Tesla Motors (NASDAQ:TSLA) made a big media splash with its plans for a giant battery plant, nicknamed the Gigafactory. The goal is to push down battery prices. Interestingly, Tesla is already supplying batteries to sister company and giant rooftop installer SolarCity Corp (NASDAQ:SCTY.DL) for pairing with rooftop solar systems. The problem is, financially speaking, pairing a battery with solar may not be the best idea for your home -- at least not yet. Still, as an investor, there's good reason to watch this developing trend.
In the middle of 2014, SunPower Corporation (NASDAQ:SPWR) announced it was working with homebuilder KB Home to offer home buyers the chance to install batteries along with its rooftop solar systems. The idea makes a lot of sense. Rooftop systems generally generate more power than a home uses in the middle of the day, but little or no power in the late afternoon and at night -- when power is most in demand. So, if you add a battery to the equation, customers can store the excess power from the middle of the day and use it later.
That's the same plan SolarCity is pushing with its Tesla battery packs. Only SolarCity, which is only selling the batteries in select California markets right now, is going one step further. It suggests customers can benefit from charging the battery from the grid when electricity is cheaper, and using that juice at night when power is more expensive. Clearly, that logic only works where variable rate structures are in place, but it's a compelling sales pitch. Of course, those Tesla batteries can be paired with a solar system, too.
Ahead of its time
But does it really make sense for the Average Joe to do this? The answer is most likely not. Even Elon Musk, a key player at both SolarCity and Tesla, puts large-scale pairing of solar and batteries out five to 10 years. And the reason is cost.
Yes, battery prices are coming down, and they should fall even further once Tesla's Gigafactory is up and running, flooding the market with batteries. But GTM Research found that the rate of return for residential customers was between 6% and 14% for solar systems paired with storage in 2014. Senior Energy Storage Analyst Ravi Manghani told Utility Dive that "financing costs would exceed the benefits in some areas." And if a variable rate plan isn't offered, then there's no benefit to avoiding peak usage times for those customers without solar systems. But you should still keep a close eye on this space.
GTM found that business customers can get returns of between 16% and 23% from this strategy. There are numerous reasons for this, from costs that business customers face that individuals don't to usage patterns. But that return is more than enough to make an investment in batteries worth the expense. And, thus, for the solar-plus-storage market to keep developing. Since SunPower and SolarCity work with both individual homeowners and businesses, there are clear opportunities for growth in this segment right now.
It could be the future
As SolarCity and SunPower build up additional expertise on the commercial side, this pair should be able to streamline the installation processes and further reduce costs, like they've done on the pure solar front. That, in turn, will make the day when solar-plus-storage works for most homeowners even closer. And the potential customer counts on the residential customer side are huge, particularly if SolarCity and SunPower can retrofit older systems with the gear -- effectively providing a built-in customer base.
So, if you are installing a rooftop solar system on your home, be careful to ensure it's worth the added expense if they offer you a battery. You might find you're better off waiting. But if you are investing in SolarCity or SunPower, keep a close eye on this developing niche. It could lead to expanded sales opportunities down the line as what works for commercial customers starts to make more sense for individuals.
It won't be a game-changer for either company, but it will give them a chance to increase revenues and perhaps margins. And that will make their businesses stronger.