DISTRIBUTED SOLAR
AND STORAGE ICEF ROADMAP 1.0
December 9, 2015

ICEF ROADMAP 1.0
DECEMBER 9, 2015

AUTHORSThis roadmap was commissioned by the Innovation for Cool Earth Forum and written by
the following team:David Sandalow
Center on Global Energy Policy, Columbia University
Chair, ICEF Innovation Roadmap Project
Colin McCormick
Senior Technical Adviser, ICEF Innovation Roadmap Project

BLOOMBERG NEW ENERGY FINANCE
Lead authors
Tom Rowlands-Rees
Ali Izadi-Najafabadi
Itamar Orlandi
Contributors
Nicole Aspinall
Monne Depraetere
Sara Giordano
Logan Goldie-Scot
I-Chun Hsiao
Shantanu Jaiswal
Samira Rudig-Sotomeyer
Ashish Sethia
Kieron Stopforth
Ben Vickers
Management
Michael Wilshire
Jon Moore

ENVIROMENTALLY SUSTAINABLE INDUSTRIES ANDTECHNOLOGIES OFFICE, MINISTRY OF ECONOMY, TRADE AND
INDUSTRY, JAPANNEW ENERGY AND INDUSTRIAL TECHNOLOGY DEVELOPMENTORGANIZATION, JAPANThis roadmap benefited from comments at the Innovation for Cool Earth Forum byleading experts including:Afshin Afshari (Masdar Institute)
Amory B. Lovins (Rocky Mountain Institute)Daniel G. Nocera (Harvard University)
Kazuhiko Ogimoto (University of Tokyo)
Itaru Yasui (University of Tokyo)

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CONTENTSSECTION 1.

EXECUTIVE SUMMARY ____________________________ 4

SECTION 2.

INTRODUCTION AND SCOPE _______________________ 7

SECTION 3.

TECHNOLOGY BACKGROUND ______________________ 8
3.1.
3.2.
3.3.
3.4.

SECTION 4.

DEVELOPMENTS IN SOLAR PHOTOVOLTAIC TECHNOLOGY ..................... 8
DEVELOPMENTS IN LITHIUM-ION BATTERY TECHNOLOGY ..................... 10
COMPARING STATE OF THE LITHIUM-ION BATTERY AND SOLAR
PHOTOVOLTAIC INDUSTRIES ...................................................................... 12
ALTERNATIVE STORAGE TECHNOLOGIES ................................................ 13

SUMMARY OF NATIONAL R&D PROGRAMS ON SOLAR PV
AND STORAGE _________________________________ 15
4.1.
4.2.
4.3.
4.4.
4.5.

SECTION 5.

OVERVIEW ..................................................................................................... 15
UNITED STATES ............................................................................................ 15
JAPAN ............................................................................................................ 16
GERMANY ...................................................................................................... 18
SOUTH KOREA .............................................................................................. 19

ROADMAP COUNTRIES BACKGROUND _____________ 20
5.1.
5.2.
5.3.
5.4.

OVERVIEW ..................................................................................................... 20
ECONOMIC TRENDS ..................................................................................... 20
POPULATION TRENDS ................................................................................. 21
ENERGY SECTOR TRENDS .......................................................................... 22

SECTION 6.

SOURCES OF UNCERTAINTY _____________________ 23

SECTION 7.

SCENARIO DEVELOPMENT _______________________ 27
7.1.
7.2.
7.3.

SECTION 8.

PROCESS ...................................................................................................... 27
MATURE MARKETS ....................................................................................... 27
EMERGING MARKETS .................................................................................. 30

ROADMAP TOOLKITS ____________________________ 33
8.1.
8.2.

ROADMAP TOOLKIT: MATURE MARKETS ................................................... 34
ROADMAP TOOLKIT: EMERGING MARKETS............................................... 38

SECTION 9.

JAPAN ROADMAP _______________________________ 42

SECTION 10.

GERMANY ROADMAP ____________________________ 44

SECTION 11.

UNITED STATES ROADMAP _______________________ 46

SECTION 12.

CHINA ROADMAP _______________________________ 48

SECTION 13.

INDIA ROADMAP ________________________________ 50

SECTION 14.

BARRIERS _____________________________________ 52

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14.1.
14.2.
14.3.
14.4.
14.5.
14.6.

SECTION 15.
15.1.
15.2.
15.3.

STORAGE COSTS ......................................................................................... 52
POLICY AND REGULATION .......................................................................... 55
CHEAPER ALTERNATIVES TO SOLAR AND STORAGE .............................. 56
QUALITY AND SAFETY ISSUES.................................................................... 57
TRADE BARRIERS ......................................................................................... 59
CHALLENGES OF DISTRIBUTED RESOURCE INTEGRATION.................... 60

RECOMMENDATIONS ____________________________ 62
BUSINESS STRATEGIES .............................................................................. 62
POLICY AND REGULATORY STRATEGIES .................................................. 62
OTHER STRATEGIES .................................................................................... 63

ABOUT US _______________________________________________________ 65

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SECTION 1.

EXECUTIVE SUMMARY
Distributed solar and storage technologies could play a key role in reducing
greenhouse gas emissions, strengthening grid resilience and improving energy
access. A number of dynamics will shape the pace at which distributed solar
and storage technologies are deployed and whether they can fulfil theirpotential. Key findings of this study include:•

Multiple benefits of combining solar and storage
Solar and storage technologies each offer considerable benefits when deployed individually.
Solar power provides zero-carbon energy throughout the day at no marginal cost. Storage
provide backup power, frequency regulation and other grid services. Combining solar andstorage brings additional benefits, notably the ability to increase the output of usable solargenerated electricity by extending power supply outside of daytime hours, as well as
improved grid resilience. When deployed together in distributed community and rooftop
applications, solar and storage can also result in a reduced strain on the distribution grid anda deferred or reduced need for infrastructure investment. On a macro level, storage and solar
could help reduce emissions by enabling a higher penetration of solar without variability
challenges. The combination could also be transformative in emerging markets as a fast-trackto electrification.

•

Differing pathways for solar and storage in mature and emerging markets–

In mature markets the primary drivers for distributed solar and storage are reduced costs
and a preference for reduced grid dependence. In the former case the incentive for a
consumer or community to invest in the technologies is to reduce utility bills. As a result,solar is the lead technology, and the addition of storage is primarily intended to increase
the number of solar-generated kWh that can be consumed, increasing financial benefit.

–

In emerging markets the primary driver is grid intermittency. Consumers are incentivised
to buy a storage system to allow them to enjoy uninterrupted power – the addition ofsolar enhances this value proposition by supporting the storage system in providing
power for a longer period of time.

–

This difference in hierarchy between the two technologies is already apparent. Germany,
Japan and parts of the United States have all seen the rapid adoption of rooftop PV for
economic reasons – in most cases without storage. In India, by contrast, there is alreadyan established supply chain for lead-acid batteries to help end-users manageintermittency, without the addition of solar, as yet.

•

Regulation is both a barrier and enabler for rooftop solar and storage
Regulatory barriers that bias the market against solar and storage will need to be addressed
if the market is to grow. These include connection charges, a lack of market structure for nonutilities to monetise generation and self-consumption taxes on distributed generation. Netmetering is a particularly interesting case, as it creates a strong incentive for the uptake of
distributed solar technologies but reduces the financial benefit of storage.

•

The cost of storage is a more significant bottleneck than the cost of solar
Solar technology costs have fallen dramatically in the past two decades and will continue todo so. As this happens, labour and regulatory costs become an increasing fraction of theoverall cost of installing residential PV. Cost reductions are less certain for storage, where thetechnology costs of the battery itself outweigh labour costs. The 15% cost reduction for every
doubling of capacity estimated by Bloomberg New Energy Finance is based on theexperience of just a few years, because EV batteries have been on the market for just a shortPage 4 of 66

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period of time. For solar and storage to be a viable option in both mature and emerging
markets, significant cost reductions are still necessary in storage technologies.
•

A global electric vehicle market could shape the future of solar and storage
Lithium-ion batteries are emerging as the leading storage technology to complement solar.
For costs of lithium-ion batteries to fall, however, the industry needs to scale. A major driver
for this would be the uptake of electric vehicles, which also (generally) use lithium-ion
batteries. Electric vehicles represent a growing fraction of the global lithium-ion battery
market, but it is not yet clear how rapidly this scaling will occur. The benefit of economies ofscale will be reduced if trade barriers lead to a fragmented electric vehicle industry.

•

Solar and storage is not the only option
While energy storage can enhance the overall value of solar, there are other options forachieving increased use of solar-generated energy and ensuring grid stability. These include
improved renewables forecasting, increased demand response and flexible loads, thermal
storage, and emerging technologies such as power-to-gas. Most notably, cheap natural gas
can provide low-cost, highly flexible generation that can complement solar, and reduce theattractiveness of energy storage. In emerging markets, increasing the reliability of grids, partly
through the use of cheap coal, may also undermine the value proposition of distributed solar
and storage.

•

Japan and Germany are poised to be early-movers on distributed solar and storage
Japan and Germany have both established momentum as early markets for solar and storage
due to a combination of high electricity prices and supportive regulation. The development ofthese markets will result in innovation that will have a global benefit. Japan has a substantialbattery manufacturing industry that will continue to develop with the domestic market.
Germany is seeing the emergence of new solar and storage business models – such as
consumers’ part-renting behind-the-meter storage to grid operators, as well as utility-owned
community storage projects such as the StromBank to support rooftop solar. These countries
both carry the burden of first-mover disadvantage and it may be that other countries
ultimately benefit from lessons learnt in those markets.

•

The United States market is more fragmented, but could overtake in the long run
California and Hawaii are now seeing some of the highest penetrations of solar in the world.
The immediate challenge for solar and storage in the US, however, is the prospect ofcontinued low natural gas prices and, as a result, cheap electricity. Nevertheless thecountry’s advanced start-up scene is already developing sophisticated aggregation
mechanisms for distributed solar and storage while companies such as Tesla are also
leveraging the link between electric vehicles and storage with the recent launch of thePowerWall residential battery system.

•

China is prioritizing utility-scale solar, but distributed solar and storage could grow.
China is currently in the process of drafting its 13th Five-Year Plan and the most recent
guidance documents suggest that although there is support for distributed solar, theemphasis for storage is on utility-scale applications that support reliability. If there is a future
for rooftop and community solar and storage bundles in China, it will begin in the commercial
and industrial sectors, where electricity prices are highest.

•

India is well placed to be a leader, but there are potential barriers
India already has a growing sector dedicated to the installation of lead-acid batteries tomanage grid intermittency and is therefore well-placed to apply its domestic experience inforeign markets. However as the electricity sector grows and regulation develops it is crucial
that the central and state governments implement policy frameworks that enable profitable
and sustainable business models by both the state-owned entities and the private sector.

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Quality standards and warranties would help support investments in distributed solar andstorage technologies.
•

Industry and policy-makers need to start tackling future problems now
The immediate problems for solar and storage are the high cost of storage technology andregulatory barriers. However, other issues could affect the development of the market when it
starts to achieve scale, especially if they are not anticipated today. These include reputational
setbacks associated with low quality installations (recommendation: establish recognised
standards and certification schemes), regulatory backlash in the face of poorly implemented
grid integration (recommendation: provide continued investment in pilot projects and share
best-practice learnings widely), a lack of a skilled workforce (recommendation: establish
training programmes for installers and engineers) and threats such as cyberattacks(recommendation: establish consortium to facilitate collaboration on IT aspects of grid
integration). Trade barriers and supply chain disruption could also hamper the industry,meaning that research focusing on reducing materials dependency and alternative
chemistries will ensure that technology prices will continue to decline.

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SECTION 2.

INTRODUCTION AND SCOPE
Distributed solar generation is changing the power sector. This roadmap
explores pathways for distributed solar and storage technologies in combination
to do the same. Our premise is that maximizing deployment of solar power willserve important social goals. These include carbon mitigation, local air pollution
reduction and job creation. Distributed solar and storage can offer special
benefits, including resilience to grid outages and access to energy in places
where grids do not reach.

Storage can also be an important tool for helping integrate solar power into
electric grids. While other tools – including demand response, predictive
analytics and flexible ramping resources – can also help with this integration,
distributed solar and storage has the potential to offer significant benefits,
especially if the cost of storage technologies can be reduced and regulatory
hurdles overcome.
This roadmap explores pathways for the development of distributed solar andstorage technologies in combination through the framework of a scenario
planning exercise. The focus lies on solar and storage technologies forindividual buildings and community microgrids (not solar and storage at utility
scale). The study identifies drivers, risks, barriers and opportunities that will
determine whether solar and storage can fulfil its potential between now and
2040.
Data sources for this report

References to figures and data points mentioned without a source in this report are
attributable to Bloomberg New Energy Finance. Where the study relies on data,
articles or studies by others, these are cited and referenced throughout the
document.

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SECTION 3.

TECHNOLOGY BACKGROUND
Over the past 15 years, PV capacity has surged more than 150-fold, driven by
rapidly decreasing costs and performance improvements. A similar, albeit
slower, transition is also underway with lithium-ion batteries. In order to meetgrowing demand for electric vehicles, leading storage manufacturers haveinvested heavily in the technology and ramped up production capacity. Although
the levels of expected EV demand have yet to materialize, these actions havecreated an opportunity for energy storage in stationary applications.

3.1.

DEVELOPMENTS IN SOLAR PHOTOVOLTAICTECHNOLOGYBACKGROUND
Crystalline silicon (cSi) PV system costs have fallen from $75/W in 1976 to a 2015 Chinese
module price of $0.61/W in 2015 (Figure 1). This represents a learning rate of 26%, i.e. for every
doubling of capacity, costs fell 26%.
Figure 1: Solar photovoltaic experience curve, 1976-2014
100

1976

Price perW
(2014 $)
1985
10
2003

2006
1

2012

2014

Q4
2013

2012

10,000100,000

1,000,000

historic prices (Maycock)Thin-film experience curve

Cumulative
capacity (MW)

0.1
1

10

100

experience curve
Chinese c-Si module prices (BNEF)First Solar thin-film module cost

1,000

Source: Paul Maycock, First Solar, Bloomberg New Energy Finance. Note: Prices inflation indexed to US PPI.

The high learning rate was partially a result of significant oversupply in the industry, which forced
module makers and their raw-material suppliers to adopt new technologies: in the ten years from2000, supportive European subsidies triggered a disorderly expansion of PV manufacturing
capacity. The boom collapsed in late 2008, and unravelled further in 2011. Despite industry
consolidation, the whole PV value chain remained in oversupply. The excess for 2015 is expected
to be at least 20% and oversupply in the PV industry is expected to continue at least until 2017
(Figure 2).

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Figure 2: Demand and supply for PV modules, 2006-17
GW/yearHistorical

90

Despite industry
consolidation, the wholePV value chain is inoversupply and is
expected to remain so
until 201780
70

FutureCurrent effective cell manufacturing
capacity - at least 66GW

60
50
40
30

20
10
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Supply - crystalline silicon
Supply - thin-film silicon
Supply - thin film non-silicon
Demand - conservative
Demand - optimistic
Source: Bloomberg New Energy Finance

FUTURE OUTLOOK
Further cost reductions will come from technological and manufacturing improvements rather thanfrom squeezing margins. Manufacturers are setting up new production lines and upgrading their
existing facilities with improved technologies.
Figure 3: Public benchmarks of residential PV system capex$/W (DC)
10.0
9.0
8.0

Vivint7.0

SolarCity

6.0
5.0
4.0
3.0
2.0
1.0

0.0
Q1 2008

Q1 2009

Q1 2010

Germany

California

Japan

Q1 2011

Q1 2012Chinese multi module

Q1 2013

Q1 2014Australia (3kW)

Vivint

Q1 2015
SolarCity

Source: Source: Bloomberg New Energy Finance, Solarchoice, METI, BSW-Solar, California Solar Initiative,
Vivint and SolarCity filings

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As technology costs fall,labour costs are an
increasing fraction of theoverall costs of installinga residential PV system

From a fundamental perspective, the technologies Bloomberg New Energy Finance has explored
could account for a reduction of at least 36% in module costs within 10 years, while the company
expects average efficiency will rise by 20%. PV system costs are anticipated to fall a further 50%
by 2040 -- within that, module costs will account for a 30% drop.
As technology costs fall, labour costs are an increasing fraction of the overall costs of installing a
residential PV system. These costs vary considerably by country and reflect local expertise andcompetition. Germany and Australia currently have the lowest costs reflecting their relatively
mature markets (Figure 3).

3.2.

DEVELOPMENTS IN LITHIUM-ION BATTERYTECHNOLOGYBACKGROUND
Lithium-ion batteries have become ubiquitous in our daily lives through portable electronic devices
and are now increasingly important in both larger stationary applications and electrified transport:
in 2014, the technology accounted for 75% of electric vehicle battery demand, and 92% ofannounced grid-connected stationary energy storage projects.
The industry is dominated by a smaller number of large manufacturers: these top 10 companies
own 78% of manufacturing capacity dedicated to passenger EVs (Figure 4). Manufacturing isfocused on the Asia Pacific region and to a lesser extent the US: Japan and South Korea havethe largest capacities due to major players like Panasonic, AESC, Samsung SDI and LG Chem.
Figure 4: 10 largest li-ion battery manufacturers globally, 2015 (GWh)
8.40

AESC

4.80

Samsung SDI

4.22

Panasonic

3.84

LG Chem

2.40

BYD

1.65

Johnson Controls

1.49

LEJ
SK Innovation

0.84

FDG

0.80

Wanxiang

0.75

Source: Bloomberg New Energy Finance

Sales of electric vehicles grew 34% in 2014 and cumulative lithium-ion EV production is expected
to exceed 400GWh by 2030 (Figure 5). As a result, although consumer devices make up thelargest share of lithium-ion batteries in 2015, electric vehicles will overtake them to become thelargest application for the technology in the early 2020s.
Prices for EV lithium-ion battery packs have fallen from roughly $1,000/kWh in 2010 to around$350/kWh in 2015 (Figure 5). This represents a 15% learning rate and has been driven bycontinual improvements in battery chemistry, materials processing, manufacturing and greater
economies of scale. Historically, consumer lithium-ion batteries have exhibited a 22% reduction incost for each doubling of manufacturing capacity but they are more commoditized and have lower
performance than those needed for energy applications. Manufacturers also overestimated EV
demand and, faced with significant overcapacity, have been forced to squeeze margins or lose

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market share: as of 2015, there is 37 GWh of global EV lithium-ion battery manufacturing capacity
online while 2015 demand is estimated at just 9.7 GWh (Figure 5).
Figure 5: EV Lithium-ion battery cost outlook, 2011-2030
EV battery pack costs ($/kWh)Global volumes (GWh)

1,200

Figure 6: Global li-ion
battery manufacturing
capacity by country andregion, 2015 (GWh)

400

1,100
1,000
BNEF observed values: annual
lithium-ion battery price index
2010-15900
800

TOTAL, 36.8

300

BNEF observed
values700Europe, 2.3

600

North
America, 8.3

200

500

Moderate
scenario: 15%
learning rate

400
Long-term
cost range

300

South Korea,
6.6

100

200

Aggressive
scenario: 22%
learning rate

100

Japan,
8.8

China,
10.9

Source: Bloomberg New Energy
Finance0
2010

Global EV li-ion
battery
production

0
2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

Source: Bloomberg New Energy Finance. Note: Values from 2010-2014 are based on BNEF’s annual battery
price index. Cumulative production is based on total EVs sold and their respective battery pack size.

