After an overview about Energy Toolbase, Kerim Baran of SolarAcademy and Adam Gerza of Energy Toolbase do a very detailed dig into the economics of residential battery / storage in southern California using the Energy Toolbase platform and development features. Their discussion touches on the impact of the standalone storage ITC and the impending NEM 3. The video is below.

The transcription of the video is below.

Kerim Baran of SolarAcademy: Hi everyone, this is Kerim, Kerim Baran with SolarAcademy. I have Adam Gerza with me again this week from Energy Toolbase. Adam, thanks for making the time. And we said we would talk about batteries / storage solutions specifically for the residential market, mostly in Southern California, but nationwide as well, probably will touch on a little bit. So Adam, tell the audience a little bit about Energy Toolbase, what you guys do, your history and kind of like your specialty, and then let’s dive in.

Adam Gerza of Energy Toolbase: Yeah, thanks for having me back here. You know, we’re best known around the industry for our modeling software. We’ve been in the market with that for over eight years now. We’ve kind of branded that now as ETB developer, but effectively a web-based software as a service tool where you can run, really, a transparent savings analysis of solar projects, of storage projects, of solar plus storage projects in a residential setting, in a commercial setting.

And then also kind of building out the full financial model. So once you determine how much they save, and let’s say you’ve optimized the system size, you know, what is the payback, what is the rate of return. 

Kerim: And if I remember, you do this across hundreds of utility districts and thousands of rate schedules and – like you have the database. 

Adam: That’s right. We do all that in-house as well. We have eight full-time employees on our rates team, so we’re tracking all that rates data. We have customers in over 40 states, so we’re doing it all over the country and even in some international markets as well.

Kerim: How many rate schedules did you say? 

Adam: Over a hundred thousand unique utility rate tariffs that are in our database and it’s just growing kind of exponentially each quarter as we have to update as these rates keep changing in time. 

Kerim: Great. Okay, so what do we wanna talk about today?

Adam: This is a kind of niche topic that you brought up and I think we’re getting a lot of questions on it, which is okay. Now that we’ve got the Inflation Reduction aAct pass, which everybody’s talking about, and one of the big kind of goodies in there was the standalone energy storage tax credit, right?

Kerim: Yeah. 

Adam: So the first time ever we’ve had this, we’ve previously been able to take a tax credit on a storage system when it’s paired with solar and charges from solar. But now you can absolutely claim a 30% ITC in standalone applications. And we’ve been doing a lot of analysis and have even published some work in the commercial setting where oftentimes, you’re really doing like demand charge management and how good can those economics get. We’re getting questions in a residential setting. 

Kerim: Yeah. 

Adam: And I did some runs that I would love to kind of just talk you through. 

Kerim: Yeah. Yeah. Before this call, we were talking a little bit about what goes into the ROI modeling of battery solutions and there’s probably like six or six to eight key elements and it’d be great to talk a little bit about all. 

Adam: Cool. Maybe I’ll just jump right in and share a screen or two and we can talk through some of the runs I did. So let’s just start with the load profile. Obviously it’s one of the very first inputs into the model, which is – I just like clicking on this here to get a good visual by load profile – we just mean the shape of the customer’s usage.

Kerim: Yeah. 

Adam: So these initial runs I did were based off of Department of Energy, NREL kind of representative residential load profiles. I think a lot of folks are pretty familiar with these. If you don’t have the actual interval green button data you can run this off of reference files, which is what we did here.

Okay. So let’s jump right in. And for the first run here, let’s just look at a rate. Obviously one of the other big inputs in this analysis is, well, what utility are you in and what rate schedule are you on? And again, this is somewhere where Energy Toolbase really specializes. We get really, really granular on the tariff, and you can kind of go in and view the full details of the tariff with all the charge types.

Obviously these are all kinds of use based rates. What are those differentials for the different seasons of the year? How are those time-of-use windows defined? So we’re just looking initially at a SoCal Edison. That’s where I am. I’m here in Pasadena in Los Angeles. This happens to be the rate I’m on at my house. And let’s just kind of do a run, right? 

So let’s just jump over here. This is kind of our edit proposal screen. I won’t bore you with a demo, just kind of let’s just really jump right into interpreting what some of the results look like of a standalone residential storage system. So again, we’re modeling this on the T O U D prime rate. Okay? That’s one of these specific rate schedules here. 

In terms of the specs that I defined for the storage system, I basically ran a power wall for this initial run. Define these based on whatever vendor you’re working with. We’re certainly not favoring one or another. I just had to kind of choose some specs. So we’re running all these at a five kW, 13.5 kWh. I’m running this at a hundred percent depth of discharge. I’m running this at a 90% round trip efficiency.

Kerim: 90?

Adam: 90. Yeah. So 95 on the charge, 95 on the discharge, which equates to 90, which is pretty market, you’re doing good. If you’re running at a 90%. 

Kerim: So there’s about a 10% efficiency loss. 

