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Sunrun Has Found a Way to Crack Energy Storage Markets

By Travis Hoium - Jul 22, 2019 at 9:43AM

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A new business model may be emerging in solar energy.

Energy storage has always been a natural complement to solar energy systems, but the two never seem to find a successful way to work together in practice. Tesla's ( TSLA -0.95% ) Powerwall was supposed to be a natural product to go with Tesla solar systems, but adoption has been weak because it's still essentially an expensive toy.

Sunrun ( RUN -1.01% ) is one of the companies trying to change this dynamic and find ways for its Brightbox energy storage system to contribute to solar installations. Energy storage may not be the asset homeowners find the most value in, but it could still boost value after all. 

Rendering of a garage with energy storage and an EV.

Image source: Getty Images.

Sunrun's move in Oakland

Last week, the East Bay Community Energy (EBCE) board of directors agreed to replace a jet-fuel powered plant in Oakland, CA with home solar and energy storage systems from Sunrun in low-income housing in West Oakland and Alameda County. The project will string together thousands of energy storage systems in homes to form what's known as a virtual power plant.

But it's the financial mechanism behind those storage systems that make this such a big deal.  Sunrun will build 500 kilowatts of power and 2 megawatt-hours of storage capacity, and offer capacity to the EBCE on a 10-year contract. What the utility is looking for is available capacity on days when the rest of the grid is stretched, like hot days when air conditioners are on high or days when there's an outage in another part of the grid. Utilities usually pay for extra power plants to be available at those times -- known as "capacity" -- but energy storage might be able to take over this important role in the grid's infrastructure. 

How customers will see energy storage

The details aren't all worked out, but the money Sunrun is making from the virtual power plant could offset some of the cost of a residential solar and storage system. Customers could be offered a discount up front or a reduced contract price over time if they participate in the capacity side of the energy storage deal.

The downside is that would give Sunrun more control over a homeowner's energy storage system. If someone wants to use primarily energy they produce on-site, this would reduce its availability for that purpose. It may also reduce capacity available for backup power for homes.

However, that doesn't mean there isn't enough value for homeowners to still go forward with an installation. At the end of the day, few customers are intimately involved with how their solar or energy storage systems work, so they'll be looking at the dollars and cents in savings being offered. Sunrun is hoping this capacity contract will help make solar and energy storage more economical for customers. 

Energy storage continues to advance

A variety of companies are trying to figure out ways to make energy storage systems of varying sizes work economically. Stem, for example, has been running a 1 megawatt energy storage virtual power plant in Hawaii that has assets at 29 customer sites. It's part of the state's push to 100% renewable energy, and involves larger commercial energy storage installations than what Sunrun will install.

SunPower ( SPWR -0.85% ) is testing a virtual power plant with Consolidated Edison ( ED 0.96% ), and is now including energy storage in about 30% of commercial solar projects. Later this year it's expected to launch an energy storage product for homes, similar to Sunrun's Brightbox.

Tesla is the other big name in energy storage, but most of its success has been with large utility-scale projects -- it's planned a virtual power plant in Australia, for example. But it may be learning how to make residential energy storage work in the U.S. from companies like Sunrun. 

Given that economics was always the challenge facing energy storage, it's good to see the industry finding ways to make money off the value the technology can provide. As investors, we can now hope that storage will help drive greater adoption and more industry growth. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Sunrun Inc. Stock Quote
Sunrun Inc.
RUN
$42.31 (-1.01%) $0.43
Consolidated Edison, Inc. Stock Quote
Consolidated Edison, Inc.
ED
$78.69 (0.96%) $0.75
Tesla, Inc. Stock Quote
Tesla, Inc.
TSLA
$1,084.60 (-0.95%) $-10.40
SunPower Corporation Stock Quote
SunPower Corporation
SPWR
$26.89 (-0.85%) $0.23

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