FUTURE OUTLOOKAssuming no technology breakthroughs, the bulk of further cost reductions will come fromincremental technological and manufacturing improvements, although it is possible margins could
be further squeezed. Any reduction in raw materials costs would also have a major impact
because they are the most significant contributor to the battery pack cost.
There are also several key disruptive technologies that could be implemented commercially in thenext ten years that would not only drastically reduce the cost of lithium-ion batteries but would
also enhance their performance. They involve improvements to the manufacturing processes,changes to the composition of the binders and solvents used, and altering the structure andchemistry of the electrodes:

There are several key•

disruptive technologies
that could be

The use of semi-solid battery technology, as has been commercialised by Massachusetts’
24M, greatly simplifies the manufacturing and architecture of the cell.

•

The use of aqueous solvents and binders has not only been touted as a cost saving measure,

implemented
commercially in the next•

10 years

but also beneficial to the environmental impact of the batteries and end-of-life options.
A great deal of research focuses on the potential of using silicon as the active anode material
in lithium-ion batteries. The material has an enormous capacity to store lithium ions andhence could increase the energy density of the cell by as much as 40%.

Further industry consolidation is likely as the large players announce further capacity additions
and price reductions in order to gain, or even hold, market share.

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3.3.

Cost reductions: there have been significant cost reductions in both the PV and lithium-ion
battery sectors. This has been driven in part by excess capacity but also by technological andmanufacturing improvements. At 26%, the learning rate for cost reductions in PV is currently

The learning rate for EV
scale lithium-ion
batteries is based on asmaller data sample so it
could change

higher than the 15% rate for lithium-ion EV battery packs. This could change though – whilst thefirst lithium-ion battery pack was invented in the 1970s, the lithium-ion EV market really only
kicked off with the launch of the Nissan Leaf and the Chevy Volt in 2010/2011. Since the learning
rate is based on a smaller data sample, it could change significantly as the market continues todevelop. In addition to any incremental improvements to lithium-ion technology, thecommercialisation of any one of the various disruptive technologies listed above would have amajor impact.
Technology convergence: roughly 90% of PV demand in 2015 was crystalline silicon (cSi) andthe remainder is largely thin-film, notably cadmium telluride (CdTe) developed by First Solar. This
convergence around cSi happened when alternative technology companies such as Solyndra andAbound Solar went bankrupt and the industry consolidated. This convergence has not yet been
replicated in the lithium-ion industry, where there are five main chemistries being developed forautomotive lithium-ion batteries: nickel cobalt aluminium (NCA), lithium manganese oxide (LMO),
nickel manganese cobalt (NMC), lithium iron phosphate (LFP) and lithium titanate (LTO). No
single chemistry is superior across all metrics: LMO might be the most cost effective but has ashort lifetime whereas LTO is expensive but offers much better safety and a longer lifetime.
Convergence within specific applications is likely, although not to the same extent as for PV sincesignificantly as themarket continues todevelop

there are a greater number of different uses for lithium-ion batteries and each necessitates
different characteristics.
Figure 8: EV/PHEV battery pack and PV module market share

Figure 7: PV and lithium-ion supply chains
SILICON CONSUMPTION BY
SECTOR% of production

LITHIUM-ION BATTERY SALESBY SECTOR

88%89%
85%
81%
68%

AESC
80%

LG Chem

9%

2014

2006

2008

2010

2012

2014

22%

88%89%
85%
81% 13%

Yingli8%

Trina Solar

6%

Sharp

5%

Canadian Solar

5%

BYD
56%56%

6%

Jinko Solar

4%

40%

Samsung SDI

5%Renesola

4%

Blue Energy

29%
25% Deutsche

4%First Solar

4%

20%

1%

HanwhaSolarOne

3%

Bollore1%

JA Solar

3%

Kyocera3%

13%15%

2012

42%

LEJ68% 6%

60%

TOP 10 PV MODULE
MANUFACTURERS IN 2013Market share

Panasonic

56%56%

29%
25%

TOP 10 EV/PHEV BATTERY PACKMANUFACTURERS IN 2014
Market share% of capacity sold
100%

2% 5%

2010

COMPARING STATE OF THE LITHIUM-ION BATTERY AND
SOLAR PHOTOVOLTAIC INDUSTRIES

2% 5%

0%
2006

2008

2010

9%

13%15%

2012

ctronics

Semiconductor industry

Consumer electronics

onary energy

Solar industry

EVs and stationary energy

Source: Bloomberg New Energy Finance. Note: Electric vehicles
includes hybrid, plug-in-hybrid and fully electrified.

2014

Accumotive

A123 2008
Systems20100% 2012
2006

2014

Semiconductor
industryChinese pure-play
International
pure-play

International diversified

Solar industry

Source: Bloomberg New Energy Finance. Note: Market share for battery
packs is calculated as share of supplied output in MWh.

Consumer electronics and solar vs EVs and stationary energy storage: A decade ago thebulk of pure silicon was consumed by the electronics industry (Figure 7). Now, solar consumes
almost 90% of high purity silicon and drives production expansion. EVs and end-user energy

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storage may have a similar relationship with consumer electronic lithium-ion batteries. However,PV piggy-backed off the semi-conductor industry, which demanded pure silicon. By contrast,
quality requirements on consumer electronics Li-ion batteries are lower than those for end-user
storage and EVs so the same pattern may not result.
Competition: A key to the rapid cost declines in PV is the strong competition amongst
manufacturers. Newer Chinese pure-plays have now outcompeted the diversified electronics
manufacturers, which have exited the industry (Figure 8). Battery manufacturing is dominated by a
few diversified energy, electronics and machinery conglomerates. New entrants may be required
to boost competition and drive down the costs of Li-ion production.

3.4.

ALTERNATIVE STORAGE TECHNOLOGIES
Although lithium-ion is currently the preferred technology for both EVs and shorter-duration
stationary energy storage, numerous potential alternatives to lithium-ion exist. Indeed, since 2008
hundreds of millions of dollars have been invested in other energy storage technologies (Figure9). The largest investors have been US venture capital firms, as well as the investment arms oflarger conglomerates such as GE and Total. The investment is split over a wide range oftechnologies including flywheels (Beacon Power), zinc-air (Eos), liquid metal (Ambri) and flow
batteries (ZBB, RedFlow).
Figure 9: Disclosed financing in alternative energy storage technologies, 2008-H1 2015
($m)
0
100
200
300
400

Beacon Power 0

100

200

BeaconPower
Aquion Energy
Systems

152.8

AquionEosEnergy
EnergySystems
Storage100.4152.8

EnergyStorage
AxionEos
PowerInternational

300

400
381.7
381.7

100.4
93.7

Axion
Power International
ZBB Energy
Corporation

93.7
63.8

ZBB Energy Corporation
Ambri Inc.

63.8
50.0

Ambri
Inc.
RedFlow

50.0
41.8

ViZn Energy RedFlow
Systems

41.8
28.6

ViZn Energy
Systems
EnerVault
Corporation

28.6
19.5

EnerVault
Corporation
Highview
Power
Storage

19.5
13.6

HighviewTemporal
Power Storage
Power

13.6
10.0

Power
ImergyTemporal
Power Systems

10.0
0.0

ImergySystems
0.0
GrantPower
VC/PE
Public market

Corporate debt

Asset financing

Grant New
VC/PE
Public market
Source: Bloomberg
Energy FinanceCorporate debt

Asset financing

Advantages of redox flow batteries (RFBs) include the ability to size energy and powercomponents independently, economies of scale, and low self-discharge. Sodium-based batteries
have garnered interest due to the high abundance and low cost of sodium. But sodium ions arenearly twice as large as lithium ions, which means that repeated insertion / removal in the

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chemical structure decreases battery stability. None of these alternatives currently appear well
suited for residential energy storage and Bloomberg New Energy Finance expects lithium-ion toremain dominant in this space.

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SECTION 4.

4.1.

SUMMARY OF NATIONAL R&D
PROGRAMS ON SOLAR PV AND
STORAGEOVERVIEW
Many national governments are conducting publicly funded R&D programs to advance solar PV
and energy storage technology. These programs are often accompanied by policies to create
demand and accelerate the deployment of these technologies. Individual national R&D programs
loosely coordinate their efforts through a number of bilateral and multilateral policy regimes andcollaborative programs (notably the IEA Photovoltaic Power Systems Program and the IEA
Energy Conservation through Energy Storage Program) but generally retain their own processes
for developing strategic areas of focus, technical targets and timelines, and specific projects andbudgets to support them.
This section summarizes the key features of several of the most prominent national R&D
programs on solar PV and energy storage, as they pertain to this roadmap. For that purpose, thediscussion includes only photovoltaics (not CSP/solar thermal), and only distributed andcommunity-scale systems (not utility scale). It also addresses relatively early-stage R&D, notcommercialization or deployment efforts (with the exception of technical research into reliability
and grid integration). This summary is not exhaustive, and is intended primarily to give the reader
a general sense of the highlights of national-level R&D efforts on these topics.
By virtue of their scale and reach, the national programs of the US, Japan, Germany, and Korea
have been chosen for analysis1. These various programs are structured somewhat differently,
with multiple ministries/agencies participating in each case. These are described in turn below.

4.2.

UNITED STATESThe primary US R&D program for solar PV is the SunShot Program, administered by the US
Department of Energy (DOE). Launched in 2011, it has set the following strategic targets, to beachieved by 20202:
Topic

Target (2020)

Utility-scale PV system cost

USD 1.00/WDC

Commercial-scale PV system cost

USD 1.25/WDC

Residential-scale PV system cost

USD 1.50/WDC

LCOE of [utility-scale] PV system

USD 0.06/kWh

Source: US DOE

To accomplish this, SunShot has three areas of focus:
1.

Reducing technology costs

2.

Reducing grid integration costs

3.

Accelerating deployment.

The overall structure of the program combines competitive, cost-shared grants to universities andcompanies with research at government laboratories. The current awarded grants fall into seven1
2

For more details on R&D funding levels and other national programs, see “Trends in Photovoltaic
Applications 2015”, IEA-PVPS (2015) and the IEA RD&D statistical database.
“Strategic Plan, 2014-2018”, US Department of Energy (2014); SunShot website (accessed November 2,2015).

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themed programs3. While various public laboratories participate in these research programs, theprimary institution is the National Center for Photovoltaics at the National Renewable Energy
Laboratory (NREL). Recent topics of targeted R&D projects include:
1.

PV module degradation (including metallization corrosion, solder joint failure, backsheet
degradation, and weathering4)2.

PV cell efficiency (including ultra-thin-film c-Si, light trapping with photonic crystals, reducing
the CZTS open-circuit voltage deficit, and MBE-grown CdTe5)

3.

New concepts in PV (including stabilizing perovskite materials, alternatives to lead, dyesensitized cells, multi-junction organic PV, integrated Si/III-V cells, and roll-to-roll printing of
III-V cells6)

The SunShot program supports a variety of projects related to community solar and storage
through the Solar Market Pathways program, with topics including developing virtual net metering,
integrating distributed solar and storage into emergency planning, and reducing regulatory costs
associated with solar installations. Most recently, the SunShot program is supporting new
research in integrating energy storage and solar PV so that the combined system can work withsmart buildings, smart appliances, and utility communication and control systems 7.
DOE’s Advanced Research Projects Agency – Energy (ARPA-E) also conducts research related
to solar PV and energy storage, with programs designed to pursue high-risk projects with large
potential impacts. Recent programs include MOSAIC (Micro-scale Optimized Solar Cell Arrayswith Integrated Concentration), which aims to develop micro-scale concentrated photovoltaic(CPV) systems with costs and profiles similar to flat-plate PV technology; and FOCUS (Fullspectrum Optimized Conversion and Utilization of Sunlight), which aims to develop hybrid solar
PV/thermal technologies that use the entire spectrum of available sunlight.
The primary US R&D program for energy storage technology is the Energy Storage Programadministered by DOE, although numerous other offices also oversee related programs 8. Solarand storage-related research is also carried out by the National Science Foundation (NSF)
through the Energy for Sustainability Program, and the Department of Defense (DoD) through theEnvironmental Security Technology Certificate Program (ESTCP).

4.3.

JAPAN
The primary Japanese framework for solar PV R&D is described in the “NEDO PV Challenges”
document, a strategy for supporting the mass introduction of solar PV to Japan 9. As part of thisframework, the New Energy and Industrial Technology Development Organization (NEDO) has
established the following high-level technology cost and performance targets, to be accomplishedby several future dates10:

3
4
5
6
7

US DOE SunShot website (accessed November 4, 2015).
This work is under the PREDICTS 2 program.
This work is under the F-PACE 2 program.
This work is under the Next Generation Photovoltaics 3 program.
This work is under the Sustainable and Holistic Integration of Energy Storage and Solar PV (SHINES)
program.
8 For a detailed list, see “2014 Storage Plan Assessment Recommendations for the U.S. Department ofEnergy”, Electricity Advisory Committee (September 2014).
9 “NEDO PV Challenges”, New Energy and Industrial Technology Development Organization (2014).
Japanese language only.
10 From “Overview of Photovoltaic R&D in Japan and International Activities of NEDO”, Presentation by
Hiroyuki Yamada at 42nd IEEE Photovoltaic Specialists Conference (June 2015). Slides received from
NEDO.

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Topic

TargetDate

LCOE of commercial-scale PV

JPY 14/kWh

2020

Module efficiency, lifetime

22%, 25 years

2020

LCOE of utility-scale PV

JPY 7/kWh2030

Module efficiency, lifetime

25%, 30 years

2030

Source: NEDO

To support the 2030 system-level targets, NEDO has also developed technology-specific subtargets for c-silicon (100 JPY/W, 25% efficiency), III-V (125 JPY/W, > 30% efficiency), andperovskites (< 100 JPY/W, with 20% efficiency). NEDO’s program has four areas of focus:
1.

Reducing the levelized cost of electricity (LCOE) from solar PV

2.

Enhancing system reliability

3.

Enlarging the range of applications of PV

4.

Establishing a recycling system.

Key recent results of the research program include•

Crystalline silicon cells with 25.6% efficiency11•

Triple-junction III-V concentrator cells with 44.4% efficiency12•

Triple-junction thin-film silicon cells with 13.6% efficiency13.

NEDO conducts a range of domestic and collaborative international projects to demonstrate theintegration of distributed solar PV systems and energy storage, including stabilizing distribution
networks with batteries (in Spain)14, providing customer autonomy during cold-weather grid
outages (in Canada)15, and enabling community level self-generation and consumption with PV
and storage (in Germany)16.
In addition to the NEDO program, the National Institute of Advanced Industrial Science andTechnology (AIST) conducts extensive solar PV research at its Research Center for
Photovoltaics, including advanced processing, module reliability research, and calibration andstandards. In 2014, AIST established the Fukushima Renewable Energy Institute (FREA), whose
program of research includes a focus on thin-film silicon PV technology and advanced III-V
concepts17, as well as tandem nano-wire silicon PV18. AIST conducts energy-storage-related
research at its Research Institute of Electrochemical Energy, opened in April 2015.
The Japan Science and Technology Agency (JST) also conducts basic research related to solar
PV and energy storage under three programs: ERATO (Exploratory Research for Advanced
Technology), CREST (Core Research for Evolutional Science and Technology), and PRESTO(Precursory Research for Embryonic Science and Technology).

11 “Back contact HIT solar cell from Panasonic pushes efficiency record to 25.6%”, PV-Tech, April 10, 2014.
12 “Concentrator solar cell with world’s highest conversion efficiency of 44.4%”, Phys.org, June 14, 2013.
13 “Solar cell sets world record with a stabilized efficiency of 13.6%”, Phys.org, June 4, 2015.
14 “Demonstration Project Using a Battery Energy Storage System to Stabilize Distribution Networks Begins
in Spain”, NEDO News Release, September 30, 2015.
15 “NEDO Signs MOU for Demonstration for Hybrid Solar Inverter & Battery System with Monitoring andControl in Oshawa, Ontario, Canada”, NEDO News Release, July 21, 2015.
16 “Local Energy Production and Consumption Model Smart Community Demonstration Project Launches in
Speyer, Germany”, NEDO News Release, July 24, 2015.
17 FREA website (accessed November 5, 2015).
18 Research Director Makoto Konagai statement, FUTURE-PV Innovation website (accessed November 5,2015); “Can Japan Recapture Its Solar Power?”, MIT Technology Review, December 18, 2014.

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4.4.

GERMANYThe primary framework for solar PV and energy storage R&D in Germany is the 6th Energy
Research Program, launched in 201119. This program combines project funding focused on costshared, collaborative research among universities, research centers, and industry with direct
institutional funding. Key research centers for energy include those of the Helmholtz Associationof German Research Centers and the Fraunhofer Energy Alliance.
From 2010 until 2014, the Federal Ministry of Education and Research (BMBF) and the Federal
Ministry of Economics and Technology (BMWi) administered a comprehensive solar R&D
program known as the Photovoltaics Innovation Alliance. This program, funded at 100 million
euros, had the strategic aim of strengthening the photovoltaic industry through collaborative
projects20. In May 2013, BMWi and BMBF launched the “Research and Development for
Photovoltaics” initiative, focusing on PV production technology and systems engineering.
Recent important results from these programs include:•

PERC silicon standard-format solar modules of 306W•P-type mono-crystalline silicon PERC cells with 21.7% efficiency21•

Hybrid silicon-perovskite tandem solar cells with 18% efficiency22•

Multi-junction concentrating PV cells with 46% efficiency23•

Thin-film silicon cells on flexible substrates24•

Cadmium-free CIGS thin-film cells with 21% efficiency25.

In 2007, BMBF launched the Innovation Alliance Lithium-Ion Battery LIB 2015 program, an
industrial consortium effort aimed at improving lithium-ion battery technology that has resulted innumerous battery technology roadmaps. In April 2011, BMWi and BMBF launched the Energy
Storage Funding Initiative, funded at 200 million euros, with R&D focus areas including:
1.

High-voltage batteries for PV systems26

2.

Zinc-air batteries27

3.

System-integration analysis for distributed PV and storage systems28

4.

Demonstrations such as the Smart Region Pellworm project emphasizing integrated PVstorage systems on an island.

19 “Research for an environmentally sound, reliable and affordable energy supply: 6 th Energy Research
Programme of the Federal Government”, BMWi (November 2011).
20 “Federal Report on Energy Research 2015”, BMWi (April 2015).
21 “German R&D project reports record PERC solar module performance”, PV-Tech, January 15, 2014;“New solar cell sets efficiency record”, BMWi newsletter, September 21, 2015.
22 “Monolithic perovskite/silicon tandem solar cell achieves record efficiency”, Helmholtz Zentrum Berlin,
October 28, 2105.
23 “New world record for solar cell efficiency at 46%”, Fraunhofer ISE press release, December 1, 2014.
24 “Project: SiSoFlex”, Next-Energy website, accessed November 10, 2015.
25 “ZSW boosts efficiency of cadmium-free thin-film solar cells to world record level”, ZSW press release,
February 4, 2015.
26 “High-voltage battery improves its own electricity usage”, Forschung-energiespeicher website (accessed
November 12, 2015).
27 “Higher current density for zinc-air batteries”, Forschung-energiespeicher website (accessed November
12, 2015).
28 “Battery storage can relieve the electric grid”, Forschung-energiespeicher website (accessed November
12, 2015).

