Policy options for enhancing economic profitability of residential solar photovoltaic with battery energy storage

TLDR

Solar PV adoption is rapidly expanding worldwide, yet adding battery storage often fails to deliver returns under current market conditions, despite its potential to boost self‑consumption and provide grid services such as peak shaving. The study proposes three policy instruments—a PV self‑consumption feed‑in tariff bonus, targeted energy‑storage incentives for discharging during peak demand, and dynamic retail pricing—to encourage residential PV‑battery adoption. A consumer‑cost optimization model is coupled with a national power system model to evaluate how the proposed policies affect the economic viability of residential PV‑battery systems in the UK. Results indicate that replacing PV incentives with a self‑consumption bonus yields a 70 % battery subsidy equivalent, energy‑storage policies deliver a 40 % ROI without central coordination, and optimal storage sizing combined with dynamic tariffs is essential for maximizing profitability.

Abstract

Share of solar photovoltaic (PV) is rapidly growing worldwide as technology costs decline and national energy policies promote distributed renewable energy systems. Solar PV can be paired with energy storage systems to increase the self-consumption of PV onsite, and possibly provide grid-level services, such as peak shaving and load levelling. However, the investment on energy storage may not return under current market conditions. We propose three types of policies to incentivise residential electricity consumers to pair solar PV with battery energy storage, namely, a PV self-consumption feed-in tariff bonus; “energy storage policies” for rewarding discharge of electricity from home batteries at times the grid needs most; and dynamic retail pricing mechanisms for enhancing the arbitrage value of residential electricity storage. We soft-link a consumer cost optimization model with a national power system model to analyse the impact of the proposed policies on the economic viability of PV-storage for residential end-users in the UK. The results show that replacing PV generation incentives with a corresponding PV self-consumption bonus offers return on investment in a home battery, equal to a 70% capital subsidy for the battery, but with one-third of regulatory costs. The proposed energy storage policies offer positive return on investment of 40% when pairing a battery with solar PV, without the need for central coordination of decentralized energy storage nor providing ancillary services by electricity storage in buildings. We find that the choice of optimal storage size and dynamic electricity tariffs are key to maximize the profitability of PV-battery energy storage systems.