Since catastrophic wildfires erupted on a much larger scale across California in 2017, utilities have conducted nearly 5,000 intentional outages to keep their equipment from igniting infernos, according to California Public Utilities Commission data. On top of the public safety power shutoffs that have affected millions of Californians in recent years and are becoming standard practice throughout the drought-afflicted western United States, record heat waves are fueling deeper concerns over grid reliability in the region this summer.

Amid the near-constant threat of blackouts when increasingly frequent extreme weather conditions collide, installers of small-scale battery storage systems at homes and businesses are racing to keep up with unprecedented demand.

"California farmers, when there's a blackout, whether its [public safety outages] or heat-related events like last August, they can lose a million dollars a day," Bernadette Del Chiaro, executive director of the California Solar & Storage Association, said in a recent interview. "A growing number of ... industries are adding batteries because they simply can't afford to rely on [Pacific Gas and Electric Co.] and the other utilities."

Entering 2021, roughly 21,000 California homes and businesses had reeled in incentives for electrochemical storage systems, almost all installed since 2017, a database for the state's Self-Generation Incentive Program shows. Another roughly 18,400 projects had locked in rebates and performance-based incentives, or had pending reservations, as of Aug. 3. All told, those projects represent nearly 1,000 MW of behind-the-meter capacity, largely paired with rooftop solar arrays and designed to alleviate stress on the grid to prevent outages or provide homes and businesses with at least a few hours of electricity for critical needs when the lights go out.

"It's a significant amount if you're measuring it up against events like the [August 2020] blackouts," said Del Chiaro, the state's leading advocate for small-scale solar and storage. "But it is very small compared to ... a really mature market."

Onsite battery storage today is reminiscent of rooftop solar a decade ago — a fast-evolving clean energy technology poised for exponential growth if a host of supply-chain, financial and policy challenges can be overcome. That includes defending electric rates that promote customer adoption, expanding federal investment tax credits that currently only apply to storage when charging on solar, and building more domestic battery factories, Del Chiaro and other industry sources say.

"Basically, the argument is that if we don't do anything now in the U.S., batteries will be also made in China, and we will have exactly the same situation as we have experienced in solar," Tore Torvund, CEO of Norway-based REC Silicon ASA, a solar materials supplier with U.S.-based production, told investment analysts July 22.

The Senate infrastructure bill calls for the creation of a "battery material processing grant program," which would be designed "to ensure that the United States has a viable battery materials processing industry to supply the North American battery supply chain" and to "expand the capabilities of the United States in advanced battery manufacturing." The bill also would create a battery manufacturing and recycling grant program.

Opening for Tesla alternatives

Fueled by installations in the Golden State, especially in the San Francisco Bay Area, the country's residential energy storage market alone is on record pace to add more than 1 GWh in 2021, according to Wood Mackenzie. The research firm expects annual capacity additions at homes and businesses to climb steadily in each of the next five years to roughly 6.3 GWh by 2026. If that forecast holds, small-scale batteries could add up to big money for the companies supplying them. The value of the residential market could surpass $1 billion in 2022 and push $2 billion in 2023, the research firm estimated in a June report.

Such opportunity is driving greater competition as new and existing battery-makers and installers seek to cut into Tesla Inc.'s leading position. In addition to dominating the manufacture of behind-the-meter battery systems, Tesla goes head-to-head with Sunrun Inc. for top installer of U.S. home solar-plus-storage installations, each with a roughly 20% share in 2020, according to Lawrence Berkeley National Laboratory, or LBNL.

As demand for small-scale batteries soars, however, Tesla has been unable to purchase or make sufficient lithium-ion battery cells to feed the market's appetite, CEO Elon Musk told analysts on an earnings call in late July. When bottlenecks arise, the company is prone to "throttle down" production of its energy storage products to prioritize supplies for its primary electric vehicle business, Musk said.

That has created an opening for Tesla alternatives. Solar component specialists SolarEdge Technologies Inc. and Enphase Energy Inc., traditional backup generator supplier Generac Holdings Inc. and installers Sunrun, Sunnova Energy International Inc. and SunPower Corp. have all launched new storage products or expanded existing services in the past year. Moreover, while most installers today rely primarily on technology from Tesla or LG Chem Ltd., other options are emerging.

SolarEdge, which is stepping up its efforts to become a major supplier of residential battery storage systems, in early August revealed a new supply agreement with Samsung SDI Co. Ltd. for 1 GWh of lithium-ion battery cells in 2022. SolarEdge is also building its own 2 GWh cell manufacturing facility in South Korea, anticipated to begin supplying cells for storage systems in 2022.

During a July 27 earnings call, an executive at Samsung SDI confirmed reports that the company is exploring new battery manufacturing capacity in the U.S.; the executive declined to share details. The battery supplier's seaborne shipments from South Korea to the U.S., which included lithium-ion batteries for electric vehicles and stationary storage, jumped by more than 300% in the second quarter of 2021 from a year earlier, according to Panjiva data.

Economics 'still pretty marginal'

The emerging cell sources come amid uncertainty over how much installers can deliver in 2021 due to logistical and supply challenges.

"However, whatever capacity we are not going to utilize this year, we're going to basically turn into the next year," SolarEdge CFO Ronen Faier said on an Aug. 2 earnings call.

Sunnova is also hopeful that increased competition among battery suppliers will relieve supply constraints amid a "dramatic increase in consumer demand for reliability in their power service," according to CEO John Berger. But the installer is "not certain if all constraints in batteries will be eliminated by late this year or if the relief comes early next year," Berger added.

Sunrun, which gained an edge over Tesla on battery storage installations through its 2020 acquisition of rival Vivint Solar Inc., anticipates "more than 100% growth in battery installations this year even as we work through the supply constraints," CEO Lynn Jurich said Aug. 5. Speaking on a call with investment analysts, Jurich said she expects costs to improve as manufacturers expand production capacities.

In recent years, residential solar-plus-storage prices have risen among most installers, according to Galen Barbose, an LBNL research scientist focused on power markets and policy.

Research on battery-backed distributed solar, presented in a July report, led the national lab to conclude that "prices seem to be trending up" and that "the economics for residential customers is still pretty marginal, even in markets where we've seen a lot of uptake," Barbose said in an email.

Rising demand "can't be attributed to falling retail costs" and likely instead reflects the "resilience value" of solar-plus-storage pairings, such as providing power during outages, according to the LBNL report.

Panjiva is a business line of S&P Global Market Intelligence, a division of S&P Global Inc.