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4.5.

SOUTH KOREA
The primary framework for solar PV and energy R&D in South Korea is the 2 nd Energy Master
Plan, launched in 201429, and the subsequent 4th Basic Plan for Technology Development,
Application, and Deployment of New and Renewable Energy30. This plan includes high-leveltechnology targets, including
1.

Lowering the cost of energy storage systems by half by 2020

2.

Commercializing solar and storage systems beyond silicon and lithium-ion batteries.

The leading ministries involved in R&D programs to achieve these targets are the Ministry ofTrade, Industry, and Energy (MOTIE), its subordinate office the Korea Institute of Energy
Technology Evaluation and Planning (KETEP), and the Ministry of Science, ICT, and Future
Planning (MSIP). The Korea Smart Grid Institute (KSGI) conducts related projects, including
maintaining the Korean Smart Grid Roadmap31.
Recent important results from these programs include:•

A stable perovskite solar cell with efficiency of 20.1%32•

Improved perovskite fabrication techniques33•

Ultra-thin, flexible organic solar cells based on nanowires34•

Improved solar cell recycling techniques that do not involve hydrofluoric acid or other toxic
chemicals35.

There are several smart grid test beds that focus on integrating distributed renewable generation
with energy storage, including Jeju Island and the Gochang power testing center36, andcollaborative work with the US state of Hawaii37. To extend this work, KETEP has just launched acollaborative research initiative with the UK Engineering and Physical Sciences Research Council(EPSRC) to address distributed energy generation and storage on large island grids38.

29 “Korea Energy Master Plan: Outlook & Policies to 2035”, Ministry of Trade, Industry & Energy, January
2014.
30 Promotion of New and Renewable Energy, MOTIE website (accessed November 21, 2015).
31 Korean Smart Grid Institute website (accessed November 23, 2015).
32 “Perovskite Solar Cell Bests Bugbears, Reaches Record Efficiency”, IEEE Spectrum, January 7, 2015.
33 “Researchers develop method of fabricating perovskite solar cells that is more efficient, costs less”,
Phys.org, May 22, 2015.
34 “Tech developed for flexible solar cells 1/20 as thick as a human hair”, Business Korea, October 6, 2015.
35 “A bright future for silicon solar cell recycling”, Chemistry World, November 18, 2015.
36 “Recent Trends in Renewable Energy Resources for Generation in the Republic of Korea”, Resources
2015, 4, 751-764.
37 “Teaming up (again): Hawaii, Korea to test residential batteries”, Smart Grid News, August 13, 2015.
38 See “EPSRC-KETEP Call for Collaborative Research Between the UK and Korea in Smart Grids”,
EPSRC website (accessed November 19, 2015).

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SECTION 5.

ROADMAP COUNTRIES BACKGROUND
According to BNEF’s New Energy Outlook, global electricity demand is expected
to grow 60% by 2040, driven mainly by emerging nations’ economic growth andincreases in electrification rates. By contrast mature economies’ power demandis flat and in some cases decreasing, with weak and even negative population
growth and shifts towards less energy-intensive economic activity expected.
While solar generation capacity is expected to increase significantly between now
and 2040 in the base case, fossil fuels such as coal and natural gas are still
expected to make up a significant proportion of generation capacity.

5.1.

OVERVIEW
Figure 10: Roadmap countries

While the analysis on this report is intended to be applicable to any country, Bloomberg New
Energy Finance has applied the roadmap framework specifically to Japan, Germany, the US,
China and India. These countries were selected both because of their individual importance to theglobal outlook and because collectively they capture many of the challenges and opportunities
that will define the future of distributed solar and storage.

5.2.

By 2040 China is
expected to have a percapita GDP similar to
today’s South Korea

ECONOMIC TRENDS
As the trend in Figure 11 demonstrates, there is a strong correlation between economic maturity(with GDP per capita as a proxy) and per-capita electricity consumption. Therefore substantial
increases in power demand should correlate with increased income. It is worth keeping in mind
when considering the state of these markets in 2040 the degree to which they are expected to havegrown economically. According to OECD forecasts, China will have a per capita GDP similar to
today’s Czech Republic, Portugal, or South Korea by 2040. India’s expected growth will give it aper capita GDP equal to today’s China, Thailand, Ecuador or Peru. Thus, in addition to anincreased demand for power in China and India, these countries will have undergone significant
socioeconomic change by 2040.

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Figure 11: Electricity consumption per capita vs GDP per capita 2012 data and 2040
forecasts for selected countries
kWh/capita-year
100,000
China, 2012
India, 2040

10,000China, 2040

US, 2012

US, 2040

India, 2012
1,000

Germany, 2040

Germany, 2012

Japan, 2040

100

Japan, 201210
= 500m people
1
100

1,000

10,000100,000$-2009/capita-year

Source: World Bank, EIA, OECD, Bloomberg New Energy FinanceFor the US, Germany and Japan, all of which have a high per capita GDP and for whom moremodest growth is forecast, the relationship will be inverted – the electricity consumption
associated with a particular level of GDP is expected to decrease slightly, due to the higher
efficiency of newer technologies and an increased share of services and digital economies.

5.3.

POPULATION TRENDS
While changes in per capita electricity consumption are significant, changes in population have aneven more direct impact on the outlook for the electricity sector. The World Bank predicts thatbetween now and 2040 the population in Germany and Japan is likely to shrink, which in turn will
impact electricity demand and the economy at large. This will create challenges for utilities thatwill see the size of their market and customer base decreasing. By contrast, India is expecting to

India is expecting to see
its grid-connected
population increase by
50% through a
combination of rapid
population growth andelectrification

see its grid-connected population increase by 50% through a combination of population growthand electrification – which creates a different challenge of meeting rapidly growing demand.
Figure 12: Projected change in grid-connected population between 2015 and 2040
% Change
60%

50%

40%
30%

Electrification

20%

Change inpopulation

10%

0%
-10%

United States

Germany

Japan

China

India

-20%
Source: World Bank, Bloomberg New Energy Finance

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5.4.

ENERGY SECTOR TRENDS
BNEF forecasts – based on an economic analysis with no explicit policy support for renewables –predict that by 2040 small-scale PV will be a significant proportion of capacity in the US, Germany
and Japan. Solar will also be a significant proportion of capacity in the higher growth markets ofChina and India, but the bulk is expected to be installed at utility scale.
Despite the growth in solar generation capacity across all markets, the amount of energy
generated (kWh) is expected to be relatively low, with fossil fuels still being relied on heavily. Thisfurther emphasizes the need for flexible capacity (such as batteries) and flexible load (such as
demand-response-capable devices) to enable greater uptake of solar-generated electricity.
Figure 13: Electricity capacity mix in 2015 and 2040, normalised to 2015
200%

600%

Flexible capacity
Solar thermal

500%

100%

Small-scale PV

400%

Utility-scale PV

300%

Wind onshore

Wind offshore
Biomass/WtE
Geothermal

200%

Hydro
Nuclear

100%

Oil

0%

Gas

0%

2015 2040 2015 2040 2015 2040
UnitedGermany
Japan
States2015 2040 2015 2040
China
India

Coal

Source: Bloomberg New Energy Finance New Energy Outlook 2015

Figure 14: Electricity generation mix in 2015 and 2040, normalised to 2015
600%

200%

Flexible capacity
Solar thermal

500%

Small-scale PV
Utility-scale PV

400%

Wind offshore
Wind onshore

300%

100%

Biomass/WtE
Geothermal

200%

Hydro
Nuclear

100%

Oil
Gas

0%

0%
2015 2040 2015 2040 2015 2040
UnitedGermany
Japan
States2015 2040 2015 2040
China
India

Coal

Source: Bloomberg New Energy Finance New Energy Outlook 2015

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SECTION 6.

SOURCES OF UNCERTAINTY
The role that distributed solar and storage will play in the future of energy
depends on a broad range of factors. New technologies are not rolled out into a
vacuum and factors such as economics and regulation have an obvious impact
on their uptake. However there are also a large number of softer characteristics,
such as consumer habits and wide social trends, that also affect the eventual
outcome for the technology. The outlook is therefore influenced by events andtrends that seem unrelated and are beyond the control of the industry. Thissection outlines some of these known uncertainties.
Filtering along the lines of both level of uncertainty and likely impact helps focus on the highestimpact sources of uncertainty. The most important uncertainties for the roadmap are those thatare both highly uncertain and have a high impact on the future for distributed solar and storage.
The results of Bloomberg New Energy Finance’s first analyst workshop, which focused on
identifying and categorising uncertainties along these lines, are summarised in Figures 15 and 16.
Mature and emerging markets were considered separately.

Figure 15: Source of uncertainty in mature markets

Low impact

High impact● Electricvehicles● Electricity
price● Storage costs● Competing
solution cost
● Regulation● Solar costs● Natural gas
availability● Wealth● Utility finances● Business model
innovation● Population
growth● Urbanization● Politicalinstability● Grid reliability

Least important

Medium uncertainty High uncertainty● Future lifestyletrendsMedium impact● Natural gas
availability

Medium impact

High impact● Electricity price● Future lifestyletrends● Wealth● Population
growth● Electric vehic.

● Storage costs● Competing
solution cost
● Regulation● Grid reliability● Solar costs● Utility finances● Urbanization● Business model
innovation● Politicalinstability

Low uncertainty

Low uncertainty

Medium uncertainty High uncertainty

Low impact

Figure 16: Sources of uncertainty in emerging markets

Most important

The uncertainties that are likely to have the strongest impact on the roll-out of distributed solar
and storage solutions in both mature and emerging markets are regulation, electricity prices andthe cost of storage and of competing technologies. The cost of PV modules is likely to have only alimited impact, as installation and customer acquisition already make up a larger share of thesystem cost, and because future price reductions are well understood. Grid reliability is the maindifferentiator between mature and emerging economies. Blackouts will be among the mostimportant drivers of distributed solar and storage in Africa and much of Asia if grid operators areunable to increase the reliability of supply. More detail is provided in the pages that follow.

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PRICE OF ELECTRICITY
Mature Emerging
markets markets
ImpactHigh

MediumUncertainty

High

High

Electricity prices depend on fuel availability, demand and tax– meaning that future electricity prices are highly uncertain.
The main incentive for customers in mature markets to installsolar and storage is to save money on utility bills and reduce
exposure to future supply costs. Electricity price therefore hasa high impact on the appeal of such systems.
In emerging markets, where grids may be less reliable, theimpact of electricity prices is lower because customers are
more likely to be motivated to invest in solar and storage as
an independent source of backup power.

STORAGE COSTS
Mature Emerging
markets markets
ImpactHigh

High

Uncertainty

High

High

Storage technology costs currently represent a significant
fraction of the cost of a distributed solar and storage system
and as such have a high impact on uptake in all markets.
BNEF estimates that lithium-ion EV battery costs drop by 15%
for every doubling of capacity built to date – but this pattern isfar from established and capacity growth is highly dependent
on demand for electric vehicles. As such the future cost of
stationary storage systems is closely related to developmentsin the car industry, which are highly uncertain.

COST OF SOLAR TECHNOLOGY
Mature Emerging
markets markets
ImpactMedium Medium

UnMedium Medium
certainty

Unlike storage, the future cost of photovoltaic solar
technology is well understood with long-standing trends andparallels with other semiconductor industries.
PV modules are of course a major component of solar
systems. However the cost of PV modules and inverters
already amounts to less than half the cost of a residential
solar system. The remainder is made up of customer
acquisition, installation equipment, labour and otheroverheads. This means that technology cost improvements
will have a medium impact.

NATURAL GAS AVAILABILITY
Mature Emerging
markets markets
ImpactMediumLow

UnMedium Medium
certainty

Natural gas prices are an important input for power generation
for both utility-scale and distributed applications. However, gas
prices only represent a fraction of end-user power prices, whichis the most relevant metric when deciding on whether to install
distributed solar and storage. The impact of gas prices is likely
to be even lower in emerging markets, which tend to rely moreon coal and have less developed gas infrastructure.
While natural gas is considered costly in many parts of theworld, the fracking revolution in the US shows how quickly thiscan change.

POLITICAL INSTABILITY
Mature Emerging
markets markets
ImpactHigh

High

Uncertainty

Low

MediumDistributed solar and storage competes with the power grid,
which is often among the most basic services orchestrated bygovernments. Political upheaval or even poor governanceoften reduces grid reliability, either because they result in a
failure to maintain the network or underinvestment in theinfrastructure.
This will make the grid less competitive and incentivise
consumers to switch to more reliable, self-managed solutions
like diesel generators or increasingly solar and storage
systems. However it also discourages private investment,
meaning that the effect of political instability is hard to predict.

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UTILITY FINANCES
Mature Emerging
markets markets
ImpactMediumHigh

UnMedium Medium
certainty

Without sustainable profits utilities struggle to financeinvestments into the grid and power generation. In many
emerging economies such as South Africa or India, publicly
owned utilities offer artificially low prices, and their quality ofservice suffers.
If a utility has weaker finances than its customers or new
entrants then they are poorly placed to take advantage of newtechnologies when they become economically viable. In suchcases, independently-owned solar and storage options at thegrid edge will precede centralised utility-owned ones.

COST OF COMPETING SOLUTIONS
Mature Emerging
markets markets
ImpactHigh

High

Uncertainty

High

High

Residential and community-scale solar and storage competes
with a variety of options for the service of generating, storingand delivering power. These include grid power generation andgrid-level storage applications as well as emerging or futuretechnologies such as fuel cells, automated demand response,wind or geothermal.
Breakthroughs in any of these areas could potentially alter the
future economic attractiveness of distributed solar and storage
technology.

REGULATION
Mature Emerging
markets markets
ImpactHigh

High

Uncertainty

High

High

Regulation can be both a barrier and enabler for distributed
solar and storage. Grid connection codes, ownership rules,
electricity tariff frameworks, quality and safety requirements,
standardisation, operating rules and subsidies are just someexamples of regulatory factors that can block, enable or distortthe economics (positively and negatively) for solar and storage.
Because regulation is subject to influence from a variety of
stakeholders, including small interest groups, it is both very
impactful and uncertain.

FUTURE LIFESTYLE TRENDS
Mature Emerging
markets markets
ImpactLow

MediumUnMediumcertainty

High

Future lifestyle trends can impact the value proposition of
distributed solar and storage in ways that are difficult to predict.
Increased tele-working, for instance, would shift residential
consumption into the hours when solar panels produce power,
reducing the need for storage. By contrast a shift towards
eating out or outsourcing other home activities such as laundry
would reduce residential power use, and thus theattractiveness of home solar and storage solutions.
In emerging markets, where behavioural patterns are changing
more rapidly with economic growth, such changes are evenmore uncertain and will have a higher impact.

GRID RELIABILITY
Mature Emerging
markets markets
ImpactHigh

High

Uncertainty

Low

High

Unstable grids are a daily reality for populations across muchof Africa and Asia. Many consumers in such situations already
rely on grid alternatives such as diesel generators, making
them highly likely to switch to solar and storage once theeconomics are preferable and they are widely available.
In many emerging markets it is unclear whether the grid will
improve or deteriorate under the pressure of increasing
demand. The risk of deteriorating grid reliability is far lower inmature markets that already have a grid and face flat demand
growth.

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ELECTRIC VEHICLES
Mature Emerging
markets markets
ImpactUncertainty

Medium Medium

High

High

Electric vehicles are interlinked with distributed solar andstorage applications in more than one way.
Most importantly, the transport sector is likely to serve as amajor demand centre for lithium-ion batteries, and faster
uptake of EVs will accelerate industry development, resulting
in cheaper stationary systems.
EVs could also create a new source of demand, posing
technical challenges for utilities while increasing revenue. If
vehicle-to-grid applications are realised, battery-powered cars
may also reduce the need for distributed stationary storage.

WEALTH
Mature Emerging
markets markets
ImpactMedium Medium

UnMediumcertaintyHigh

A consumer’s wealth usually determines not only how much
power they consume, but also their ability to finance long-term
investments such as solar and storage. Wealthier consumers
are also more likely to be able to afford additional services
such as a reliable back-up to the grid. They are also more
likely to pay a premium for solar and storage products
marketed as a lifestyle choice such as Tesla’s Powerwall.
Wealth is a function of both growth and the degree of
inequality within an economy – it is therefore difficult topredict, particularly in high-growth emerging markets.

POPULATION GROWTH
Mature Emerging
markets markets
ImpactUncertainty

Medium Medium

Low

High

Population growth has an indirect impact on the opportunity for
distributed solar and storage in a number of ways. It is anunderlying driver of GDP growth, wealth and electricity
demand. It also impacts demographics and lifestyle patterns,
which in turn can affect energy demand and political agendas,
all of which influence the future of solar and storage.
This is most pronounced in emerging economies, where –generally speaking – population growth is expected but its
exact extent is difficult to predict. In mature economies the rateof population growth tends to be lower and less uncertain.

BUSINESS MODEL INNOVATION
Mature Emerging
markets markets
ImpactHigh

High

UnMedium Medium
certainty

There are a variety of ways that business-model innovation can
impact the outlook for solar and storage in rooftop andcommunity applications. This could include software andoperations that reduce customer acquisition costs, financing
bundles to reduce the initial outlay for consumers, communityownership models and aggregation platforms for tapping into
additional grid-service revenue streams. However, by their very
nature, these innovations are difficult to predict.
.

URBANIZATION
Mature Emerging
markets markets
ImpactMediumHigh

Uncertainty

Low

MediumUrbanisation is an ongoing trend, particularly in emerging
economies, and it could impact the outlook for solar andstorage in various ways.
An influx of people from rural areas unserved by the grid willfurther strain the urban power network, reducing its reliability
and increasing demand for backup solutions.
The rise of dense cities with high-rise buildings instead of larger
single houses substantially limits rooftop space that can beused for residential solar applications.

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SECTION 7.

SCENARIO DEVELOPMENT
Scenario planning is a tool for structured analysis of uncertainties, such as
those discussed in the previous sections. It can provide insights on how to
overcome barriers and help shape strategies for achieving goals. This section
develops a scenario framework for assessing the future of distributed solar andstorage in both mature and emerging markets.

7.1.

PROCESSThe first step in scenario planning is to identify uncertainties relevant to the exercise (in this caseunderstanding the future of distributed solar and storage). We then sort these uncertainties bothin terms of their degree of uncertainty and their potential impact – as was done in Section 6.

Figure 17: Scenario planning process overview

Identify key uncertainties infuture developments

Section 6

Form scenario
axes from key
uncertainties

Develop selfconsistentscenarios
based onscenario axes

Section 7

Develop toolkit
based onscenariotransitions
Section 8

Apply toolkit toreal countries
or regions

Sections 9-13

The next stage is to bundle these uncertainties along common themes. Many uncertainties are
relevant for the same or similar reasons: for example the cost of storage systems and the price ofelectricity are (largely) uncorrelated but both impact the economics of owning a solar and storage
system. Drawing on the previous analysis, we form two broad themes around the most important
uncertainties (ie. those with highest uncertainty and impact) that also capture as many of thelower ranking uncertainties as possible. These themes, which are different for mature andemerging-market cases, form the basis of two axes which define four scenarios. The final stage ofthe scenario development phase is to create a self-consistent description for each scenario within
the bounds of the scenario definition. The steps described above were conducted over the courseof four Bloomberg New Energy Finance analyst workshops.

7.2.