Adam: That’s exactly right. The best way to think about that, Kerim, is, “Hey look, if for every hundred kWh you cycle, you round trip cycle through the battery, 10 of them you’re losing frankly to efficiency loss. And when you go and calculate how much did you save and build a financial model, you have to bake that into your analysis. You’ve gotta kind of make that back up via the savings. In terms of the price, this is obviously a value that the installer or the developer would enter. We’re not one to tell you what to use here.

I think we generally err on the side of using conservative assumptions. There’s a bunch of data out there. This one was run really conservatively. It was actually given to me, and I can share this, by a senior rep at Tesla who I recently asked, “Where are you seeing pricing come in?”

So for the first run

Kerim: That’s quite a bit, that’s $150-ish per kWh. 

Adam: That’s exactly right. You’re thinking about in the right terms. Let’s do this, Kerim, this is actually a great exercise. So you’re right. 20,500 divided by 13 five. That’s coming in north of $1,500 per kWh.

Kerim: It’s like worth mentioning though, I’ve seen bigger systems, not 13, but more like 90 kWh, which is quite big for a big home. Coming at not 1500, more like $600 to $700 per kWh. Essentially half the price per kWh. But obviously for an eight times bigger system.

Adam: Sure. That’s an awesome point. And hey, look, we can absolutely run different variations. Let’s do this, let’s run it here initially and then just for kind of a/b purposes, let’s literally cut it in half. 

Kerim: Yeah. 

Adam: And just see what that kind of does. The total project economics. So let’s look at our simulation. That’s how we set up on the storage side. A lot of times when folks run an energy storage simulation in Energy Toolbase, the first thing they want to know is, “Okay, how much did I save in dollar terms?” That’s that number there. And just to kind of interpret that, that’s basically saying 78.3 times the kWh capacity of the battery, in this case, 13 and a half for this particular run. 

This particular customer on this rate schedule saved a little bit over a thousand dollars year one. Okay. 

Kerim: That’s per year. That’s per year. 

Adam: That’s correct. And let’s unpack how we got to that, cause that’s a super important number in the model, obviously. And this is something that we, frankly, at Energy Toolbase, we think we do better than any other tool out there. So let me jump into my analytics view. Let me jump into a summer month. I always kinda like starting. And let’s just kind of interpret the simulation that we ran here. So we run 365 days worth of dispatch data based on an algorithm that we have behind the scenes.

This is a very simplistic one. It’s a time use arbitrage algorithm. You can see down here it’s very simple.

Kerim: It’s filling it up at nighttime between midnight and 5:00 AM. 

Adam: Bingo. That’s exactly right. And this particular schedule, it’s really simplistic in that there’s only two in the summer, four to nine is the on peak.

Kerim: 4:00 PM to 9:00 PM is the most expensive.

Adam: And we’re talking 54 cents a kilowatt hour. 

Kerim: Wow. Okay. Filling the battery up midnight to 5:00 AM.

Adam: Bingo. 

Kerim: What price? 

Adam: 21 cents per kilowatt hour.

Kerim: SoCal is more expensive than SDG&E, I guess.

Adam: I have every single rate schedule in our rates database, and we can run it every which way for every variation of schedule, which is frankly what a lot of developers will do.

Kerim: Do you guys also have a function or a feature that optimizes which rate schedule is best for the customer to pick?

Adam: We do, we certainly do. And we leave it to the developer. This is actually a really often used feature in California to say, “Hey, if you want switch your customer and let’s say force them or run it different ways on different rates, you can absolutely run different variations of all of our rates in our database.” It is a feature. We require the user, the developer, to tell us which rates they’re moving them to because you have to be mindful of the eligibility rules. You have to make sure you qualify to be able to move your customer to that rate. But we certainly do kind of offer the functionality to test against different rates.

So we looked at the winter. I always like to do this for contacts. I think it’s important, like sometimes folks will kind of think, “Oh wow, you know, I’m getting 33 cents of on-peak, off-peak differential. This is a home run.” Well, yes, that’s a true statement, but that’s true for six months of the year in the summer.

It’s always important to kind of check also what those winter differentials are. This one’s still pretty strong. Here we are in January, right? So this is a winter month and 50 cent on peak, 20 cent off. So that’s actually a 30 cent differential winter as well. So that’s winter is how much this particular rate schedule, the T O U D prime.

And by the way, I want to also make this point. We are very, very current. This is another thing that a lot of folks rely on Energy Toolbase for. This is the most recent effective version of that rate. It’s important to make sure you’re modeling with current rates. The winter differential, it was 30 cents. It was 50 cents on, it was 20 cents off. So this is frankly a really fantastic year-round schedule. So we ran the simulation. We did a 365 day year. And again, that is what our savings equated to that thousand dollars, roughly a little over a thousand dollars. And let me go here and just show you a cash.

Kerim: That $78 was per month then? 

Adam: No, that’s an annual number. So $78 times the capacity of the battery. 13 and a half.

