Author Penny Liao
Updated February 24, 2023

The U.S. residential energy storage sector added 161 MW/400 MWh of installed energy storage capacity in the third quarter of 2022, a 36% year-on-year increase. The most contributing states are California, Puerto Rico, Hawaii, and Texas. Given the Inflation Reduction Act of 2022 (IRA) and California’s drastic revision of its solar energy metering policy, the industry has been more abuzz with energy storage, potentially boosting the development of residential energy storage in the U.S. With a focus on the Californian market, the following paragraphs discuss the economics of the U.S. residential energy storage sector in the coming decade.  


There are numerous factors affecting the electricity cost of residential energy storage, such as annual electricity consumption, initial cost of installation, residential electricity bill, and electricity resale price, as well as solar system generation output. This assessment is based on an annual electricity consumption of 6,000 kWh, a capacity of a Tesla solar system of 7 kWp, and a capacity of a Powerwall 2 system of 13.5 kWh. 

Provided the solar system generates power for 3.3 hours a day, the 7-kWp system generates 8,431.5 kWh of electricity every year. Without an energy storage system, the self-consumption ratio of solar energy is around 30%. To bring that percentage higher, an energy storage system is indispensable. With an energy storage system installed, the self-consumption ratio of solar energy rises to 80%. The energy storage system operates with a ten-year warranty, completing one charge cycle every day. Factoring in depth of charge and discharge during actual usage and equipment depreciation, the system operating efficiency is estimated at 90%. 

Cost and subsidy 

In the second half of 2022, a Tesla solar system was priced at $2.3/W, and a Powerwall 2 at $10,500 per set. Users installing solar and energy storage systems together will get a rebate of $2,700. On these accounts, the cost of a 7-kWp solar system and a Powerwall 2 is estimated at $23,900. Furthermore, the IRA provides solar and energy storage systems with a 30% tax credit, reducing the initial investment cost to $16,730. 

Additionally, since the U.S. electric grid consists of three separate sections, residential energy storage systems can avoid peak hours to feed electricity to the grid. Therefore, local utilities provide subsidies of hundreds or thousands of dollars for users with energy storage systems. Against these backdrops, users that only have solar systems enjoy a 30% subsidy, while those with both solar and energy storage systems avail of the 30% investment tax credit (ITC) and rebates from local utilities.

Table 1. Conditions of assessing the economics of residential energy storage
 230224_InfoLink_residential energy storage market economy_en_1
Note: Self-consumed electricity of PV+ESS systems include solar power generated and used at noon and backup power in the energy storage system. 


Assessing the economic efficiency of energy storage 

As mentioned in Electricity pricing and development of FTM, BTM-storage market: Part 2, in California, solar energy is priced through an integrated system of time-of-use metering and net metering. Residents sell solar power to the grid at the same price electricity is sold by utilities at the moment. In the U.S., there are many independent utilities for residents to choose from to sign contracts for different pricing mechanisms. 

Based on the aforementioned system, seasonal pricing, and time-of-use metering, the average residential electricity bill is $0.26/kWh. Users who only have solar systems resell electricity at $0.28/kWh, the price of peak hours at noon. Users with both solar end energy storage systems can resell electricity at an average price of $0.40/kWh, the high point of electricity bill during peak hours. 

“Economic efficiency” here refers to the pace at which the cumulative cost of installing a new system declines below the cost of purchasing traditional electricity. As shown in Table 1, consumers with neither solar nor energy storage systems pay $16,544, averagely $0.28/kWh, for ten years of electricity consumption. Meanwhile, factoring in subsidies and incomes from electricity resales, users only have solar systems installed pay $5,732, averagely $0.10/kWh, and users with both solar and energy storage systems pay $13,456, averagely $0.22/kWh. That is to say, a solar system will be economical within five years, and a solar-plus-storage system within 8.5 years. Therefore, with subsidies, installing solar or solar-plus-storage systems is more economical than buying traditional electricity. 

230224_InfoLink_residential energy storage market economy_en_2
Fig. 1. Assessment of the economics of residential energy storage of California (subsidy included)

Figure 2 shows whether residential energy storage in the U.S. is economical without subsidies. In this scenario, the ten-year electricity bill of residents who install solar systems only rises to $10,546, averagely $0.18/kWh. The cumulative cost will decline lower than traditional electricity by the seventh year, two years later than with subsidies. As for residents installing solar-plus-storage systems, the ten-year electricity bill rises to $21,795, averagely $0.36/kWh, after deducting incomes from reselling electricity. The cumulative cost will not decline lower than cost of purchasing traditional electricity within ten years. Therefore, even with no subsidy, installing solar systems is more economical than buying traditional electricity, but not so for solar-plus-storage systems.

230224_InfoLink_residential energy storage market economy_en_3
Fig. 2. Assessment of the economics of residential energy storage in California (subsidy excluded)

The assessments underscore how the ITC makes residential energy storage more economical in the U.S., shortening payback periods by at least two years for both solar and solar-plus-storage systems. Economical efficiency is the biggest incentive for residents to install solar and energy storage systems. 

The average ten-year electricity cost of solar-plus-storage systems seems to be higher than that of solar systems, but residential energy storage remains the talk of the town. This can be attributed to three reasons: 

1.    The Russia-Ukraine conflicts wake residents up to realize the importance of stable electricity supply and self-consumption to save for a rainy day amid international turbulence. 

2.    In recent years, U.S. electricity bill stay elevated. California authorities plan to pare down prices for reselling solar power, making electricity resales less profitable for solar system owners. Meanwhile, the cost of purchasing electricity increases. As a result, energy self-consumption becomes more attractive for residents. 

3.    As discussed in Tesla Powerwall: Its developments and business model, prices for Tesla’s energy storage system keep rising and are not likely to decline in the short term, given its brand premium. Still, both the federal and local governments introduce strong incentives, markedly reducing initial investment costs, allowing solar-plus-storage systems to be economical within the warranty period, making residents more willing to install energy storage systems. In California, solar-plus-storage systems, becoming economical within the warranty period, improve the quality of electricity supply and self-consumption significantly. Consequentially, residents are more willing to install energy storage systems, which is a boon for equipment manufacturers of the U.S. residential energy storage sector.

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