MATURE MARKETSSCENARIO AXES
Theme 1 : Economic attractiveness of distributed solar and storage
In mature markets, distributed solar and storage systems are potentially an economicallyattractive alternative to consuming electricity from the grid. The most important factors that
influence this proposition are the price of grid electricity and the cost of solar and storage. The
cost of alternative options is also clearly relevant. The amount and distribution of wealth also has
a role to play since wealthier individuals and businesses may have more spare capital to invest in
upgrades to their homes and buildings. Future lifestyle trends could also have an impact (positiveor negative) on the amount of electricity consumed in the home, which influences the economic
proposition in the residential sector.

Theme 2 : Defensiveness or supportiveness of regulation
Regulation can be a barrier or an enabler to the deployment of distributed solar and storage, formany reasons. The most direct impacts are through regulatory requirements on permitting andPage 27 of 66

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grid connection, installer training, and system operation (such as during blackouts). Indirectly,
regulation strongly influences the types of business models that can be used to bring solar andstorage systems to the market. The regulatory environment also helps determine the state ofutility finances and grid reliability. Policies that lead to a high penetration of electric vehicles could
create new challenges that require either protecting utilities or reforming markets, both throughregulatory change.
Figure 18: Development of mature markets scenario axes
Related uncertainties 1
Storage cost
Electricity priceCompeting solution cost
Solar costs

Mature markets Axis 1

Rooftop and community
solar with storage is
economically unattractive
VS

Future lifestyle trends

Rooftop and community
solar with storage is
economically attractive

Related uncertainties 2

Mature markets Axis 2

Regulation

Electricity regulation isdefensive of utility
incumbents

WealthBusiness model innovation
Electric vehicles
Utility finances
Grid reliability
Political instability

Least important

VS
Electricity regulation is
supportive of rooftop andcommunity solar withstorage

Figure 19: Mature markets scenario overview

Unattractive
economics
Supportive
regulation

Supportive
regulation

Unattractive
economics

Unattractive
economics
Defensive
regulation

Attractive
economics
Supportive
regulation

Attractive
economics

Defensive
regulation

Attractive
economics
Defensive
regulation

Most important

SCENARIO DESCRIPTIONS
The axes shown in Figure 18 define four scenarios for mature markets. While not all market
characteristics are captured here, the majority of mature solar and storage markets can bemapped into one of these four scenarios. To further clarify the situation that these scenarios
represent, the following vignettes highlight the essential nature of each one.

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Description

Unattractive economics
Defensive regulation
Don’t count on
it!

At least we
have gas…

Low growth ofelectricity demandWeakutilityfinances

Tradebarriers
slowstorageindustryLowmargins inutilitysectorEconomicallydefensiveworld
All these
renewables
will just cause
blackouts!

Expensive
batteries
Regulatedtransmissionis the only
solution!

Cap onIncumbents
on life-support customerowned
from regulatorPV

Who would
buy autility?

Unattractive economics
Supportive regulation Why havethe lights
dimmed?

Tradebarriers
slowstorageindustry

Alternative
solutionsprovidersemerge locallyInnovation
around load
management Emphasis on competitionin energy sector
Shift torenewableshigh onagendaI signed up
for demand
responseHigh
consumerengagement

Cheaperbatteries
I wonder if I canuse my new car
as a battery!

E

The weak economy also leads to risk-averse decisions at a policy level, which
would favour incumbent utilities. They successfully argue that protecting utility
jobs is a priority and that they represent the only tried-and-tested option fordelivering cheap and reliable electricity to support economic growth.
Renewables are cast as an expensive future technology and distributed systems
are seen as a luxury for the well-off, which should be taxed rather thansubsidised.

The mature markets scenario where regulation is supportive for distributed solar
and storage, but the economics remain unattractive, is consistent with a politicaland public drive to increase the adoption of new technologies and businessmodels in energy, driven by concerns over climate change or a shortage of key
fuels. Whichever way, reform is a priority.
Despite the high price of electricity and possible subsidies, solar and storage
remains unattractive economically due to insufficient progress on technology
costs. This may be due to pre-existing trade barriers, poor financing options for
distributed solar and storage or because alternatives such as demand responseor energy efficiency measures have emerged and become more attractive
financially.
In this scenario consumers are highly engaged – both because of the high priceof electricity and the array of new options they are faced with. Accordingly, billreduction propositions can include the purchasing of micro-stakes in renewablegeneration assets and opting in to automated demand response or time-of-use
pricing to receive favourable rates.

Me!

Subsidies forstorage andalternatives

Globalmarket forbatteries
and EVs

In this scenario slow growth or even recession leads to governments taking adefensive position on the economy. This leads to increased trade barriers which,if a global trend, limits the scope of the storage and solar industries to scale andreduce technology costs. Concerns over utility bills may also see the introductionof subsidies on electricity, worsening the economics of non-utility options further.

Description

Who wants to own partof their own wind farm?

Attractive economics
Defensive regulation

The mature markets scenario of unattractive economics for distributed solar andstorage on the one hand, and regulation that is defensive of the utility status quoon the other, is consistent with a weak economy that stifles innovation bothglobally and locally.

Wow! Ourutility just built
the biggest
ever battery!

And
we’ll bepayingfor itElectric
vehicles are
popular
Regulation
defends against
destabilising
distributed loads

Growing utility
influence

Best to leave electricity
to professionals like us

End-userstorageuptakehighlyrestricted

Grid-scalestoragecommonplace

Description
The mature markets scenario where distributed solar and storage is attractive
economically but regulation remains defensive of incumbent utilities is consistent
with both a high uptake of electric vehicles and the prioritisation of grid reliability
over consumer choice.
Economic growth sees an increase in global trade and the lowering of barriers –there is now a growing market that can afford electric vehicles which arecheaper than ever given the growing scale of the battery industry. The increasein e-mobility creates a new challenge for grid operators as well as further
deepening social and economic dependence on always-available electricity.
With this in mind, policy-makers are more willing than ever to listen to the utility
perspective, and the outcome is defensive regulation. This means restrictions on
distributed solar and storage – cast as potentially destabilising – while grid-scaleutility-owned solar and storage projects are regularly approved and rate-based.
International grid equipment providers develop or acquire expertise inmanagement of large-scale storage in order to serve their base of utility clients.
With no visible alternatives, the public are largely disengaged.

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Description

Attractive economics
Defensive regulation
Globalmarket forbatteries
and EVs
Competitivemarket forenergy andservices
Utility lose
kWh sales
Managing gridfragmentation
becomes newchallenge

Storage canbid into any
grid services

Electricity
prices havegone up!

I don’t care.
I got solar
and storage.

New entrants
emerge: evolving
pictureI have 30 years experiencein the utility industry. Can I
have a job at your innovative
solar and storage start up?

May beUtility arguments for defensive regulation in the face of increasing challenges
from new entrants offering community solar and storage and consumer-owned
systems are disregarded. Regulators and policy-makers see no need for
reduced competition when proven alternatives exist. As incumbents lose market
share their role of providing low-cost electricity becomes increasingly
challenging – higher prices and reduced grid reliability result, reinforcing thecycle further by making distributed systems more attractive.
Regulatory changes are introduced to remove barriers to the uptake of solar andstorage at the grid edge and to ensure that such systems can also serve grid
applications such as frequency regulation, opening up new revenue streams tosystem owners. The continually-evolving picture of managed grid fragmentation
continues – regulatory changes are introduced, new entrants and businessmodels emerge and regulation is further refined as the cycle starts again.

Higherprices forcentral gridelectricity

7.3.

The mature markets scenario where distributed solar and storage is attractive
economically and supported by regulation is consistent with economic growth,
technology cost declines and high energy prices.

EMERGING MARKETSSCENARIO AXES

Figure 20: Development of emerging markets scenario axes
Related uncertainties 1

Storage costCompeting solution cost
Business model innovation

WealthEmerging markets Axis 1

Rooftop and community
storage with solar isbroadly unaffordable
VS

Solar cost

Rooftop and community
storage with solar isbroadly affordable

Related uncertainties 2Emerging markets Axis 2

Grid reliability

The central electricity gridis unreliable with frequentinterruptions

Future lifestyle trends

Regulation
Utility finances
Political instability
Population growth
Price of electricity

Least importantVS
The central electricity gridis reliable with infrequentinterruptions

Figure 21: Emerging markets scenario overview

Unaffordable
storage
Reliable
grid

Reliable grid

Unaffordable
storage

Unaffordable
storage
Unreliable
gridUnreliable gridAffordable
storage
Reliablegrid

Affordable
storage

Affordable
storage
Unreliable
grid

Most important

Theme 1 : Affordability of storage with solar
In many regards this axis is equivalent to the economic attractiveness axis in the mature markets
exercise, although it is slightly more nuanced. Financial solutions can help make a system more
affordable without changing the technology economics. This is particularly important in emerging
economies, where households on average have smaller disposable incomes and may be morecash constrained. It is therefore not just important that distributed solar and storage can compete

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with alternative power generation technologies, but also that they are within reach of thehousehold budget.

Theme 2 : Grid reliability
Given the use of storage with solar to maintain power during grid interruptions is a major driver,reliability should be an axis of uncertainty for emerging markets. Some of the other unknowns
discussed also influence grid reliability – regulation influences the utilities’ profit margin, which inturn affects their ability to finance infrastructure upgrades to improve reliability. Political instability
can reduce investment appetite which can also make infrastructure financing difficult. Population
growth has a very direct influence on power demand, which also creates an additional challenge
for utilities to keep the lights on.

SCENARIO DESCRIPTIONS
Unaffordable storage Another
power
Unreliable gridcut!?
Storage
expensive
Reliance ondieselPV cuts
diesel costs

Description
Your turn to start
the generator!

Lowelectrification
Weak utility
financesLowreliability

Grid theftWeakregulation

Government
unaccountable

You haven’t paid yourelectricity bill in four months!

SORRY I CAN’T
HEAR YOU!

Unaffordable storage
Reliable grid

My roof has
been selected
for PV!

Urban vs rural
electricity access
Limitedopportunity for
new entrants

Centrallyplannedutility/ local
monopoly

System-level
decisions more
important thanconsumer options

Electricity essential
to economic
development
These new transmission
lines are so beautiful!

Interconnection

It’s what
we do!

The emerging-markets scenario where storage with solar is unaffordable and thegrid is unreliable is consistent with weak regulation, strained utility finances andthe widespread use of diesel generators.
In this scenario the utility is given insufficient support from regulators andgovernment. Electricity prices are kept artificially low for political reasons, grid
theft is widespread and the utility does not have the financial strength necessary
to meet the needs of a growing population. This self-reinforcing cycle sees gridreliability issues worsen and many living off-grid. Grid-access represents a majorsocial fault line between rich and poor both in urban and rural environments.
Those that can afford an alternative rely on diesel-based generators as backup.
There is a growing market among more sophisticated consumers andcommunities for microgrids combining solar with diesel generation – theseprovide the most effective form of backup. Diesel importers are a potentiallypowerful lobby group, seeking to influence policy on alternatives, meaning thatsubsidy support for solar and storage is unlikely.

Hard
luck!

All rooftop PV is
utility owned
and controlled
Growth of gridscale renewables

Description
The emerging-markets scenario where storage with solar is unaffordable and thegrid is reliable is consistent with a centrally planned utility sector whose effective
management is a core political priority.
Cheap and reliable electricity is seen as essential to industrial development,
meaning that the government has continually supported and co-invested in thedevelopment of infrastructure to meet present and future needs. The result is a
grid with significant spare generation capacity and sufficient transmission.
Interconnectors to neighbouring countries are also a useful tool in regional
politics, heightening the degree to which energy is a government priority.
There is limited opportunity for new entrants. Rooftop solar is considered only if
it serves to ease grid challenges and is as a result predominantly owned andcontrolled by utilities, supported by government mandates. Aside from that
renewables – which are adopted wherever they represent the best option
economically – are found predominantly in large-scale installations. In the rarecases where it is the only viable option utility-scale storage is also used.

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Affordable storage What is
thisUnreliable grid
“grid”?

Don’t worry, its frombefore your time…

Entrepreneurs eating
into utility sector
Reliance on PV
and storage
Users charge
batteries during“on” hours
You still haven’t paid
your electricity bill!

Weak utility
financesLowreliability

Non-interventionist
regulator

Electricity Bill? Isn’t he thatnew microgrid guy?

Affordable storage
Reliable grid
GlobalMicrogrids popularfor electrification
due to speed of
execution

Grid storage
limited by utility
weaknessmarket forbatteries
and EVs

Less need fortransmission

New loads andintermittent supply
for incumbents tomanageGrid storage
commonWeak economic case for
distributed solar and storage
My battery
saves me a
bit of money

My battery
makes me a
lot of money

High penetrationof grid-scale
renewables
Utility enjoys
privileged status tomaintain reliability

Description
The emerging-markets scenario where storage with solar is affordable and thegrid is unreliable is consistent with a ‘leap-frog’ to a distributed energy-based
electricity sector, with the grid only playing a limited supporting role.
In this scenario storage costs have reached a tipping point and it is an affordable
option for end-users and communities in need of a reliable source of power. The
financially weak utility is poorly positioned to invest in new technology and so theuptake of storage is almost entirely at the grid-edge. This creates further
problems for the utility – even if end-users add solar there is a tendency tocharge batteries while grid electricity is available (and no regulation to stop themdoing so), increasing the peak and making it harder to avoid blackouts.
As grid reliability worsens the appeal of storage increases, as does the additionof solar to further reduce grid dependence and complement the battery.
Entrepreneurs offering home systems and community microgrids capture utility
market share and, with relatively low per capita electricity consumption, the bulkof demand can be met by distributed systems alone. Utilities’ new role ismarginalised to supporting energy intensive industries only.

Description
The emerging-markets scenario where storage with solar is affordable and thegrid is reliable is consistent with utilities embracing grid-scale storage while solar
is economically attractive at both the grid-scale and grid-edge.
Although stationary storage is an affordable option for end-users the reliability of
the grid means that there is little incentive for end-user storage – where
electricity prices are high the first priority would be the addition of solar. Gridscale storage, however, is a cost effective option and, given the regulatoryemphasis on reliability, should be straightforward for utilities to finance. This
results in a situation where rooftop and community solar is common, generally
speaking, but storage is centralised.
The addition of substantial grid-scale storage has further implications, easing
grid integration of utility-owned wind and solar (which are economicallyattractive) as well as reducing the need for transmission investments. Assuming
neighbouring countries are also benefitting from cheaper storage, the need forinterconnectors (and their political ‘soft power’ implications) is also reduced.

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SECTION 8.

ROADMAP TOOLKITS
While the scenarios developed in the previous sections can provide insight into
what the future may look like, they tell us nothing about what may happen
between now and the future to make that scenario a reality. The next phase of
the scenario planning exercise addresses this by considering ‘transitions’between the scenarios, which then form the basis of the roadmap toolkits.
Figure 22: Scenario transitions and toolkit elements
MATURE MARKETSScenarios and transitions
Unattractive
economics

Attractive
economics

Supportive
regulation

Supportive
regulation

Unattractive
economics

Attractive
economics

Defensive
regulation

Defensive
regulation

16 toolkit elements

EMERGING MARKETSScenarios and transitions
Unaffordable
storage
Reliablegrid

16 toolkit elements

Affordable
storage
Reliablegrid

Unaffordable
storage

Affordable
storage

Unreliable
gridUnreliable
gridtransition
Backtransition
Stagnation
Figure 22Forward
illustrates
the principleConsolidation
behind the roadmap toolkits,which
is based on examining
possible transition pathways between scenarios. We have labelled the transitions as either drivers(green) or risks (red) depending on whether they move towards or away from the most favourable
scenario. The definition of the most favourable scenario is subjective – the rationale for the choicein mature and emerging contexts is discussed in the sections below, in which each toolkit is also

described in full.

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8.1.

ROADMAP TOOLKIT: MATURE MARKETSFor mature markets the choice of the most favourable scenario in the context of solar and storageis straightforward: where economics are favourable and regulation is supportive.

Drivers and risks for the “unattractive economics and defensive regulation” scenario
FAILURE OF TRADITIONAL UTILITY MODEL
Attractive
economics
Supportive
regulation

Unattractive
economics
Defensive
regulation

A severe shortfall in grid capacity – due to chronic
underinvestment and growing demand – means frequent
blackouts and a sharp rise in electricity prices, causing
public outctry and forcing the urgent reformation of theutility sector.
In order to increase system capacity, new regulations are
incentivized to encourage non-traditional generators tofeed into the grid, including owners of rooftop andcommunity solar and storage systems. The high price ofgrid-supplied electricity means that the economics ofsolar and storage are now particularly attractive.

STRONG GLOBAL ECONOMY DRIVES STORAGE INDUSTRY

Unattractive
economics

Attractive
economics

Defensive
regulation

Defensive
regulation

A sustained period of economic growth globally sees areduction in trade barriers and increased demand forelectric vehicles. As a result a global industry for lithiumion batteries emerges and battery prices fall rapidly.
Growing demand for electricity sees an increase in
prices, further improving the economics of solar andstorage but grid codes prevent non-utility actors from fully
monetising distributed energy assets. However utilities,
protected by regulation, are able to rate-base batteries,
supporting the uptake of grid-scale storage technologies.

POLITICAL DESIRE TO SUPPORT NEW TECHNOLOGIESUnattractive
economics
Supportive
regulation

Unattractive
economics

Defensive
regulation

Tension on the global stage means that energy
independence – and hence renewables – becomes apriority for the government. Public concerns over climatechange align conveniently with this position and aconsensus emerges that the electricity sector should bereformed to encourage new entrants and renewables.
Despite the increase in support for solar and storage
locally, the defensive stance of governments means that
trade barriers prevent technology costs from falling and theeconomics of solar and storage remain unfavourable inmost applications.

DEFENSIVE ECONOMICS AND UTILITY PRESERVATION

Unattractive
economics
Defensive
regulation

As governments worldwide struggle with the economic
slowdown trade barriers are introduced, limiting the growthof a global storage industry. A weak economy means that
locally utilities face the threat of flat or falling electricity
demand.
Policy and regulation is aimed at keeping utilities inbusiness in order to protect utility jobs and keep the lights
on. Renewable energy is seen as expensive and of
secondary importance relative to more immediateconcerns. Moreover, distributed generation is seen as aluxury and a tax on self-consumption is introduced.

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Drivers and risks for the “attractive economics and defensive regulation” scenario
DISSATISFACTION WITH UTILITIES BECOMES POLITICAL
Attractive
economics
Supportive
regulation

Attractive
economics
Defensive
regulation

The public is increasingly aware that options such as
rooftop and community solar and storage are attractive, but
unavailable due to regulation protecting utilities. As such,dissatisfaction over utility prices begins to intensify.
In this environment, any negative headlines within theutility sector – whether on reliability, executive salaries,
emissions, rumours of collusion – are amplified to thepoint of being major scandals. Politicians on all sides see
utility reform as a major vote winner and new regulation is
introduced to open up the electricity market to newentrants.

ELECTRIC VEHICLES NEED A STRONG UTILITY

Attractive
economics
Defensive
regulation

The popularity of affordable electric vehicles means thatthey are now an essential part of both daily life and thewider economy. This new source of demand creates achallenge for utilities and even minor interruptions to theregular supply of electricity are major disruptions for the
public and businesses alike.
Utility companies argue that distributed generation brings
an increased risk of grid instability and that a well
regulated centrally controlled grid is the safest. Given thatthe importance of electricity now extends to the transport
sector the government and public accept this proposition.

