California Launches Generous Energy Storage Incentive to Reduce Wildfire Outage Risk

California has undertaken major efforts to increase the resiliency of power supply for customers following numerous destructive wildfires over the past 5 years. Efforts intensified following the 2018 fire season and focus on the deployment of solar plus storage systems to provide backup power during outages. The need for backup power solutions has intensified with the growing practice of public safety power shutoffs to sections of the grid during times of high fire danger. Depending on climate conditions these shutoffs could last from a few hours to days, and if fires do ignite, the possibility for widespread and lengthy outages increases substantially. These challenges have become major concerns in late 2019 when hundreds of thousands of customers were without power in Northern California.

Guidehouse Insights closely followed these changes in California, including the developments over the past year to encourage microgrid deployments. The latest actions in California are designed to encourage the adoption of solar plus storage systems by groups that will be most affected by outages including first responders, community shelters, and residents relying on vital electric medical equipment.

Incentivizing Adoption

To encourage greater solar plus storage adoption among these vulnerable communities, the California Public Utilities Commission (CPUC) chose to enhance and expand its Self-Generation Incentive Program (SGIP). SGIP is one of the longest running and most successful distributed energy incentive programs globally. The program has been extended and evolved over time, and now commits a large portion of its overall budget to behind-the-meter (BTM) energy storage systems. These systems are frequently connected to onsite solar PV arrays and provide the ability for both commercial and residential buildings to maintain a steady power supply during prolonged grid outages.

The latest SGIP changes approved by the CPUC are designed to provide greater funding through the program for communities most likely to be affected by wild fires and public safety shutoffs in designated high fire threat districts. This includes a $100 million budget carve-out for vulnerable households (i.e., those with required medical equipment), and critical community services including first responders, shelters, healthcare facilities, water infrastructure, and many others. In addition, this designated budget has higher than normal SGIP incentive rates of up to $1/Wh of battery capacity. For reference, a $1/Wh incentive would pay over 95% of the cost of many popular home battery systems.

Challenges Remain

California’s new incentive is one of the most generous in history for BTM battery storage. However, questions remain around whether it will be enough to overcome the barriers that have held back widespread growth of this technology to date. Challenges remain for vendors to identify and convince customers to invest in a relatively new, expensive, and unfamiliar technology. This challenge is due partially to the structure of SGIP incentives, which pay a portion of the subsidy only after the system had been installed and operating properly. Doing so requires customers to pay much of the unsubsidized cost upfront. Overcoming this barrier will require continued financial and business model innovation on the part of solar and energy storage vendors to both lower customer acquisition costs and reduce the required upfront payment from those customers.

While the residential sector represents a massive potential market and greater initial adoption will likely come from publicly owned facilities, which have greater access to low cost financing and are willing to tolerate longer payback periods. Companies that can develop winning business models for these customers in California will be well positioned to expand offerings to other areas throughout the western US at risk of wildfires and other natural disasters.