I’m sure you’ve heard some of the excitement in the news media about batteries for home solar systems like the Tesla PowerWall.
Lots of people are saying that new technology will soon make it affordable for homeowners to store a serious amount of their solar power right at home.
You may have also heard that the IRS recently announced that if you already have solar panels installed at home, you can buy batteries afterwards and still cover the cost of the batteries with the 30% solar Federal Tax Credit, as long as the batteries are run on 100% solar power.
“The Internal Revenue Service has indicated that federal solar tax credits extend to battery systems added as retrofits — a policy that could ‘open the floodgates’ for residential solar installers eager to add energy storage to their mass-market offerings,” claims a recent article from GTM Research.
What would that mean for homeowners in New Jersey who have solar panels or who want to get them in the future?
The article makes it sound like it’s going to become more affordable, and thus more common, for people who’ve already installed solar panels at home to go back and add batteries like Tesla’s PowerWall to store some of the energy from their solar panels for future use.
But the story does go on to add a caveat. Even after recent drops in the price of lithium-ion batteries, “adding batteries to residential solar systems remains an expensive proposition.”
Beyond a handful of early adopters, these additional costs have had the effect of limiting solar-storage uptake to a handful of markets such as California, with its lucrative Self-Generation Incentive Program, or Hawaii, where solar-storage makes economic sense under the state’s Customer Self-Supply Program.
My colleague Jason Cascio, EcoMen Solar’s resident battery expert, agrees that home batteries are still expensive. And he thinks they’ll be expensive for a long time to come. That extra expense only makes sense in two situations, which Jason will explain below.
Batteries Provide Backup Power in A Blackout
First, Jason says that batteries can “provide peace of mind during a utility outage.”
“But due to the low storage density of current battery solutions, unless the battery bank is enormous, home batteries will provide only a short run time for a normal household.”
This means that if your blackout lasts a few minutes or a few hours, you might still be able to keep the lights on. But since home-sized battery banks store such little power, the lights are about all that you will be able to keep on. The average home battery system won’t store enough juice to run big appliances like your washer and dryer, for example.
And in case of a longer power outage, a home battery bank may run out of juice before the power comes back on, leaving you in the dark anyway.
Jason says that solar systems including home battery storage will “will never pay for themselves like solar without storage will.”
Batteries like Tesla’s Powerwall are still expensive and they store less power than you’d think — a lot less. A typical home battery bank with a capacity of 24 kilowatt hours of power can cost up to $8,000 to install and yet only store a shockingly small amount of power.
Believe it or not, a home battery system of that size may store a total of only about $5 worth of power at any one time at 18 cents a kilowatt hour, which is high for New Jersey. That’s hardly a good investment in our state today.
For the homeowner who sees the need to invest in backup power, Jason offers a cheaper and more practical solution: a generator running off of natural gas.
“If your concern is powering your home in the case of a utility outage, just get a natural gas generator (unless you can’t put one on your property, at which point battery backups could work, but will still be an expensive way to keep the power on for a short period of time).”
For an initial investment comparable to a home battery system, a gas generator provides much more value, Jason explains.
“If you compare batteries to a natural gas generator, you get similarly priced energy sources. But the gas generator is far more capable of running a household without requiring the homeowner to ration energy usage.”
Batteries Help You Become A Home Energy Trader
The second reason to add battery storage to your solar panels at home is to try to save money by becoming a home energy trader with your local utility.
If you’re used to paying the same rate for all your electricity from your local utility no matter what time of day you use it — for example, the New Jersey average price of 15.78 cents per kilowatt hour — then this concept may be new to you.
In some states, utilities charge homeowners more money for power based on demand. The purpose is to encourage customers to cut back their power use when there’s a high demand, to avoid higher costs and reliability problems for the electrical grid.
One way to encourage energy conservation during periods of high demand is for utilities to offer so-called “Time of Use” (TOU) rate plans for their customers. TOU rate plans are common in California, whose state Public Utilities Commission explains how they work:
Time-of-use is a rate plan in which rates vary according to the time of day, season, and day type (weekday or weekend/holiday). Higher rates are charged during the peak demand hours and lower rates during off-peak (low) demand hours. Rates are also typically higher in summer months than in winter months. This rate structure provides price signals to energy users to shift energy use from peak hours to off-peak hours.
TOU rates can get a bit complicated. For example, PG&E, a utility company serving the San Francisco Bay Area and northern California, offers two different rates during the winter and three different ones during the summer. Here’s how they break down their summer rates:
- Off-Peak (12 midnight – 8:30 am and 9:30 pm – 11:59 pm): 21.7 cents per kilowatt hour
- Partial-Peak (8:30 am – 12 noon and 6 pm – 9:30 pm): 24.4 cents per kilowatt hour
- On-Peak (12 noon – 6 pm): 26.8 cents per kilowatt hour
As you can see, PG&E customers pay 5 cents more per kilowatt hour for power during the day when demand is highest than they do for power at night when demand is low. You’ll also see that homeowners in northern California pay a lot more for electricity than we do in New Jersey!
If you live in California or another state where utility electricity is really expensive and TOU rates are common, you can save money by becoming a home energy trader. You can buy power from the grid when it’s cheap and sell power back to the grid when it’s more expensive.
And that’s when home energy storage through batteries makes financial sense for solar homeowners. During expensive on-peak times, if you can use power from your solar panels that you’ve saved in batteries instead of having to buy or “import” power from your utility at its most expensive rate, you can cut your own electric bill.
Using special software, homeowners out West can save enough money by trading power with their utility at different times of day that batteries can pay for themselves in a few years.
How does this energy-trading strategy work in a place like New Jersey, where TOU rates for homeowners are less common or nonexistent?
“In both New York and New Jersey, there is no appreciable difference in cost as a function of time of import for the majority of customers,” Jason says. “This means the expenses of battery backup systems are never recouped from an energy cost-avoidance dynamic.”
In other words, since there’s little opportunity to save or make money by trading energy with your utility at different times of day in New Jersey, adding batteries to your solar system is not a good investment, at least financially.
Battery Hype vs Reality: The Elon Musk Effect
More and more homeowners in New Jersey who want to go solar at home also ask us about adding batteries, even though they don’t make financial sense.
Jason has a theory about why there’s so much interest in adding batteries to solar these days. Companies that sell batteries, led by Tesla and its superstar CEO Elon Musk, have done a good job with publicity to create demand for their product — even if that product isn’t yet ready for prime time.
“Elon Musk has a unique ability to captivate America with shiny concepts that sound great in theory. They don’t always work the way they’re advertised and they usually cost more than anybody expects. Continued hype about batteries, coupled with the possibility that the 30% solar tax credit will extend to cover solar-powered battery systems will likely create more interest among solar homeowners in getting batteries in the near future.”
Jason’s advice is to cut through the hype and make a good decision for yourself based on the facts.
That’s why EcoMen doesn’t usually recommend battery systems to our solar customers. For the average New Jersey homeowner, solar pays for itself right away. Batteries still don’t. And it will be a long time until they will.
But if you’re really set on getting batteries, Jason will leave you with a last piece of advice:
“Instead of paying 100% today for an expensive battery system that won’t do what you think it will and will never pay for itself, you can wait until the price of batteries comes down even further. Then, tomorrow you can pay 30% less for that same expensive battery system that won’t do what you think it will and will never pay for itself.”
Or, you can just do the smart thing and get solar panels and start saving money from the first month. Contact EcoMen Solar for a free quote and we’ll let you know how much you can save with solar. And we’ll never try to sell you anything you don’t need, no matter the hype. That’s a promise.
— Joe Aurilia, Jr, EcoMen Solar