MARKET OPENS AND CHEAPER OPTIONS EMERGE
Unattractive
economics

Supportive
regulation

Attractive
economics
Defensive
regulation

With renewables high on the political agenda, regulators
make structural changes to the energy sector, opening themarket to new technologies and new players.
While the changes should suit non-utility solar andstorage it also opens the door for other options – demand
response, power-to-gas, transmission and renewables
diversification – which prove to be cheaper in acompetitive market.
Electricity prices will decrease due to the increased
competition and as a result storage and solar will cease
to be an economically attractive option.

RECESSION MEANS BACK TO BASICS

Unattractive
economics

Attractive
economics

Defensive
regulation

Defensive
regulation

A recession sees low demand for electricity and gas, whichtranslates into low power prices and undermines the
economics of solar and storage. Governments introduce
protectionist policies, limiting the import of solar andstorage systems from abroad which prevents thoseindustries from scaling and decreasing costs.
Consumers, with less disposable income than before, areunwilling to consider investing savings in unfamiliar
technologies such as solar, storage and electric vehicles.
The utility incumbents maintain their dominant position, but
based on traditional technologies once more.

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Drivers and risks for the “unattractive economics and supportive regulation” scenario
CHEAP STORAGE, MORE STORAGE, EVEN CHEAPER STORAGE
Unattractive
economics

Attractive
economics

Supportive
regulation

Supportive
regulation

Favourable regulation for distributed solar and storage
means that even with unfavourable economics there isbusiness-model innovation. As a result, when there are
eventually decreases in the price of technology it isefficiently translated into sales.
A virtuous circle results, particularly for storage
technologies – higher volumes mean reduced prices whichlead to even higher volumes. As batteries become cheaper
the market for electric vehicles also gathers pace, further
enhancing this effect. Non-utility solar and storage
becomes an economically attractive combination.

GLOBAL INDUSTRY FAILS TO EMERGE
Despite the favourable regulatory environment, the storage
industry fails to make the breakthrough required for
distributed solar and storage to be economically attractive.
This may be the result of high trade barriers or innovation
around competing solutions such as demand response andpower-to-gas that decrease the necessity to combine solarwith storage.
As opportunities decrease, investment in the developmentof storage technology eventually dries up and existing
manufacturing capacity is shut down.

Unattractive
economics
Supportive
regulation

CONTROVERSY AND RE-REGULATION
Unattractive
economics
Supportive
regulation

Attractive
economics
Defensive
regulation

A technology breakthrough leads to a dramatic fall instorage prices. The rapid and unforeseen uptake of solar
and storage is controversial and disruptive. While many
benefit from support schemes for the technology others
complain that the government is giving public money tothose privileged enough to own their own roof.
A lack of labour certified in the installation and integrationof distributed solar and storage leads to a large number of“cowboy” headlines causing reputational damage to theindustry. Responding to concerns, the government
introduces restrictions on non-utility generation.

PUSH BACK AGAINST UNSAFE AND UNRELIABLE TECHNOLOGY
Unattractive
economics
Supportive
regulation

Unattractive
economics

An incident involving storage – such as a fire or similar –will shock public opinion leading to the open questioning
the wisdom of subsidising early-stage technologies that are
yet to prove their safety.
Reacting to the incident regulators will place restrictions on
storage technologies, particularly when located inside ornear buildings. As a result opportunities for distributed solar
and storage will be stifled due to restrictive regulation.

Defensive
regulation

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Drivers and risks for the “attractive economics and supportive regulation” scenario
EMERGENCE OF NEW INDUSTRY, PROTECTED BY NEW REGULATION
Attractive
economics
Supportive
regulation

The market for rooftop solar and storage flourishes. As
new players enter the market with innovative businessmodels competition increases and prices go down, further
increasing uptake.
Installation of distributed systems is recognised as a major
new source of employment and as such the government
introduces further regulation to protect and consolidate thisindustry. Traditional utilities are forced to plan in line with
the new reality.

CYBER-ATTACKS AND SYSTEM FAILURES
Attractive
economics
Supportive
regulation

Attractive
economics

Defensive
regulation

The high uptake of rooftop solar and storage and thechallenge of integrating such a large number of systems
creates unforeseen problems. A system failure – possiblyas a result of poor integration or something more sinistersuch as a cyberattack – gives rise to concerns that a
distributed system is inherently vulnerable.
In such circumstances the role of utilities gains a new
appreciation from both the public and politicians and theimportance of protecting them is seen as paramount. New
regulation is introduced to protect utilities and restrict theuptake of distributed systems.

CHEAP GAS MEANS CHEAP OPTIONSUnattractive
economics

Attractive
economics

Supportive
regulation

Supportive
regulation

A substantial drop of natural-gas prices worldwide leads toa decrease in grid prices. While this means that distributed
generation is generally speaking not competitive, it alsomeans that of the different distributed generation options,those driven by gas are most attractive. While theabundance of gas eases the integration of solar, there is
no longer an economic case for storage.
An increase in interconnection may also drive down grid
prices in a similar way, undermining the economics of
distributed solar and storage.

COLLAPSE OF LITHIUM SUPPLY AND FAULTY ALTERNATIVES
Attractive
economics
Supportive
regulation

Unattractive
economics
Defensive
regulation

Political factors lead to a collapse in the lithium supply
chain meaning that battery prices rocket and storage andsolar are no longer economic. Alternative storage
technologies are marketed but these are found to be both
expensive and unsuitable.
Concerns over dependence on lithium as a commodity andthe need to protect consumers from sub-standard
alternatives means that utilities are in a strong position.
They successfully lobby for a system with both centralisedbalancing and limits on the uptake of distributed systems.

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8.2.

ROADMAP TOOLKIT: EMERGING MARKETSFor emerging markets, the choice of most favourable scenario is less straightforward, because an
unreliable grid is clearly an undesirable outcome, but would also drive the uptake of distributed
storage. However it would be perverse to recommend strategies that would lead to a less reliablegrid – so the scenario with affordable storage and a reliable grid was chosen as most favourable.

Drivers and risks for the “unaffordable storage and unreliable grid” scenario
SUBSIDISED STORAGE AND NEW GRID OWNERSHIP
Affordable
storage
Reliablegrid

Unaffordable
storage
Unreliable
gridBattery subsidies and technology cost improvements
mean that storage becomes a viable alternative toconventional grid reinforcements. Development banks see
an opportunity and lead the charge in financing this new
infrastructure option. Foreign governments see anopportunity to foster markets for their technology and takestrategic stakes in local grids through state-owned
enterprises.
The impact is a rapid uptake of grid-scale storage which,coupled with cheap renewables, has the effect ofdramatically improving reliability.

CHEAP BATTERIES AND NEW BUSINESS MODELS DRIVE CONSUMER CHOICE

Unaffordable
storage

Affordable
storage

Unreliable
gridUnreliable
grid

A growth in global trade sees both the price of storage fall
and an increase in individual wealth. The result is anincrease in the uptake of distributed storage in order toreduce intermittency and the emergence of businessmodels around community microgrids and other
distributed solar and storage applications.
While diesel is still an option for backup power, storagebased systems are considered a superior option for thosethat can afford them, due to the lack of noise and fumes.

POLITICAL STABILITY, ECONOMIC STABILITY MEANS GRID STABILITY
Unaffordable
storage

Reliablegrid
Unaffordable
storage
Unreliable
grid

A period of sustained political stability and good
governance allows economic growth and enforceable andeffective top-down grid planning. In this environment
utilities have both a mandate to invest in the grid and theeffective cost recovery mechanisms to add meaningful
infrastructure.
The result is spending on new generation, smart
technologies, transmission and interconnectors. To cover
this investment, electricity retail prices rise, meaning that
there is also experimentation with demand-response andenergy-efficiency business models.

FLAWED GOVERNANCE AND BRAIN DRAIN

Unattractive
economics

Defensive
regulation

There is a lack of political will to address the various issues
that have plagued grid development. Without an effective
cost-recovery mechanism the utility struggles to make theinvestments necessary to bring technical and nontechnical losses under control. The result is poor
equipment choices driven by false economy. Rural areas
where the costs of grid infrastructure are higher on a per
consumer basis are the worst neglected.
To further reinforce the negative cycle, there is a “brain
drain” of workers with the skills to implement necessary
solutions.

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Drivers and risks for the “affordable storage and unreliable grid” scenario
REGULATION AND IT ENABLES SMART INTEGRATION
Affordable
storage
Reliablegrid
Affordable
storage
Unreliable
grid

The broad uptake of solar and storage means that there isless strain on the previously over-stretched grid due to aneffective decrease in demand.
The government introduces rules to use low-cost smart
technologies to enable grid-integration between distributed
systems and the grid. Owners of distributed systems andcommunity microgrids are mandated to surrender some
control of their battery to the utility.
The result of effective integration is a stable grid thatleverages distributed resources to maintain uninterrupted
supply.

DISTRIBUTED ENERGY DRIVES ECONOMY AS OPPORTUNITY FOR GRID FADES AWAY

Affordable
storage
Unreliable
grid

While distributed solutions based on batteries propagate,
there is continued underinvestment in the grid due tomismanagement and poor incentives. Moreover, thetendency to charge batteries when the grid is available
means that even strategies such as load-shedding are
ineffective. The grid’s reliability worsens to the point that it
can’t be relied on to provide a full battery charge, so many
consumers add solar to complement their storage.
Business models for storage become established.
Microgrids are a differentiating real-estate feature. The
relevance of and opportunity for utilities is limited.

ISOLATIONIST GOVERNMENT FOCUSES ON DOMESTIC SOLUTIONS
Unaffordable
storage
Reliablegrid
Affordable
storage

A global trend in isolationism means that trade barriers are
erected and the cost of storage increases. By the same
token there is also less concern for climate change andcheap coal becomes the option of choice for governments.
Regulation is set around the notion of a centralised coaldriven electricity grid and the result is cheap electricity but
high levels of carbon emissions.

Unreliable
grid

THE BUBBLE BURSTS

Unaffordable
storage

Affordable
storage

Unreliable
gridUnreliable
grid

A severe economic setback, such as a currency collapse,
means that imported technologies such as batteries (andPV) are no longer affordable. A period of economic
instability compounds this effect by shortening investment
horizons both for the utility and consumers. The result isunderinvestment in the grid and diesel backup is the only
alternative for those that can afford it.

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Drivers and risks for the “unaffordable storage and reliable grid” scenario
NEW MODELS EMERGE FOR SELLING STORAGE
Unaffordable
storage
Reliablegrid

Affordable
storage
Reliable
grid

Reacting to increases in electricity prices and falling costsof storage technology, the government introduces a new
regulatory framework to allow effective monetization ofgrid-scale storage. New entrants offer services to utilities
generating multiple revenue streams from storage assets.
Driven by these new economics, the market flourishes.
This trend is repeated in several countries and the battery
supply chain consolidates, pushing prices further down.
The high penetration of storage on the grid paves the way
for the uptake of more renewables, including solar.

THE GRID IS THE ONLY GAME IN TOWN
Battery technology does not make the necessary costdecreases to reach a tipping point. Subsidised electricity
prices mean there is little incentive to invest in either solar
or storage. Seeking to limit the disruption caused byintermittency, there are severe connection limits on
distributed solar, which stifles the market.

Unaffordable
storage
Reliable
grid

DISTRIBUTED ENERGY FRIES THE GRID, THEN EATS IT
Unaffordable
storage

Reliablegrid
Affordable
storage
Unreliablegrid

A rapid drop in storage technology costs leads to the rapid
emergence of solar and storage microgrids and other
distributed energy options. The distributed capacity ispoorly managed by the utility and results in someintermittency – which drives more adoption.
As utility finances worsen, the conventional model seems
increasingly outdated and unsustainable. Responding, thegovernment introduces a new set of policies that are basedon the premise that the future of energy is in distributed
generation.

NATURE OR POLICY OVERSTRETCH GRID
Unaffordable
storage

Reliablegrid
Unaffordable
storage
Unreliable
grid

Political pressure to increase electrification, but atartificially low tariffs, means that the grid is expanded too
fast and with insufficient funds. Structural changes in
economic output and other changes in consumption
patterns further overstretch the grid.
Blackouts become increasingly common due to a shortfall
in capacity and inadequate distribution and transmission
infrastructure. Damage due to severe weather incidents ordecommissioning of capacity for political reasons create
further disruption from which the utility cannot recover.
Grid reliability decreases rapidly.

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Drivers and risks for the “affordable storage and reliable grid” scenario
SOLAR AND STORAGE IS THE NEW NORMAL
Affordable
storage
Reliablegrid

The combination of a stable grid and affordable solar andstorage technologies means that utility policy is focused on
meeting growing demand in the most economicallyefficient way possible. Storage and solar is also seen as ameans for reducing fuel imports.
The result is a build-out of centralised solar plants and gridscale batteries. The supply of electricity is cheap anduninterrupted meaning there is little incentive for uptake of
distributed options. The traditional utility model isconsolidated but based around new technologies.

FAILED GRID GOVERNANCE AND ALTERNATIVE OPTIONS
Affordable
storage
Reliablegrid
Affordable
storage
Unreliable
grid

A collapse in utility finances due to unregulated uptake of
distributed options by end-users and communities leads
to decreased grid investment. The utility pushes thegovernment for protective regulation but their position has
little sympathy from the public, who are dissatisfied withan increase in blackouts and are even less inclined to be
restricted from choosing alternatives.
New entrants, unconstrained by responsibility to maintaina centralised grid, continue to benefit from thegovernment’s slow response to the utility crisis.

TAX ON FOREIGN TECHNOLOGY AND CHEAP ENERGY
Unaffordable
storage
Reliablegrid

Affordable
storage
Reliable
grid

Local content rules for technology mean that cheap
storage options from abroad are unavailable orunaffordable. Domestically-sourced batteries
underperform and are not seen as realistic alternatives.
Other options, however, do emerge. Increasingly
sophisticated models for industrial load-shifting enableeffective management of intermittency and wind and solar
are found to be less challenging to integrate than
expected.

COLLAPSE
Affordable
storage
Reliablegrid
Unaffordable
storage

Major upheaval leads to economic collapse, undermining
the utility business operations and restricting imports.
In the most extreme case this may be due to civil war, but
it could also be due the installation of a new governmentthat adopts extreme policies and mismanages the
economy through corruption to special interests.
Whatever distributed resources do exist are highly valued
for their dependable supply of uninterrupted electricity.

Unreliable
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SECTION 9.

JAPAN ROADMAP
Japan was a pioneer of rooftop solar with the launch of its Sunshine programme
in 1974. The country also is one of the leaders in energy storage. Bloomberg
New Energy Finance estimates that it has an installed base of 50,000
residential lithium-ion batteries – the largest fleet globally. Japan’s historicalprogress as well as its outlook for significant uptake of rooftop PV and storageis governed by an interplay between government regulation and market
response.

BACKGROUND
Since 1974 resourcepoor Japan has been
supporting thedevelopment andcommercialisation ofrenewable energy
technologies

Since the 1973 oil shock, resource-poor Japan has spent significantly in support of R&D and thecommercialisation of renewable energy technologies. Rooftop PV installations until 2008 were
driven by Japan’s ‘Sunshine Program’, a comprehensive government programme started in 1974
for commercialisation of solar PV technology covering R&D funding all the way to subsidies forresidential installations. In November 2009, Japan launched a surplus buyback programme forresidential solar accompanied with capex subsidies, which resulted in a surge in installations. The
launch of the feed-in tariff (FiT) programme in July 2012 did not significantly affect the residential
segment, as the FiT programme treated the purchase of surplus output from residential systems
in a similar fashion to the buyback programme.
For storage, the Japanese government launched a subsidy programme for installation of lithiumion batteries by end users starting in FY2012 – in the aftermath of the Great East earthquake andtsunami of 11 March 2011. Residences that combine the storage system with rooftop PV, areeligible to get a slightly lower FiT rate than the regular surplus buyback programme, but caninstead sell the full generation output from the PV system rather than just excess generation.
While this arrangement is financially beneficial to the system owner, it doesn’t encourage autoconsumption, the primary objective of distributed solar and storage. Nevertheless, the subsidy
programme has been very effective in spurring interest from both domestic and international
manufacturers. There are currently 144 stationary lithium-ion battery systems offered by 24
vendors registered with the subsidy administrator, likely setting Japan as the market with the mosthardware choice as a result.

Figure 23: Japan current
scenario verdict
Unattractive
economics

Attractive
economics

Supportive
regulation

Supportive
regulation

Unattractive
economics

Attractive
economics

Defensive
regulation

Defensive
regulation

As of June 2015, Japan has an installed base of 8.3GW of PV systems below 10kW, primarily on
residential rooftops; with 3.7GW worth of the installations carried out since the launch of the FiT
programme. Bloomberg New Energy Finance estimates that the lithium-ion battery subsidy
programme has led to over 50,000 residential battery installations.

SCENARIO, DRIVERS AND RISKS
Japan is by no means at a standing start in terms of progress on solar and storage. In addition to
the subsidy programmes detailed above, there is a process of market reform spurred by thepower shortages experienced in the aftermath of the 2011 earthquake that means overall
regulation is supportive for distributed solar and storage. Despite the country’s large lithium-ion
battery industry, the high cost of storage remains a barrier to broader uptake.
Given the above, Japan is best characterised by the top-left scenario of unattractive economics
with supportive regulation. Accordingly, the majority of drivers and risks in the roadmap toolkit thatare relevant to Japan originate from that quadrant.

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Table 1: Key drivers and risks for Japan
DriverDescription
Political desire to support new technologies

Unattractive
economics

Reform of Japan’s electricity market is an ongoing process that can be traced back to the Great East earthquake andtsunami of 11 March 2011 and the subsequent power shortages. Japan’s electricity retail market is set for fullderegulation starting from April 2016. This will spur interest by many new players to engage in electricity retail,including some who are considering offering rooftop solar and storage.

Supportive
regulation
Unattractive
economics

While government support for distributed solar existed before the earthquake, the government added a subsidy
programme for installation of end-user lithium-ion batteries in 2012.

Defensive
regulation

Unattractive
economics

Attractive
economics

Supportive
regulation

Supportive
regulation

Risks

Cheap storage, more storage, even cheaper storage
While the lowering of trade barriers will accelerate cost decreases in storage technologies, Japan is comparatively well
positioned irrespective of the international picture. This is due its sizeable battery industry.
A trigger for the scaling of the storage market and industry could be the expiry of the FiT/surplus buyback programme
for PV systems below 10kW, which lasts only 10 years. As early as 2019, Japan will have a significant amount ofrooftop PV installations whose owners will have a financial motivation to increase their auto-consumption rate, spurring
a sudden increase in interest in energy storage.

Description
Global industry fails to emerge
As discussed above, Japan’s domestic battery industry could still achieve the cost-reductions required to allow themarket for solar and storage to scale irrespective of the global outlook. However, it is equally possible that this won’t
happen. Collectively, Japan, South Korea and China represent over 70% of the global lithium-ion industry – ifinternational tensions give rise to reduced trade the result could be the choking of the fledgling storage industry.
Another point particular to Japan is that there has been considerable interest in alternative balancing technologies thatwould reduce the need to add batteries with distributed solar. Power-to-gas and other hydrogen-based options are aparticular area of focus for both corporate and government R&D funding.

