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May 10, 2022
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What will the house of the future look like? It will be a self-sufficient home that meets its energy requirements through solar systems and energy storage solutions. It will also power and connect electric vehicles and switch out methane burning components for those powered by the solar system for water heating and heat pumps.
A self-sufficient home will be close to running at Net Zero, and this will help us reach our collective climate goals.
Oil and gas volatility, along with the high prices we have witnessed since Russia invaded Ukraine, create demand destruction. This is because consumers try to substitute the Business as Usual, fossil fuel-based solutions for renewable power, heating and transportation. Therefore, we expect the adoption of solar rooftops, stationary batteries, smart meters and heat pumps to scale up simply because these energy efficient solutions can also result in high savings.
The costs associated with electrifying transportation and heating, as well as the behind the meter electricity generation and storage used on a day-to-day basis, are below the running costs of the high emissions, business as usual, unsustainable houses. The economic savings and the decarbonization goals are achievable with technologies available today.
California is ambitious about climate change, and its forward-thinking climate policies have made it a leader in the field. The state achieved its goal of reducing emissions to 1990 levels by 2020, four years ahead of schedule. California’s success is in part due to comprehensive policies that have harnessed market forces to find cost-effective solutions and meeting its emissions reduction goals.
Residential and commercial buildings account for approximately 25% of California’s greenhouse gas (GHG) emissions, and in 2019, they consumed about 38% of California’s electricity. In addition, California’s electrical grid is vulnerable to climate change, with events such as wildfires leading to power shutoffs. As California looks to rebuild from wildfires and aim for decarbonization, and in an effort to increase the amount of renewable electricity sources in the state, Assembly Bill No. 178 mandates solar panels be required on all new residential buildings. As of January 2020, California requires all new single-family homes to be equipped with solar power systems that are large enough to meet the annual electricity usage of the home and encourages complimenting that system with battery storage such as the Tesla Powerwall.
The capital cost of the house of the future currently requires a significant investment compared to conventional equipment. Since batteries and solar panels are technologies (not fuels), they have benefitted from price reductions and can expect to benefit more, as can EVs and heat pumps.
At iClima, we have estimated that transitioning to the house of the future right now would incur an additional CAPEX of about $60,000. However, taking into consideration the annual savings of over $8,000 per year, the payback period of the additional cost would be less than 8 years. This period, however, does not consider the impact of tax credits and incentives which would reduce the cost of the solar system and thus, reduce the overall capital cost and payback period. For example, the federal solar tax credit for systems installed by December 2022 grants a 26% tax credit claim on federal income tax for the cost of the solar system. This would reduce the CAPEX of the solar system by $13,747 and the payback period by two years. You can visualize the comparison in this infographic.
Moreover, residential solar systems are currently eligible for a rate reduction for selling excess electricity from the solar panels to the grid. With the Tesla Powerwall+ or similar storage system that can maximize this benefit, there may be additional savings for the homeowner.
When consumers become producers, they effectively transition into “prosumers.” Security of supply and the stability of running monthly costs is the main goal, so self-sufficiency is a perfect solution. Thus far, adoption has been somewhat hindered by outdated legislative systems. In his book “Freeing Energy,” Bill Nussey explains that residential solar in Australia has over 20% penetration. One in every five homes in Australia has a solar system, obtained at a cost between $1.1 to $1.2 per watt. Meanwhile in the U.S., one in every fifty homes has a solar system and the homeowner pays between $3.0 to $4.0 per watt. While the technology is the same, it takes one to three weeks for a solar system to be delivered in Australia, versus two to three months in the U.S.
Why is a country that is so efficient and high tech not taking advantage of electricity being produced at point of consumption? There are a few factors that explain it, but Nussey provides a solid argument that the main reason for the discrepancy is that while Australia has a single national regulation with a simple and standard process for local solar legislation, the U.S. is a “patchwork of 18,000 jurisdictions and 3,000 utilities with different rules and regulations to go solar.”
The ease of installing a solar battery system is of course the first key element to enable “local solar” to take off. Permitting and installation must be efficient and price competitive. Once the behind the meter solar rooftop (and batteries) are in place, another key piece of legislation that determines how these small, decentralized assets will be managed is called “Net Metering.” The term refers to how a potential credit for every kilowatt-hour of excess solar energy is calculated and how the asset owner is compensated for the behind the meter surplus.
In 2021, Solar Reviews analyzed the Net Metering rules for all 50 U.S. states plus Washington DC, ranking all states according to how favorable the rules were for financial compensation of retail behind the meter excess energy. Delaware is ranked as number one, paying prosumers the retail rate for their excess supply. New Hampshire, Oregon and Washington DC follow as top Net Metering states. Michigan and Georgia are the two worst states. In Georgia, many municipal utilities allow solar installations to interconnect, but charge fixed fees of between $10 to $20 per month for solar owners and credit excess electricity at wholesale prices. Moreover, when distributed generation represents only 0.2% of peak electricity demand, utilities in Georgia will not even be required to offer any payment for net excess generation.
Although current Net Metering rules in the U.S. are local and not overwhelmingly encouraging for prosumers to generate as much electricity at their meter retail installations, recent federal regulation has provided clear rules when it comes to the wholesale market. The Federal Energy Regulatory Commission’s (FERC) issued in the Order 2222 September 2020. FERC has oversight over the regulation of electricity sold at the wholesale level, so between generators and resellers. That includes the organized capacity, energy and ancillary services markets that are run by the regional grid operators in the U.S. The goal of FERC in their own words: “Order No. 2222 will help usher in the electric grid of the future and promote competition in electric markets by removing the barriers preventing distributed energy resources (DERs) from competing on a level playing field in the organized capacity, energy, and ancillary services markets run by regional grid operators.”
Greentech Media called FERC 2222 a “game changer.” How new (or existing) wholesalers will be aggregating DER assets, and how that will translate into an economic benefit remains to be seen. But as innovators like Uber and AirBnB have shown, optimizing assets (cars or properties) and providing a cash flow generation opportunity to their owners, is a solution that gets widely adopted fast. Watch this space.
Authored and published on Nasdaq.com
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