Kerim: So for the whole battery’s about a thousand dollars of the year after efficiency loss net of. The battery was about 20 K, so, but minus the ITC. 

Adam: Bingo. That’s exactly right. That’s the other big variable that we’re gonna look at in a cash flow statement. Also, as a disclaimer, I ran this very conservatively. I did a 15 year cash flow. There’s a whole debate on what replacement value and at what term that would happen. And by running in that 15 years, I just kind of removed that all together and just make this really conservative. To say, “Hey, here’s how much my battery costs.”

Kerim: You assume that 15 year life cycle. 

Adam: Yeah. Yeah. That’s pretty typical. Uh, you’re, you’re assuming that you’re not 

Kerim: $0 of residual down and $0 of recycling.

Adam: That’s exactly correct. We are absolutely assuming a degradation rate on the battery. I think I ran this at 2% annually. To be really transparent about my assumptions, which is how we do things in Energy Toolbase, we are assuming a 3% utility escalation rate assumption.

That’s a very important assumption in the model. You wanna make your analysis look good, you can obviously crank that up aggressively. 

Kerim: PG&E was like 18% last year?

Adam: We’re doing a white paper on that right now. PG&E – all three of the IOUs recently have really seen big jumps. I’d say if you looked at more of a 10 year average, I don’t wanna jump the gun on our study. But certainly 3% is conservative, I think if you look at historical data, and I think in the coming years we might have higher averages. You can make that argument for sure. And uh, we have all sorts of things to talk about, NEM 3, I know we’ve got limited time.

Let’s just do this cause I wanna go back to that earlier point you made on cost and let’s just say, “This feels too conservative and too expensive.” This is the really cool part of ETB developer, how quickly you can toggle assumptions. So based on this analysis and using the 30% ITC, by the way, disclaimer, we are not assuming any SCHIP incentive at all here cause that money is basically fully reserved. 

Even at a pretty attractive savings we’re coming in at call it a 13 year 2% IRR. I think that’s gonna be a really tough sell for any residential sales. 

Kerim: It’s not a financial sell

Adam: No, that’s correct. That’s correct. That’s a nice way of saying it. Let’s do this now, let’s just kind of remember those numbers. 13 year, 2% IRR and let’s just cut this in half. You know, and that’s the kind of beauty – it’s possible to get half that rate too. I mean, maybe there’s some more savings you can squeeze by rate switching, maybe there’s a demand response program you can tap.

Let’s just change one variable to keep all the other variables as control variables. And there you go. Right there. Cutting the install cost in half, now we’re kind of coming in at a six or seven year payback. Six and a half year payback. 12% IRR. I don’t wanna draw conclusions to say standalone storage is not viable, or standalone storage is viable in a residential setting.

I think we’ll have to do this in the next meeting we have. But the one that everybody’s talking about and you need to be thinking about is in a NEM 3 world, which everyone knows is right around the corner when you’re pairing solar with storage. I wanna show you those runs next time because in a NEM 3 world, all of your exported solar production is, we’re still waiting on the final proposed decision and the final set of rules.

But based on the latest PD, you know, it’s going to get haircutted considerably. I think the average blended value of exports was around a Nickel. So think about that, Kerim, your retail rate is on average about 30 cents right now. Blended, your average export rate is blended at a nickel. So you will have another really strong price signal with the battery to prevent exports to the grid permanently.

Kerim: Essentially. 

Adam: Bingo. That’s right. And in those instances, I think you’re not even really looking at it to say, “Oh, I can get whatever your payback and I are.” You’re actually preserving the economics of solar and solar production. Which is why obviously we and everyone expects not mandatory, but it’s gonna be really stupid not to put storage with solar.

It’ll be like Hawaii. The economics will be so black and white. You will not see standalone solar when it’s sized high relative to load, cause you’re gonna be exporting a lot of energy and you would be getting crushed with all of that production. All of those electrons would be getting really discounted in an NEM 3 world, you will almost be forced and we’ll see attachment rates really go up.

Kerim: Unless you’re running a business or a property that only consumes energy 10:00 AM to 3:00 PM or something like that.

Adam: Yeah, there’s lots of asterisks next to it and commercial really is kind of a separate conversation cause you probably don’t export as much energy. So that’s a fair point. So I’d like to look at those economics with you next time. I think it’s at least interesting to look at like, “Hey, whatever your assumption here is, and you can toggle this however you see fit, how does that affect the full financial model based on the savings we can capture based on, uh, a 15 year project?”

Kerim: Adam, thank you. Thank you very much for giving us this insight into Energy Toolbase’s developer features in the context of solar, really storage mostly in residential use. This is very useful. And next time we will do commercial applications and talk a little bit more about the commercial elements, like demand response, flex charges and things like that. 

Adam: Sounds great. Would love to see commercial there. The teaser there is the economics look crazy strong in standalone applications when you’re doing demand management. Happy to show that to you next time. 

Kerim: Great, thank you.