Unattractive
economics
Supportive
regulation

Push back against unsafe and unreliable technology
Many aspects of Japan’s electricity market reform are still in discussion and full implementation has yet to occur. For
example, the volume of electricity traded on the wholesale electricity market is still tiny and the number of tradable
products very limited. There is also no ancillary services market. These limitations hinder the ability of new electricity
retailers relying on aggregation of distributed PV and storage to provide a quality, reliable electricity service. If these
newcomers struggle to secure sufficient supplies due to lack of a properly functioning electricity wholesale market,
they may even end up causing blackouts. The price of the electricity delivered by aggregation of distributed resources
is also not yet fully clear as distribution charges for low voltage networks are yet to be finalised. Overall there is a riskof a high priced poor quality electricity service that could end up turning the general public against the technology.

Unattractive
economics
Supportive
regulation
Unattractive
economics
Defensive
regulation

Unattractive
economics

Attractive
economics

Supportive
regulation

Supportive
regulation
Attractive
economics
Defensive
regulation

Panic and re-regulation / Cyber-attacks and system failures
The combination of high electricity prices, supportive regulation and the presence of a domestic industry for batteriesmeans that Japan has the potential to be a leading early market in the uptake of distributed solar and storage. While
this can be seen as positive, it also means that Japan could be among the first countries to encounter some of theunforeseen problems associated with integrating significant capacities of solar and storage at the grid edge.
Whether these problems are associated with safety, quality or cybersecurity, they could lead to a regulatory backlash
severely restricting the uptake of further distributed systems – while other countries learn from mistakes made inJapan.

Japan is well placed to become a global leader in the adoption of distributed solar and storage. If
supportive regulation and subsidies for technology continue then it could simply be a matter oftime before the country’s storage industry delivers small-scale systems at attractive prices.

Japan will have to carry
the burden of earlymover disadvantage

However, even with such high levels of support, the path ahead is by no means straightforward.
The domestic market may not be sufficient for Japan’s storage industry to achieve economies ofscale. There are also other government-supported technologies that could undermine theopportunity for solar and storage. Regulatory reform is ongoing and new rules could yet be
introduced that are unfavourable to distributed systems generally. Lastly, if Japan is to become aleading market for solar and storage, it will also have to carry the burden of early-moverdisadvantage – and possibly be over taken by other nations that have benefitted from lessons
learned in Japan.

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SECTION 10. GERMANY ROADMAP
Germany is currently leading the renewable energy sector in Europe and is
the most attractive European market for residential energy storage due to highelectricity prices and a high penetration of distributed PV. BNEF expects thenation’s renewable sector to account for 90% of total generation by 2040, withalmost $220bn to be invested in the country until then. Historically supportiveof PV, Germany will continue to enjoy even lower solar costs, setting the ideal
conditions for the uptake of distributed solar and storage.

BACKGROUND
Germany is currently themost attractive European
market for residential
energy storage due toOver the past ten years, Germany’s renewable energy sector has grown more than threefold andthe country is now an undisputable leader in renewables in Europe and globally. The current
energy mix sees renewables accounting for 50% of total capacity, with small scale PV at this time
representing 15% and expected to further grow thanks to declining solar costs.

high electricity prices
and penetration of

The nation’s renewables program is summarised under the Energiewende – literally, ‘energy turn-

distributed PV

tariffs as early as 1991, and offered them persistently until they were replaced recently by morecompetitive auctions. In 2013, the country introduced a three-year subsidy programme (KfW
programme) for distributed storage financed through a EUR 50m fund. The scheme provides up
to EUR 600/kW for the purchase of new battery storage or for the substitution of existing PV
systems with energy storage. The programme has contributed substantially to the uptake ofenergy storage in the country: as of November 2015, around 25,000 systems have been sold, halfof them under the KfW programme. Energy storage systems connected to PV systems sub 30kW
are also eligible for low interest loans and a grant of up to 30% of the cost of the system.

around’. The strategy enjoys political support across party lines. The country pioneered feed-in

In 2014, the revision of the Renewable Energy Law (Erneuerbare-Energien-Gesetz - EEG), theFigure 24: Germany current
scenario verdict
Unattractive
economics

Attractive
economics

Supportive
regulation

Supportive
regulation

Unattractive
economics

Attractive
economics

Defensive
regulation

Defensive
regulationconsequent decision to phase-out nuclear power by 2022 and to substitute 80% of it withrenewable capacity, has led to completely new challenges. With more renewables entering thegrid and affecting power prices, the pressure on existing generation capacity – as well as on thenation’s utilities -- has substantially increased. Renewables are already curtailed on a regularbasis when the grid cannot absorb their output, and the problem is rising and affecting bothtransmission and distribution grids. The amount of unused renewable energy generation has risen
from practically nothing in 2009 to more than 1.2% of the total in 2014, according to Bnetza data.
The bottlenecks of the Energiewende have shifted from capacity build to the transmission gridand the integration of more and more intermittent renewables. The country has therefore put
forward a power market reform, foreseeing an energy-only market system with a strategic
capacity reserve holding 5% of peak demand.

SCENARIO, DRIVERS AND RISKS
Given the above, Germany is best characterised by the top-left scenario of unattractive
economics with supportive regulation. With its broad political support for a low-carbon energy
system, as well as its manufacturing prowess that has already seen promising storage start-ups
emerge, the nation is well-suited to remain at the forefront of distributed solar and storage as the
economics for the technology improve. Germany’s progress could be derailed if new investment
in distributed solar and storage raises safety or reliability concerns that are too much to stomach
for a risk-averse public.

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Table 2: Key drivers and risks for Germany
Drivers

Description
Political desire to support new technologies
The “Energy Turnaround” decision to phase out nuclear power by 2022 and replace it with mostly renewable capacity,
has set new challenges for the German power sector. With an ever increasing penetration of renewables influencing
electricity prices, existing baseload generation is increasingly under pressure. Meanwhile, the profitability of flexible
capacity to back up renewable generation, once nuclear phase-out is completed, has also been questioned.
The country has therefore put forward a power-market reform, foreseeing an energy-only market system with a strategic
capacity reserve representing 5% of peak demand. Given the wide political backing for the Energiewende and thepressure on the transmission grid, it is quite likely that distributed storage will be seen as an important part of the solution.

Unattractive
economics
Supportive
regulation
Unattractive
economics
Defensive
regulation

Unattractive
economics

Attractive
economics

Supportive
regulation

Supportive
regulation

Unattractive
economics

Attractive
economics

Defensive
regulation

Defensive
regulation

Risks

Cheap storage, more storage, even cheaper storage / Strong global economy drives storage industry
In 2013, Germany announced a subsidy program for storage, which has contributed to the uptake of energy storage inthe country with 25,000 systems sold as of November 2015. While the end of the mechanism may result in a regulatory
setback, it is generally seen that the scheme has successfully brought down energy storage costs by developing local
expertise and enhancing consumers’ awareness. It remains to be seen if its momentum can continue.
Additionally, Germany is seeing innovation on aggregation and community-level storage which could both also improvethe economics of storage. Aggregation startup Caterva enables behind-the-meter storage owners to rent out part of theirbattery to network operators, while utility MVV has created the StromBank community storage system for households tobenefit from storing rooftop PV without installing a battery in their own homes.
Description
Push back against unsafe and unreliable technology

Unattractive
economics

According to a study conducted by Karlsruhe Institute of Technology, many storage systems eligible for the KfW
programme are potentially unsafe and at risk of catching fire, as suppliers have failed to comply with industry
standards. Among the issues the report highlighted is that many systems are characterised by low quality cells, plastic
instead of metal casing and poor quality separators with low temperature limits of 80°C.

Supportive
regulation
Unattractive
economics

This may represent a significant risk for the further development of the solar and storage industry, as policy makers
could decide to push back against the storage sector, in the name of public security, should some of these issues
manifest in the form of disruption to supply or safety incidents.

Defensive
regulation

Controversy and re-regulation

Unattractive
economics
Supportive
regulation
Attractive
economics
Defensive
regulation

Attractive
economics
Supportive
regulation

Attractive
economics
Defensive
regulation

The rapid uptake of PV in Germany has not been without controversy. Taxes represent the 52% of the total commercial
electricity bill, for example, but consumers that can afford to reduce their bill through the installation of PV could in theory
avoid paying their share of this. Increases in grid prices to offset the lost electricity from owners of rooftop PV are also
seen as unfair, particularly on lower income consumers.
To address this, the 2014 Renewable Energy Law (EEG) saw the introduction of a renewable energy surcharge applied
to all the new PV systems larger than 10kW, taxed at current rate of 30%, rising to 40% by 2017. Taxing self-consumption
is controversial and has itself provoked a major backlash in Germany.
Cyberattacks and system failures
The current German legislation sets stricter PV requirements for inverters as they are required to meet controls on theamount of power injected in the grid (active power). This allows the Transmission System Operator (TSO) to havesome degree of control on assets, as it can require curtailment of PV at a fixed rate of 70% and enforce frequency
control, when it rises above 50.5 Hz.
While such measures may enable grid operators to more easily manage the system, they add additional complexity to
the installation of rooftop PV and to some extent reduce the consumers’ sense of independence from the grid.

Germany is well placed to further strengthen its position of leader in the renewable sector and to
become a leading market for distributed solar and storage.
However, even with such high levels of support, the path ahead is still uncertain. The risk of systems
failures from unreliable technology could undermine the opportunity for solar and storage.
Regulatory reform and new rules could yet be introduced that are unfavourable to distributed
systems generally. Finally, if Germany is to become a leading market for solar and storage, it will
also have to carry the burden of early-mover disadvantage – and, as in the case of Japan, take therisk of being surpassed by other nations that have learned from its mistakes.

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SECTION 11. UNITED STATES ROADMAPThe residential PV market in the US is growing strongly, and Bloomberg New
Energy Finance expects that a total of 11.5GW of residential and commercial
solar will be installed by the end of 2015. The nation is also a leading market for
grid-scale energy storage, with over 420MW of capacity installed at the end of2014.

BACKGROUND
BNEF expects that a total of 11.5GW of residential and commercial solar will be installed by theend of 2015. The rooftop solar market in the US has been supported by two regulatory pillars thathave fostered a competitive environment for installers.
•

The 30% investment tax credit awarded to solar projects represents a direct subsidy paid
from federal tax revenues. It applies to large-scale and rooftop solar projects, and has been
repeatedly extended. It is currently scheduled to expire by end-2016, which is likely to slow
the solar market, in particular for large-scale projects that cannot benefit from net metering.

•

A total of 44 states had net-metering programmes in place in 2013, allowing consumers tosell surplus power produced by their solar systems, often at the retail electricity tariff. Netmetering dramatically improves the economics of rooftop solar and reduces the need for abattery. Net-metering is criticised by some utilities, who argue that it allows solar systemowners to avoid paying the costs of maintaining the grid while benefitting from its availability.

Solar tax credits are tradable and associated with significant paperwork, so many of the leading
solar installers also offer to finance and handle the monetisation of the tax credit. Around 70% of
residential systems installed in 2014 were leased rather than owned outright, with the leaseprovider also handling installation and monetisation of the tax credit. Banks and leasing providers
are increasingly also offering solar loans, meaning that end-user ownership may soon increase.

Figure 25: United statescurrent scenario verdict
Unattractive
economics

Attractive
economics

Supportive
regulation

Supportive
regulation

Unattractive
economics

Attractive
economics

Defensive
regulation

Defensive
regulation

The US storage market is driven by state-level mandates and electricity market designs thatreward applications such as ancillary services, network and demand charge management, andresiliency. Net-metering policies reduce the attractiveness of residential energy storage in the US.
However, there is a growing market for commercial and industrial behind-the-meter energy
storage. This is being driven by a combination of building demand-charge management, the needfor resiliency and the potential to use aggregated storage systems to provide services to utilities
and network operators. Of the 262MW of energy storage that Southern California Edisonprocured in October 2014, 160MW was for behind-the-meter storage.

SCENARIO, DRIVERS AND RISKSThe US’s recent momentum on end-user PV installations and its leadership in utility-scale storage
applications means that it is well placed to take a lead in distributed solar and storage. However,
the widely used net metering programmes are likely to be among the biggest stumbling blocks foradding storage to solar, as they force the grid to function as a free, virtual battery.
Given the above, the US is best characterized as having both unattractive economics for PV andstorage systems as well as a somewhat unsupportive regulatory framework. However the days ofnet metering are likely to be numbered, and it is easy to imagine that regulators can shift towards
measures designed to support distributed solar and storage just as readily as they haveembraced policies such as net-metering that support distributed solar alone.

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Table 3: Key drivers and risks for US
Drivers

Description
Political desire to support new technologies

Unattractive
economics

California is leading the way in creating the regulatory framework and incentives to push behind-the-meter energy
storage. Besides having mandates for its utilities to procure at least 1.3GW of energy storage by 2020, the state alsooffers developers funding under the ‘Self-Generation Incentive Program’ for behind-the-meter storage.
Besides such specific measures to support behind-the-meter storage, removing the bias against residential storage
that is implicit in net metering programs, without removing the support for distributed generation, would improve
regulatory conditions. California is also likely to be a pioneer in this regard, with a stated aim of replacing the net
metering regime no later than 1 July 2017.

Supportive
regulation
Unattractive
economics
Defensive
regulation

Unattractive
economics

Attractive
economics

Supportive
regulation

Supportive
regulation

Attractive
economics
Supportive
regulation
Unattractive
economics
Defensive
regulation

Risks

Cheap storage, more storage, even cheaper storage
Business-model innovation can contribute to improved economics for behind-the-meter solar and storage. Companies
such as Stem, Sunverge or Advanced Microgrid Solutions are already running pilot projects in which aggregatedcustomer storage systems provide balancing services and similar. This allows system-owners to benefit fromadditional streams of revenue that would otherwise be inaccessible.
The US is also likely to play a role in future reductions in battery costs, given its support for electric vehicles.
Additionally, the country’s share of global battery manufacturing should increase with the completion of Tesla’s‘Gigafactory’, which may lead to cost reductions that benefit the local market directly.
Break down of traditional utility model
The grid in several regions in the US is less reliable than in other developed countries, which is regularly highlighted byextended outages following extreme weather or natural disasters (e.g. Hurricane Sandy). This is encouraging energy
storage adoption on two fronts: firstly there is increased availability of grant financing for systems that can provide
resiliency, and secondly, individuals and companies place a greater value on backup systems for reliability.
The traditional utility business model of centralised fossil power plants has been criticised by some on the left for its
environmental damage and by some on the right for restricting freedom of choice. The combination of low reliability,
ideological convictions and the American tradition of business innovation means that, in the right circumstances, theUS could see a dramatic shift towards distributed solar and storage systems that forces regulatory change.
Description
Controversy and re-regulation

Unattractive
economics
Supportive
regulation
Attractive
economics
Defensive
regulation

Unattractive
economics

Attractive
economics

Supportive
regulation

Supportive
regulation

Supportive policies for increasingly cheap technologies that threaten incumbents can trigger a backlash from thoseincumbents and lead to the introduction of new barriers. Examples of retaliation against distributed solar have occurredin several US states, most notably Arizona and Hawaii. Both of Arizona’s regulated utilities have introduced monthly
fixed charges for installed residential rooftop solar, and are lobbying to increase the fee to as much as $18/kW. One of
the utilities has also asked to start paying wholesale power market rates for solar power generated under net metering,which is far lower than the residential rates paid previously. Hawaii has moved ahead and replaced net metering while
adding a fixed connection charge of $25/month.
These examples relate specifically to distributed solar. Distributed solar and storage could trigger a similar reaction.
Cheap gas means cheaper options
The fracking revolution has made natural gas a cheap, abundant and domestic source of flexible power in the US. This
allows both utilities as well as industrial facilities to produce energy cheaply, and also offer cheaper power to theircustomers. Cheaper power prices directly reduce the economic attractiveness of solar and storage. By being both
domestic and relatively clean, natural gas is also politically popular. These advantages can pose a unique threat to theacceleration of solar and storage in the US, both individually as well as combined.

The solar and storage market in the US will continue to be fragmented, since most regulation isdetermined at the state-level and past experiences have shown a wide divergence on policy
among states. Key dynamics that will affect the US market more broadly are the presence ofdomestic battery manufacturing which – like Japan – reduces some of the impact of trade barrierson economics. On the other hand, natural gas is likely to remain cheap in the US for theforeseeable future. A major driver may then be resilience which, coupled with business model
innovation, could drive a more dramatic transition towards the uptake of distributed solar andstorage.

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SECTION 12. CHINA ROADMAP
China is currently in the process of drafting its 13th Five-Year Plan and the mostrecent guidance documents suggest that although there is support for
distributed solar, the emphasis for storage is on utility-scale applications that
support reliability. If there is a future for rooftop and community solar andstorage bundles in China, it will begin in the commercial and industrial sectors,
where electricity prices are highest.

BACKGROUND

Figure 26: China current
scenario verdict (emerging
market perspective)
Unaffordable
storage
Reliablegrid

Affordable
storage
Reliablegrid

Unaffordable
storage

Affordable
storage

Unreliable
gridUnreliable
grid

Figure 27: China current
scenario verdict (mature
market perspective)
Unattractive
economics

Attractive
economics

Supportive
regulation

Supportive
regulation

Unattractive
economics

Attractive
economics

Defensive
regulation

Defensive
regulation

China has the features of both an emerging and mature economy. Average GDP per capita isapproximately one eight of that in Japan and electricity demand is expected to increase by over
250% between now and 2040, driven principally by economic growth (rather than population
change). However, its grid, which has been central to decades of economic planning, increasingly
resembles that of a mature economy. Although the average minutes lost per customer per year isstill high compared to European countries, it is rapidly falling due to ongoing investments bypower companies to strengthen and smarten the grid. Reliability differs between rural and urban
areas and remains a focus for China’s National Energy Administration (NEA), which released the
National Action for the construction of the distribution network (2015-2020) in July 2015.
China is home to the bulk of the world’s PV manufacturers, with the country accounting for sevenout of the top 10 in 2013. By contrast, it is a relatively small player in the storage industry: justthree of the top 10 lithium-ion battery manufacturers were Chinese in 2015. With this difference in
mind, however, the fact that there is a stronger emphasis on support for solar technologies thanstorage should not come as a surprise. In 2013, a generation-based subsidy scheme wasintroduced, offering CNY 0.42 ($0.067) for every kWh of distribution-grid connected PV electricity
self-consumed and allowing excess output to be sold to the grid at the price of local desulfurizedcoal power. This scheme, which is applicable to residential, commercial and industrial users, wasupdated in September 2014 to include the option of a feed-in-tariff. Returns as high as 14-21%
could be achieved in commercial and industrial sectors, where electricity rates are particularly
high.

SCENARIO, DRIVERS AND RISKS
Because China combines features of both mature and emerging economies, the analysis of thecountry draws on both the mature and emerging markets toolkits. Considering China first as an
emerging market, current outage statistics and the policy emphasis on reliability mean that it veryclearly fits into the top-left quadrant of unaffordable storage and a reliable grid.
Taking the perspective that China is a mature market, it is fair to say that despite there being
some policy support for distributed solar, overall regulation is not favourable for distributed solar
and storage. In the rare cases that storage is supported, it is generally for utility-scale applications
and economically attractive rooftop solar and storage is some way off.

