payments offered to solar owners when they export energy to the grid), retail tariffs for electricity at the point of use (which reduce the cost of generating solar energy during the day reflecting), enabling payments for storage to provide network services (sometimes called aggregation payments) and demand cost implementation (mainly for business customers). These levers are generally intended to make tariffs more reflective of generation and grid costs, but are also likely to encourage energy storage.

In California, for example, cutting export tariffs to 35% of retail tariffs, while hurting the solar economy in general, would shift the emphasis to solar systems combined with storage, which still has an IRR of 13%. would generate. For commercial and industrial installations, adding so-called battery aggregation payments would increase IRRs to 22.8%, making solar + storage a more attractive option than solar alone.

The report examines these mechanisms in depth and provides individual use case analysis for France, Spain, Australia, California (US) and New Jersey (US), exemplifying markets at different stages of maturity. The full report is available here.

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