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Solar Storage: More than Extra Electricity


July 2014

This article was distributed in the Summer 2014 issue of REsource: Business and Financial Insights for the Renewable Energy Industry

Discussions regarding the financial viability of solar power often, and understandably, revolve around tax credits (the ITC) and the cost of capital (the emergence of YieldCos and other financing vehicles). But technology plays a critical role as well, and, as such, deserves at least equal merit as a serious topic for discussion. The development of more sophisticated solar storage solutions, for example, has the potential to both solve some of the key issues in the adoption of solar power while creating even more favorable economics and development opportunities.

Until recently, solar storage has primarily served as a backup system for the individual homeowner or enterprise that generates its electricity through solar panels. The goal here was to address one of the largest practical challenges of solar generation—the inherent intermittency problem caused by less-than-reliable sunlight. At the level of the individual hospital or office building, the creation of dedicated “microgrids” provided the backup needed for more consistent generation of power. But while this removed some of the objections to going solar its benefits were limited to the individual solar user.

Recently, however, solar enterprises like SolarCity have begun to see that a network of distributed solar storage units, connected by cloud computing systems, provides what has effectively become an alternative grid, allowing networks of users to collectively store and draw upon much larger amounts of energy.

To see the disruptive economic potential of such a system, consider the current net metering arrangement, in which a home or business generating solar energy can sell excess energy back into the system, for either cash or a credit against electricity used, depending on the Purchase Price Agreement. While the proliferation of net metering has rightly been seen as a boost for solar adoption, the catch is that the value the customer receives for the electricity produced naturally fluctuates. Excess electricity generated during off-peak hours is, by self-definition, just that. Any “excess” electricity generated is obviously worth less than electricity demanded during peak hours.

A distributed storage network, however, provides the ability to store electricity generated during off-peak hours and then sell it back to the grid at peak hours—for a premium price. This has the potential to significantly compress the cost-recovery curve, which is still a meaningful financial hurdle at the individual level, where the economies of scale achievable by large solar farms are out of reach.

Other potential benefits are more intangible but no less real. The existence of a large-capacity distributed storage network can significantly alter the demands placed on the traditional grid, where utilities will no longer have to fire up expensive peaker plants during periods of high demand. The lowered strain on the traditional grid will increase the “Value of Solar” that has begun to be used when states are considering tariffs on solar power consumers. Distributed storage grids are likely to further revive investor interest both in solar storage, which is critical if gains in capacity and efficacy are to continue, and in distributed generation projects generally. Given the long-term uncertainty of tax credits, increased equity investment would come as a welcome development.

Contact

For more information, please contact Mark Hooley, Partner, at 858-300-3420, or Brett Weal, Principal, at 310-598-1590.


This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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