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Table 4: Key drivers and risks for China
Drivers

Description
Political desire to support new technologies (mature markets toolkit)

Unattractive
economics

Since late 2013, the Chinese government has aimed to shift PV deployment from transmission-grid connected (TGC)
projects to distribution-grid connected (DGC) installations, to reduce the need for additional investments in thetransmission grid. The NEA set an 8GW quota for DGC PV in 2014, which is approximately 10 times the 801MW ofrooftop PV connected in 2013. The scope of DGC has also expanded – previously it was limited to rooftop installations
but it now includes projects on abandoned land, agricultural greenhouses, intertidal zones, fishponds and lakes. The
policy requires grid companies to connect these projects in a timely manner with a service charge of almost zero.

Supportive
regulation
Unattractive
economics
Defensive
regulation

While the policy paves the way for rooftop and community solar, future iterations may have provisions for storage.

Unattractive
economics

Attractive
economics

Defensive
regulation

Defensive
regulation

Risk/Driver

Strong global economy drives storage industry (mature markets toolkit)
The emergence of a global storage industry with cheaper batteries should coincide with global growth. Although thecountry does not have a large battery manufacturing industry, a fall in battery prices from non-Chinese manufacturers
should also coincide with strong growth in China’s commercial and industrial sectors.
This is significant because China’s commercial and industrial users pay approximately three times more for electricity
than residential users. The economic case for end-user solar and storage is likely to be strong in the commercial andindustrial sector in China long-before it is in the residential sector – particularly if there is significant growth of
economic output.

Description
Affordable
storage
Reliable
grid

Attractive
economics•
Defensive
regulation

Risks
Unaffordable
storage

Supportive
regulation

The Guidance to Promote the Development of the Smart Grid, released in July 2015, encourages a certain percentage
of energy storage for integration with wind farms and solar plants. This could see a dramatic increase in the uptake ofstorage, but its impact would be limited to the utility scale.

Description
The grid is the only game in town (emerging markets toolkit)•

The government appears to be in favour of storage technologies that are inherently utility-scale. In September 2015,
State Grid announced that it will invest $3.9bn for 30GW of pumped storage capacity during the 13 th five-year plan,
which would bring cumulative capacity to 70GW. Policy makers are also said to see redox flow batteries as a key
technology for grid-scale storage applications.

•

At the non-utility level, the NEA’s Guidance to Promote the Construction of New Energy Microgrid Demonstration
Projects was released in August 2015 and includes storage as a supporting technology. Although expected to, theguidance does not recommend a subsidy for microgrids.

Reliable
grid

Unattractive
economics

Solar and storage is the new normal (emerging markets toolkit) andElectric vehicles need a strong utility (mature markets toolkit)
China is currently in the process of drafting its 13th Five-Year Plan for the energy-storage industry. Previously thegovernment has placed a high value on grid reliability. With future economic growth in mind and plans to dramaticallyincrease uptake of electric vehicles there is little reason to see this position change.

Global industry fails to emerge (mature markets toolkit)
Despite government support for ‘new energy vehicles’ China is not a strong global player in the EV lithium-ion batteries
industry, with BYD being the main domestic manufacturer of note. Therefore improvements in battery economics islargely dependent on external factors.
To address the issue of old EV batteries (and perhaps to also drive down the cost of storage), there have been efforts
to explore the possibility of recycling EV batteries for stationary energy storage. However a collaboration between
General Motors and State Grid emphasised the challenges posed by a lack of battery standardization which has held
these efforts back, particularly when attempting to aggregate to the utility scale.

While the opportunity for
distributed solar isincreasing, storage islimited to utility-scale
applications

Historically, policy in China has favoured centralised generation with reliability the most importantmeasure of success. While the tide appears to be turning in terms of solar, with incentives to shift
away from large transmission-level installations to those connected to the distribution-grid,support for storage favours utility-scale technologies and applications. This may be due in part tothere being less support for lithium-ion batteries, which are well suited for distributed applications.
It could also reflect the relative lack of a domestic industry in that technology.
If regulation does shift to favour distributed storage then the expectation would be that the initial
market would be in the commercial and industrial sectors, where grid tariffs are highest and thus
economic attractiveness of solar and storage is highest.

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SECTION 13. INDIA ROADMAPAs part of Prime Minister
Modi’s 100%
electrification target by2022, the government
has increased its
renewables target, which
includes 40GW ofrooftop solar

For the next 25 years India is expected to have the highest absolute electricitydemand growth of any country in the world, driven by a combination ofelectrification and population growth. This poses a number of challenges, bothtechnical and environmental. However, the country’s high insolation andexisting market for backup storage systems means that solar and storage could
be an important part of a low-emissions strategy for the country.

BACKGROUND
India is home to 1.3bn people and is projected to become the world's most populous country by
2026, according to the World Bank. Around a quarter of the existing population is not connectedto the grid and the government wants to achieve full electrification by the early 2020s. India's
current power consumption of 936kWh per capita is lower than other large economies, but this is
expected to increase with growth of the commercial and industrial sectors and as use and uptakeof electrical appliances increases in homes.
India intends to add 100GW of solar power by 2022 (up from the 4.9GW at the end of October2015). The solar target also includes an ambition to do 40GW of rooftop solar. At the moment,
ground-mounted large scale (>1MW) projects contribute 94% of the installed solar capacity.
The low growth in the residential rooftop segment in particular is due to the high cost of storage,
which prohibits the use of these systems as a back-up power source during power cuts. This
consumer segment also pays lower electricity tariffs than industrial or commercial consumers andhence they may not see a significant immediate gain from reduction in their electricity bills.
Another bottleneck in the growth of rooftop solar is the lack of standard loan products or
SolarCity-like business models for the residential segment.
Many major states in India have formulated feed-in tariff or net-metering policies to support
growth of rooftop solar. There is, however, little effort being put to promote storage solutions. The
Ministry of New & Renewable Energy has recently launched an Expression of Interest to support
demonstration storage projects for rural applications, microgrids and large-scale grid-connected
renewable energy projects. But the first set of these projects are not expected to becommissioned before 2017.

Figure 28: India current
scenario verdict
Unaffordable
storage
Reliablegrid

Affordable
storage
Reliablegrid

Unaffordable
storage

Affordable
storage

Unreliable
gridUnreliable
grid

SCENARIO, DRIVERS AND RISKS
While India has already achieved some of the lowest utility-scale solar costs anywhere in theworld, rooftop installations are still at a nascent stage. Artificially low retail power prices hinder the
uptake of small-scale PV in India for the time being, with just 281MW of such installations by
September 2015. While lead-acid storage system costs are relatively low, once combined withrooftop PV installations the resulting levelised cost of electricity is not low enough to make aproposition affordable for most.
India’s grid – particularly on the distribution level – is highly unreliable due to a lack of investment
relative to demand growth. The majority of India’s state-owned DISCOMs (utilities responsible for
distribution and retail) are currently insolvent due to policy decisions such as below-cost tariff
rates and accumulated losses over a long period of time.
As a result of these factors India is best characterized by the lower left scenario of unaffordable
storage and unreliable grid.

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Table 5: Key drivers and risks for India
Drivers

Description
Cheap batteries and new business models drive consumer choiceUnaffordable
storage

Affordable
storage

Unreliable
gridUnreliable
grid

In urban areas with patchy grid supply, many residential electricity consumers already use lead-acid battery basedenergy storage systems. The backup power supply industry has also established supply chain in the country and cansupport further technology development. The existing supply-chain combined with India’s market size andentrepreneurial spirit may very well accelerate cost reduction for storage faster than other markets.

Political stability, economic stability means grid stability
In May 2015 prime minister Narendra Modi’s political party became the first in the past 30 years to achieve an absolutemajority. His government has increased targets for renewable energy substantially and is working on improving
regulations. This includes steps to unbundle utilities into carrier and retail arms, with the intention to increase
competition and service quality on the retail side and infrastructure development and operation on the distribution side.
The most important and challenging reform, however, is the reduction of subsidies offered to low-income consumers
which would translate into improved power sector finances. The Ministry of Power is also to provide soft loans to
DISCOMs to improve grid infrastructure and part of these can be converted to grants if specific targets are met.

Unaffordable
storage

Reliablegrid
Unaffordable
storage
Unreliable
grid

Risks

Description
The grid is the only game in town
One of the election promises of the current government is universal access to uninterrupted electricity, which has
resulted in programs to extend the grid to all villages in India. While the grid is currently not reliable enough to provide
round the clock stable power to all, India has sufficient domestic coal resources for full electrification over several
hundred years. Without careful policy coordination, investment may favour centralised coal power plants only, resulting
in a reliable grid with relatively cheap electricity tariff rates, limiting economic attractiveness of rooftop PV and storageand other low-carbon solutions.

Unaffordable
storage
Reliablegrid

Affordable
storage
Unreliable
grid

Unaffordable
storage

Affordable
storage

Unreliable
gridUnreliable
grid

Distributed energy drives economy as opportunity for grid fades away
Without sufficient grid investment India’s cities could face power cuts while millions of people still do not have accessto the grid. The government and utility reaction is slow to make improvements there could be time for distributed solar
and storage to gain enough traction to become the most relied on source of electricity. The commercial and industrial
rooftop solar market is starting to show promise as retail electricity prices in this segment are high.
New business models are also emerging in the rural microgrids and offgrid solution space. With a growth in theeconomic activity in these areas and a rise in income levels, solar PV and storage solutions can see a rise inpenetration levels.
The bubble bursts
Given the relatively low upfront cost of lead-acid batteries, falling rooftop PV costs and India’s current poor gridreliability, it is plausible that PV combined with lead-acid based storage systems will become rapidly economical andachieve significant uptake. However shorter lifetime performance of most common types of lead-acid batteries could
result in failure of those installed systems. This may then result in the need for more expensive lithium-ion batteries
and a slow-down in the market as well as a large number of poorly functioning distributed systems based on outdated
technology.

India will have to becareful with the qualityof the systems that get
installed initially to avoid
future market failure

India is well-placed to not only be one of the pioneers of electrification based on rooftop PV andstorage, but to also become a major player globally based on market experience developed
domestically. However, without the right supporting framework, India could develop a centralised
coal-based infrastructure that would be difficult to displace.
To ensure the rooftop PV and storage market flourishes, India’s policy makers need to implement
supporting policies and coordinate their actions. Specifically, the central and state levelgovernment should consider policy frameworks that enable profitable and sustainable businessmodels. For example, they could consider allowing the state-owned DISCOMs as well as national
players such as NTPC, India’s largest utility, to co-invest in rooftop PV and storage along withprivate entities based on regulated rate of returns that are passed on to consumers. The
government should also consider setting quality standards as well as warranty and service
requirements that would entail long-term commitment to the Indian market by any entity.

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SECTION 14. BARRIERS
By running a scenario exercise, developing a roadmap toolkit and applying it toa selection of countries we have gained insight into a number of different
pathways for the increased uptake of distributed solar and storage. The
advantage of this approach is that not just the immediate next steps are
considered, but also subsequent developments and risks. There are barriers
common to more than one pathway and country, with different timeframes fortheir impact.
Across the roadmap analysis, there were six barriers that stood out. They are listed in the tablebelow, ranked in order of importance. More details are given in the subsequent subsections.
Table 6: Summary of major barriers for distributed solar and storage
Barrier and rank

1. Storage costs

2. Policy andregulation

3. Cheap
alternatives to solar
and storage

ExamplesContributing factors

x In southern California, storage has negative
NPV unless utility rates are above ¢30/kWh
x For storage not to be a bottleneck, costs must
decrease from ~$1,000/kWh to ~$600/kWh
x For ‘grid independence’ household storage
systems costs are $19,000-$33,000

x Lack of industry scale
x Installation costsx Technological complexity
x Challenge of predicting future costs

x Restrictive connection codes (e.g. Hawaii)x Lack of market structure for non-utilities
x Self-consumption tax (e.g. Germany/Austria)
x Net-metering (barrier for storage only)
x Fossil fuel-based electrification policies

x Regulatory inertia
x Concerns over grid impact of distributed
systemsx Desire to avoid utility bankruptcy

x Discovery of cheap natural gas
x Pumped hydro storagex Demand response
x Hydrogen technologies (ie power to gas)x Open markets
x High energy prices driving business model
innovationx Technology breakthroughs in alternative techx Fuel cell vehicles

4. Quality and safety x Swedish heat pump market set back aissuesnumber of years through poor quality
installations
x Sodium sulphur technology suffered lasting
reputational damage after battery fire
5. Trade barriers

6. Challenges of
distributed resource
integrationx Rapid uptake of new technologies
x Bias towards oversizing systems
x Lack of accreditationx First-mover disadvantage

x Import and export duties
x Conflicting technology standards
x International sanctions

x Desire to develop technology expertise locallyx Recession brings need to develop industries
and safeguard local jobs
x Geopolitical tensions

x Grid failure due to inexperience in relying ona large number of distributed systems
x Cyberattacks routed through systems for
managing distributed resources

x Rapid uptake of new technologies
x First-mover disadvantage
x Vested interests exaggerating negative
impacts/blame distributed energy

Shortterm
impactLongterm
impactHigh

High

MediumHigh

Medium

High

High

Low

MediumMediumLow

Medium

14.1. STORAGE COSTS
Even where market conditions are favourable to distributed solar and storage, the cost of storage
systems remains the barrier. While this can be overcome with the help of subsidies, in the long

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run the technology will need to be cheap enough for solar and storage systems to beeconomically viable in their own right.

EXAMPLES
The relative sizing between a solar and storage system depends on the use case – whether theobjective is to reduce dependence on the utility financially, or to gain independence from the utility
completely. In either case storage would need to be significantly cheaper than it is currently for
either to be attractive.

Solar and storage as a financial investment
Using a southern California home as an example and assuming no net-metering, Bloomberg New
Energy Finance calculations39 show that a storage system with installed costs of $1,000/kWh
only adds value to a rooftop PV system if retail rates are above 30¢/kWh. Current residential
rates in California are around 20¢/kWh. As figure 27 shows for our example household, solar isjust about economically viable even without net-metering. For a combined solar and storage
system it is the cost of storage that is the limiting factor and will be until costs fall below$600/kWh at which point solar is the limiting factor (though this assumes that the installed cost ofsolar does not decrease, which is unlikely). While Tesla is currently marketing a suitable battery at$430/kWh in reality the installed cost is more likely to be around $875/kWh at the least. Many
estimates of installed costs are closer to $1,500/kWh.
Figure 29: Overview of options maximising system NPV for rooftop solar and storage
system in southern California household (no net-metering)Electricity retail rate ¢/kWh
50
Solar and storage
economicallyattractive

40

Solar
attractive,
storage too
expensive30
current
prices20
Solar too
expensive

positive NPV from solar
negative NPV from solar

10
Solar and storage
too expensive
0
0

500

1,000
1,500
Installed cost of storage $/kWh

Source: Bloomberg New Energy Finance. Note: Household is located in southern California, has an annual
demand of 10MWh, a 4kW PV array, a 4kWh battery and flat retail rates (not time of use).

To reduce utility bills, a household with annual consumption of 10MWh/yr might typically install a
4kW PV system with a 4kWh battery. In such a case the installed costs of the PV system,
including inverter, would be around $12,000 while the battery is $3,500-$6,000. This might givethe impression that the cost of PV, rather than storage, is the barrier, but this is not true for threereasons:1.
39

Although cheaper, the addition of storage is reducing the overall NPV of the system.
Bloomberg New Energy Finance (Brian Warshay), “US residential PV+storage: case against grid defection”,
13 March 2015. URL: https://www.bnef.com/Insight/11721 (paywall)

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The value that the battery brings is independent of the cost of the rooftop system.

3.

Future cost reductions for energy storage at this scale are relatively uncertain – large lithiumion batteries have cost-trends that span years, compared to decades for PV experiencecurves.

Solar and storage as a means to reduce grid dependence
If the objective is to achieve essentially complete grid independence then storage costs have aneven more significant impact because of the need to oversize a system for the days of the yearwith highest consumption. For an annual consumption of 10MWh, Bloomberg New Energy
Finance estimates that the example Southern Californian household would need 16kW of PV
accompanied by 22kWh of storage to make it through the longest period without sufficientsunshine that can reasonably be expected. At current prices this equates to $48,000 of PV and$19,000-$33,000 for the storage system as an initial investment.
Clearly this is not affordable for most households. Although complete grid independence is anextreme example and partial independence is a more realistic goal, it illustrates the potential forcosts to climb in non-economic applications.

CONTRIBUTING FACTORS
Figure 30 summarises the findings of a sensitivity analysis run using Argonne National
Laboratories BATPAC model, there is significant potential for the reduction of lithium-ion battery
costs from a number of variables.
Figure 30: Sensitivity of lithium-ion battery costs to changes of individual variables
Annual production

17%

Electrode thickness

11%

Open circuit voltage

9%

Positive electrode cost

6%

Cell yield
Negative electrode cost

3%2%

Source: Argonne National Laboratories, Bloomberg New Energy FinanceThe cost reduction of 17% for annual production is based on an assumption of economies ofscale associated with increasing production from 30,000 to 500,000 units. This demonstrates thebenefit of a non-fragmented industry that can leverage these economies of scale. This is much
more likely to occur in a globalized storage industry that can benefit from low trade barriers (which
are discussed further below) rather than a fragmented industry only serving select markets.
In addition to these battery-level cost estimates, it is important to examine the system-level costs.
At present installation and balance-of-system costs contribute 50% of the cost of a fully installedsystem. For the rooftop solar industry, the equivalent costs fell as a result of installer experienceand competition as the market grew. Since distributed solar and storage is currently a relatively
small market, these costs have not yet been driven down for storage.

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IMPACTAt present prices and in most situations distributed solar and storage is not as attractive
economically as distributed solar alone, so it is essential for storage costs to decrease if it is to be
widely adopted on an economic basis. Where the application is grid independence batteries are
currently unaffordable for all but a few. Therefore storage costs have a high impact in the shortterm.
While storage and solar costs are both expected to decrease over the course of the coming
decades, historical learning rates suggest that battery costs will fall slower than those ofphotovoltaics. Even if cheaper than today, the storage component of a combined solar andstorage system is likely to account for a higher proportion of the total system cost in the future. It
may be that the storage industry’s relatively small size at present will allow cumulative output todouble more rapidly than for solar and enable costs to fall more quickly. However it is still possiblethat storage costs will have a high impact in the long term.

14.2. POLICY AND REGULATION
The impact of regulation has been a central part of the analysis presented in this work, and sonaturally it appears high on the list of barriers that need to be addressed for the distributed solar
and storage to reach its full potential.

EXAMPLES
Regulation can be a barrier to the uptake of distributed solar and storage in a variety of ways.
Many regulatory regimes reflect a traditional framework built around the assumption of large-scalecentralised generation – this includes restrictive connection codes for new generation incompetitive markets, or in vertically integrated markets the lack of a market structure for nonutilities to monetise distributed generation. Other regulatory barriers are those introduced
explicitly to reduce uptake of distributed generation systems. In Germany and Austria theintroduction of a self-consumption tax reduces the financial benefit of owning rooftop PV andstorage. Italy and Spain are discussing the introduction of similar measures. Similarly, in Arizonaconnection charges have been introduced for owners of grid-connected solar systems.
Net-metering has a fairly nuanced status – it improves the economics of owning a rooftop solar
system but significantly reduces the incentive to add a storage system. If the economics of
distributed solar and storage are not attractive this is a moot point, since cost is a much moresignificant barrier.

CONTRIBUTING FACTORS
There are a number of factors that lead to the maintenance and introduction of policies andregulation that blocks the growth of distributed solar and storage.
On a very fundamental there is an inherent inertia to introducing new frameworks, especiallywhen compared to the pace of technology change. Energy regulation is a complex field with awide variety of factors – economic, technological, social, environmental, political and legal – to betaken into consideration, which slows the process of change. For example, the genesis of Japan’s
forthcoming energy market liberalisation can be traced back to the earthquake of March 2011.
The new rules will come into force in April 2016, over half a decade later. During that period thecost of solar modules has fallen by more than 50%.
The other major factor that contributes to the introduction and maintenance of regulatory barriers
to distributed solar and storage is concerns over the impact on incumbent utilities, whether
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example of how such fears can lead to changes in regulation that are unfavourable to distributed
systems. There the incumbent utility HECO, 16% of whose customers have net metered rooftop
solar, argued to the regulator that such systems were creating a number of challenges thatjeopordised grid reliability. Opponents have claimed that such concerns are exaggerated and areinstead intended to justify delaying new systems from being connected to the grid.

IMPACT
Examples from Germany and Hawaii show that utility barriers already have a significant impact on
the uptake distributed solar. However, even with these regulatory barriers removed the distributed
solar and storage needs to be economically viable to have an impact. Therefore regulatory
barriers have a medium impact in the short term.
Assuming that the cost of storage will continue to decrease then regulation will become the major
barrier to the uptake of solar and storage systems in the same way that regulation is currently abarrier to distributed solar in many markets. Therefore regulatory barriers have a high impact in
the long term.

14.3. CHEAPER ALTERNATIVES TO SOLAR AND STORAGE
It goes without saying that solar and storage – whether individually or in combination – are not the
only option to meet future electricity needs. Indeed it is very unlikely that solar and storage will beadequate on their own. However, alternative solutions could reduce the future opportunity for
distributed solar and storage – and in some cases this could lock-in high-emission centralised
options to the detriment of the environment.

EXAMPLES
Figure 31: Floating solar
installation in Japan

Natural gas accounts for 43% and 29% of generation in Japan and the US respectively, but lessthan 4% in India and 2% in China. It has several advantages as a generation fuel – it can be
stored, it is suitable for dynamic use in peaking applications and, where a gas grid exists, can also
power distributed generation systems such as microturbines and fuel cells. While it is not a cleanfuel, its emission intensity is lower than that of coal, which means that it is often – whether rightly
or wrongly – supported from an environmental perspective. All of these factors mean that cheap
natural gas can undermine the case for distributed solar and storage in more than one way.
A high penetration of centralised pumped hydro storage could – on a system level – reduce theSource: Bloomberg

need to add storage to solar by allowing the grid to act as a battery for intermittent renewables.
This would be reflected in electricity pricing regimes that do not incentivise storage. Recent
stories of floating solar being added to hydropower reservoirs are also interesting. For example in
April 2015 it was announced that the 250MW Balbina dam in Brazil would have 350MW of floating
solar added as part of a government-supported pilot project. This direct integration of pumped
hydro storage with PV could mean an increase in centralised solar generation.
Similarly demand response and power-to-gas would not diminish the opportunity for solar, butthey would reduce or eliminate the need for accompanying storage systems by offering an
aggregated or centralised alternative – which would also be reflected in pricing regimes available
to owners of distributed solar.

CONTRIBUTING FACTORS
There are a number of contributing factors that apply across more than one of these alternatives
to solar and storage.

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Technological breakthroughs can improve the economics of competing alternatives. For
Figure 32: A Nest smart
thermostat

instance, the development of fracking and horizontal drilling techniques have led to a substantial
decrease of gas prices in the US – these techniques may be applied elsewhere to similar effect.
The development of smart thermostats is also an example where technology could change theeconomics of an alternative solution – in this case by enabling higher penetration of automateddemand response.
Generally speaking, open markets, while enabling solar and storage, also enable competitive
alternatives. The PJM capacity markets, for example, have enabled substantial uptake of demand
response (the latest four-year ahead auctions saw more than 11GW contracted). At the sametime, high energy prices drive business-model innovation as was the case with the
emergence of the ESCO business model in Texas in the 1970s. Of course, new business models
could work in favour of solar and storage, but they may also enable competing alternatives.

Source: Bloomberg

In the case of power-to-gas, the major contributing factor would be the development of
economically viable hydrogen fuel cell vehicles, which at present are less competitive thanelectric vehicles but have been the subject of significant research, particularly in Japan.

Figure 33: A Toyota
concept fuel cell vehicle

There are also factors that apply to alternative solutions locally. The opportunity for pumped hydrostorage is highly dependent on local geography, as is the supply of natural gas. Whether demand
response is viable depends on local demand profiles. This means that in certain locations solar
and storage will certainly not be the most competitive solution – however, its principal advantage
is that it is more broadly applicable than the majority of these alternatives.

IMPACTAt present distributed solar and storage is one of a number of promising options that could
significantly impact the future of energy. However there is no option so obviously superior that
support for solar and storage will be withdrawn. Therefore the current impact of alternatives can
Source: Bloomberg

be described as moderate.
In the long run, certain technologies or business models will either develop faster than solar andstorage and win out entirely or be undercut as PV and battery costs fall. A risk could be that
before that time arrives, infrastructure is developed around a centralised solution that thenprevents the uptake of distributed solar and storage. Therefore the cheap alternatives to solar andstorage could be a significant long-term barrier.

14.4. QUALITY AND SAFETY ISSUES
There is no future in solar and storage if systems underperform or, even worse, are unsafe.
Assuming that distributed solar and storage can deliver high performance safely, then the issue ofquality and safety becomes one of protecting consumers from substandard installations andensuring that avoidable issues do not hamper or even kill the development of the sector.

EXAMPLES

Quality issues with early
installations set theSwedish heat pump

As a technology choice, distributed solar and storage bears several similarities to heat pumps.
Both are substantial investments intended to reduce utility bills and require skilled installation at abuilding or home. The Swedish heat pump market is one of the world’s most developed, but its
growth was hampered by reputational issues stemming from poor quality installations. Heatpumps received considerable government R&D funding in the wake of the 1974 energy crisis andby the early 1980s the market had started to gain popularity. By 1985 a total of 50,000 units had

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been installed, with a boom driven by a combination of subsidies and high energy prices 40.
However, during this period the technology gained a poor reputation due to low quality and poorly
sized systems. For the next ten years sales averaged around 2,000 units per year and it was not
until the early 2000s that the market began to pick up again – partially as a result of new
government subsidies but also because of the formation of a national heat pump association by
the industry in order to set and maintain standards for quality for both technology and installers.
While heat pump penetration in Sweden is among the highest in the world, the initial issues
relating to quality set the industry back by around a decade.
Figure 34: Sodium sulphur batteries as a % of MW utility-scale storage project
announcements, 2009-15
100%

90%
80%

September 2011,
fire at 2MW
Sodium Sulphur
installation

70%

60%
50%
40%
30%
20%
10%
0%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2009
2010
2011
2012
2013
2014
2015
Source: Bloomberg New Energy Finance

Safety is potentially a major barrier, particularly if batteries are to be situated inside buildings. A
fire at a 2MW sodium sulphur installation in 2011 led to the manufacturer NGK Insulator
voluntarily suspending their sodium sulphur battery operations. A subsequent investigation foundthat the fire was caused by a single defective cell that led to a domino effect but that there was noissue inherent to the technology. Both the defect and the subsequent domino effect could havebeen avoided with stricter quality control and the addition of firewalls. However this did not limit
the damage to the technology’s reputation – as Figure 34 illustrates, the fire represented awatershed moment for sodium sulphur technology with it going from a dominant choice in thenascent utility-scale storage market to almost zero activity since.

CONTRIBUTING FACTORSThe two examples highlighted above are both inherent to new technologies where there is limited
experience and skills to meet a rapid growth in demand. Similarly to heat pumps, solar andTechnology vendors andinstallers are naturally
biased towards
oversizing systems

storage combinations should be sized correctly, however this is not necessarily in the bestinterests of the vendor or installer, who will naturally be biased towards selling the largest
system possible. This is exacerbated if there is a lack of accreditation. Some issues, however,are difficult to predict, and the issues experienced by NGK Insulator with sodium sulphur batteries
are an example of first-mover disadvantage.

40

J. Lund, B. Sanner, L. Rybach, R. Curtis, G. Hellström, “Geothermal (ground-source) heat pumps: a world
overview”, 2004. URL: https://pure.ltu.se/portal/files/2200656/art1.pdf

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IMPACT
The examples provided both relate to nascent markets and can be broadly characterised as‘teething problems’. Therefore their short-term impact will be high in the specific markets where
issues arise, but in the long-run one would expect problems to be resolved (as was the case withheat pumps in Sweden) and thus quality and safety issues should be of limited importance in thelong-term as the market matures.

14.5. TRADE BARRIERSAs discussed in Section 14.1, trade barriers could lead to a fragmented storage industry that does
not fully benefit from economies of scale, which would hamper the development of the market for
distributed solar and storage as well as related technologies such as electric vehicles.

EXAMPLES
There are numerous examples of financial barriers on international trade. Most obviously this canmean import and export tariffs but common examples are import quotas and subsidies fordomestic industry, which can all distort the development of emerging industries. For example, thesubsidisation – at a city level – of upstream LED manufacturing in China in 2009-10 led to severe
global overcapacity and financial difficulties for many Taiwanese manufacturers in the subsequent
two years. It is not difficult to foresee similar scenarios for storage.
Figure 35: Production and reserves of critical materials for NMC lithium-ion batteries in selected countries

Graphite
CopperAluminium
Manganese
NickelCobaltLithium

New Caled.

Australia

United States

CanadaLatin America & Caribbean

Suriname

Peru

MexicoJamaicaGuyana

Cuba

Chile

BrazilBolivia

EuropeArgentina

UkraineRussiaGreeceVietnam

Asia

Philippines

Indonesia

India

China

ZambiaSouth Africa

GuineaGabon

DRC

AfricaOther

Source: US Geological Survey, Bloomberg New Energy Finance. Note: Area of hollow rings represent reserves as a proportion of known global
reserves, shaded area represents annual extraction x 20 as a proportion of known global reserves. DRC stands for Democratic Republic of Congo,
New Caled. stands for New Caledonia.

There are also non-financial barriers, such as conflicting technology standards andaccreditations intended to lock out competition from foreign rivals. A very obvious example where
this has had an impact is in the electricity sector where, at the grid-level conflicting frequencies
and voltage levels are the consequence of historical differences in technology standards, as are
the different plugs and sockets seen throughout the world. Differences in how solar and storage
systems should be integrated with buildings and grids could have a similar impact.
In the most extreme cases, international sanctions could hold back the industry. While this may
appear far-fetched, a battery consists of a diverse range of specialist materials sourced fromaround the world (Figure 35), and a shortage in any one of these could also prove disruptive.

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CONTRIBUTING FACTORS
While economists generally agree that trade barriers are a source of economic inefficiency, there
are a number of reasons that they can arise. An obvious example is the desire to develop
technology expertise locally, particularly if the technology is of strategic importance (as could
be the case for both solar and storage). Economic recession can also lead to political pressure to
reduce foreign imports to protect local jobs. Regional or global tensions could also be a
motivating factor behind the introduction of trade barriers.

IMPACT
Trade barriers could limit the extent to which the storage industry will scale and push down costs.
Having said that both Japan and the US have domestic battery manufacturing and are set to beimportant early markets for distributed solar and storage, meaning that some progress can still bemade even if international trade slows. Therefore the impact of trade barriers could be moderate
in both the short-term and long-term.

14.6. CHALLENGES OF DISTRIBUTED RESOURCEINTEGRATION
Distributed resource integration is an umbrella term that captures the broad range of issues that
could arise in adding and effectively managing significant volumes of distributed solar and storage
on the network.

EXAMPLES
By their nature these are issues that are difficult to predict without existing examples of grids withhigh penetrations of distributed solar and storage. While the nature of some problems is clear,some are the ‘unknown unknowns’ associated with any pioneering system. This may be the resultof software reacting unexpectedly to utility signals, cascading technical failures or difficulties
associated with microgrids islanding and re-connecting with insufficient warning.
One issue that may arise is that of cybersecurity. If well integrated a distributed system should
be more resilient than a centralized one – as is the case with the World Wide Web. However if
poorly integrated distributed resources could provide numerous points of entry to a gridmanagement system, leading to increased vulnerability from cyberattack. Resilience is a potential
driver of distributed solar and storage, but if cybersecurity issues arise resilience may also be
used as an argument for restricting the integration of the technology.

CONTRIBUTING FACTORSThe challenges described arise from a rapid uptake in new technologies coupled with
inexperience in operating a system based around these technologies. As with the quality andsafety issues, this is an example of first-mover disadvantage.
It is also worth recognising that if there are issues associated with grid integration of solar andstorage, they truly become barriers if scaremongering and exaggeration of negative impacts byvested interests result in a change in policy or regulation.

IMPACT
These issues are less relevant if the penetration of solar and storage on the grid is small and they
therefore have a low short-term impact. As penetration increases, challenges of distributed
resource integration could become a barrier in those markets that are facing these challenges

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first. Slower-moving markets will probably have sufficient experience to cope with whateverproblems may arise. Therefore the long-term importance of this barrier is medium.

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SECTION 15. RECOMMENDATIONS
The barriers outlined in the previous section hold valuable lessons for policymakers, regulators and businesses keen to maximise the benefits of distributed
solar and storage. This section recommends strategies for overcoming thosebarriers.

15.1. BUSINESS STRATEGIES
Several business strategies can help reduce costs and build the foundation for a growing industry.
They include:•

Create manufacturing scale: An important part of the successful cost reductions in PV wasthe technological convergence towards c-Si cells and the modular nature of the technology,
which allowed a rapid learning curve as the same process is repeated millions of times.
Repeating this will be more difficult for storage due to competing Li-ion technologies, but it islikely a key to achieve rapid cost reductions.

•Pursue synergies with the EV industry: Closely related to cost reductions frommanufacturing scale is the strong link of storage with battery-powered EVs. Because both areapplications for very similar if not identical battery packs, both represent a demand centre forthe same manufacturers. Creating strong EV markets is therefore likely to boost economies
of scale and reduce battery costs, creating a self-reinforcing cycle.

•

Encourage start-ups to experiment with different business models. Residential andcommunity-level solar and storage are retail and service businesses. The same technology
provides a different service to the consumer in different circumstances – a financial return, acrucial back-up from an unreliable grid, a lifestyle statement, or just a back-up for a stormy
day. It is not yet clear how the technology will be installed, owned, financed, delivered, andhow it will fill its owner’s pockets. Experience shows that start-ups often play an important rolein figuring out how best to answer all the questions above.

15.2. POLICY AND REGULATORY STRATEGIESPolicy and regulation is important to create a level playing field that allows solar and storage to
profitably scale. Interventions in this area could include:•

Reform electricity markets to support distributed generation: Distributed generation is
generally not owned by utilities. In many jurisdictions, utilities are now arguing that distributed
solar is subsidised competition undermining their profits. Distributed solar and storage incombination is likely to intensify this conflict, as it allows customers to further reduce
payments to the utility while keeping the grid as a valuable back-up option. Regulatory
frameworks that mitigate these conflicts will be important in the years ahead. New YorkState’s Reforming the Energy Vision is an especially interesting approach to addressingthese issues.

•

Reform electricity markets to fully compensate storage: Storage provides a variety ofservices, such as back-up resource in case of blackouts, renewables integration, gridbalancing, frequency regulation and demand response. Distributed solar and storage,
combined with the right business models, can provide all of these. However markets andmechanisms for providing compensation for storage services are underdeveloped in many
jurisdictions.

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Fine-tune regulation to incentivise solar and storage in combination: The net metering
programmes that have proven popular in the US act as an accelerator for small-scale PV, but
reduce the incentive to add storage capacity to the system by guaranteeing purchase of any
excess electricity at favourable rates. Smart policies designed to boost solar and storage
should support the package rather than the components. Storage could, for instance, be
incentivised through a discount on fixed grid charges for residential solar owners, if they exist.

•

Invest in R&D: R&D is essential to enable industry to realize continuous cost reductions into
the future. Cooperative programs that partner industry, academia, and government research
are the most likely to result in new technologies that successfully enter the market. Given thenumber and complexity of publicly funded research programs in various countries (asdescribed in part in Section 4), it is vital that these research efforts are coordinated, withtargets harmonized and results shared as much as possible. It is also imperative for R&D
policy-makers to deeply understand the current market dynamics and state of the technology,
in order to make public R&D programs maximally relevant.

•Where grids are unreliable, nudge users from grid-powered storage towards solarpowered storage: Emerging economies without a reliable grid suffer from the opposite
problem of net metering. Residential storage that is charged with grid electricity is likely to be
more affordable than a combined system with solar, and solves the customers’ immediateproblem of power outages effectively. Regulators therefore should consider ways to
incentivise adding solar to the system.

•

Reduce diesel subsidies. Ending artificially low fuel prices for the most obvious competitor
to solar and storage in the context of unreliable grids would allow a fair comparison between
the costs of grid-supplied electricity and a solar-with-storage system.

•

Define standards for quality: Underperforming systems could chill consumer andinvestor interest in distributed solar and storage, While quality concerns may be
mitigated by business models that bundle the product with a financing solution or maintainownership with the service provider rather than end-consumer, minimum quality standards
could help promote rapid adoption..

•…and safety: There are already concerns that many storage systems eligible under
Germany’s incentive programme may be at risk of catching fire. The best economics andreward systems are unlikely to convince consumers to install batteries if they put their houses
at risk. The reputational damage even of rare incidents may be sufficient to slow down
technology adoption substantially. Both regulators and the industry should agree on andenforce stringent safety standards.

•

Reduce or eliminate trade barriers: At present, the batteries required to store solar power
are mainly produced in Korea, Japan and China... This concentration means that in many
places, solar and storage equipment is either mainly imported or will at the very least
compete with imported products. Keeping trade barriers low will therefore increase
competition, reduce costs and should lead to a broader uptake of the technology.

15.3.

OTHER STRATEGIESOther strategies include:•

Education and training: Selling, installing and maintaining solar and storage systems will
require a skilled work force that considers distributed technologies a natural part of the powersystem. Once trained, such workers can also contribute to the positive perception of theindustry. Creating appropriate training courses is in the interest of both the industry and theregulator.

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Leverage the local context: The same solar and storage combination will be popular fordifferent reasons in different places. Environmentalists may see it as a cure for climatechange, central-government sceptics as a monopoly breaker, community leaders as animportant local asset, and emerging-market regulators as a supporter of grid reliability.
Finding the ‘right’ reason to support solar and storage and building coalitions with the groups
most interested in it will likely be necessary to create a sustainable support framework.

•

Learn from early adopters: Countries such as Germany or Japan and states such as
California that already have a high penetration of residential solar are likely to be among thefirst to gain considerable experience with solar and storage. This means they will probably
also be the first to hit speed bumps along the way. Policy-makers elsewhere should take notewhen they do, and adjust their own regulations ahead of time.

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ABOUT US
Contact details

David Sandalow

dsandalow@columbia.edu

Colin McCormick

cfmccormick@gmail.com

Bloomberg New Energy Financesales.bnef@bloomberg.net

ICEF official website

http://www.icef-forum.org

Copyright

This roadmap adheres to an open source policy, providing access to data and insights that are
free for everyone. The report is intended for use by investors, companies, governments, NGO’s
researchers, communities and other seeking to assess the opportunities of investing in distributed
solar and storage.

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