A paradigm shift in Europe’s residential solar PV industry

• There is an increasing mismatch between the supply and demand of electricity in European homes, among other factors, due to the penetration of renewable energy sources
• The rapidly and continuously growing residential solar PV market is currently undergoing fast commoditization
• Forward-looking players are evolving rapidly to provide intelligent, integrated and flexible home energy ecosystem and energy management solutions that can serve both the needs of the end-consumers and the electricity grid
• Industry players must adapt to the evolving solar PV market, ensuring readiness and strategic agility to remain competitive in the future

The problem: An increasing electricity supply–demand mismatch in homes

There is an increasing imbalance in electricity supply and demand in European homes, significantly affecting the residential housing sector which accounted for around 28% of Europe’s electricity consumption in 2022.[1] Several factors contribute to this:

• Increased penetration of intermittent renewable energy generation sources such as wind and solar PV
• Accelerated phase-out of fossil and/or nuclear electricity generation sources in several countries (e.g., in Germany, nuclear and coal phase-outs are completed in 2023 and 2030 respectively)
• Climate change leading to more frequent extreme weather events (e.g., summer 2022 heat waves, storms, heavy rainfalls) affecting both electricity supply and demand patterns
• Growth in electricity consumption as residential homes increasingly utilize electricity-based heating systems (heat pumps) and transportation methods (electric vehicles)

In the residential housing sector, there has been a strong solar PV adoption in recent years, a trend which is expected to continue in the long term due to the robust and favorable fundamentals (see deep-dive)

Projected to experience a strong growth over the next five years according to Apricum’s PV market model, the residential PV market is facing an increasing challenge in balancing daily supply and demand. This is primarily due to the mismatch between peak solar energy generation during sunny hours of the day and domestic electricity consumption patterns. Unless addressed, these factors will impact grid stability and the economics and adoption and of the solar PV business case.

The solution: Integrated, intelligent and flexible energy ecosystems and management of energy flows for Europe’s homes

Residential solar PV industry players can be part of the solution rather than contribute to the problem by creating a holistic home energy ecosystem and energy management solutions. This is an intelligent, integrated and flexible set of behind-the-meter electricity generation, storage and consumption assets that can serve both the needs of the end-consumer and the grid, addressing heating and electricity needs. To achieve this in practice, up to four stackable capabilities could be put in place:

• Prosume: Provision of the required assets that generate, store and consume electricity such as solar PV system components (solar modules, inverters etc.), battery energy storage system, EV chargers, heat pumps and other smart and controllable electricity-consuming devices present in the home (e.g., air conditioning)
• Measure & monetize: Introduction of dynamic electricity tariffs that allow consumers to pay less for their electricity in times of abundance and more in times of scarcity and thus monetize their decision to consume electricity at a different point in time (i.e., time-of-use optimization) based on smart automated algorithms
• Control & optimize: Implementation of home energy management systems (HEMS) software that smartly control and optimize electricity demand from household appliances (e.g., EV, HP) in conjunction with devices capable of shifting or shaving loads with energy capacity (e.g., battery storage, bidirectional EVs, electric domestic hot water heaters) to ensure the optimal match between electricity supply and demand, thereby increasing self-consumption, i.e., the auto-consumption of electricity generated on-site
• Aggregate & trade: Capability to aggregate the electricity surplus from individual homes into volumes/portfolio that are adequate and sufficient for energy market participation. This requires forecasting and trading capabilities enabled by intelligent trading platforms and algorithms

Increasing value creation and flexibility potential, as shown in the image below, typically occurs if:

• Multiple cleantech energy assets are combined. E.g., combining a solar PV system with smart devices (e.g., heat pumps, EVs, washing machines), that can shift or shave loads, along with energy storage capacity (e.g., battery storage, bidirectional EVs, electric domestic hot water storage)
• More home energy ecosystem and energy management capabilities are put in place

A full set of home energy ecosystem and energy management capabilities enables not only optimization of internal energy usage within the home, but also enables external monetization through energy/flexibility markets.

Implications for industry: The player landscape is evolving rapidly to around the ability to deliver the home energy ecosystem and energy management capabilities

To deliver the required home energy ecosystem and energy management capabilities, a diverse industry landscape has emerged from which five company archetypes can be distilled:

1. B2C home energy solution providers
2. B2B cleantech hardware providers (subtypes: Solar PV/inverter/storage, HVAC/electrotechnical, EV)
3. Pure play energy management solution providers
4. Dynamic electricity tariff retailers
5. Virtual Power Plant (VPP) and Demand Response (DR) providers

The archetypes can focus on offering all of the capabilities (#1), a large part of the capabilities (#2) or specialize in specific capabilities (#3 to #5). A detailed overview of these archetypes, including description, company examples, typical home energy ecosystem capability coverage and trends observed, are illustrated in the image below.

 

Five major trends can be observed:

1. Offering diversification: Players that originally focused solely on manufacturing or installing hardware are expanding their residential energy ecosystem offering and energy management capabilities to achieve long-term end-customer lock-in
2. Convergence: Both B2C home energy solution providers and B2B cleantech hardware providers are de facto striving to become a one-stop-shop energy solution providers
3. Partnerships: To cover the entire spectrum of cleantech asset offering and capabilities, intra- and cross-industry partnerships have emerged and will likely become increasingly prevalent, making it essential for each company to identify what to cover in-house and what to deliver in collaboration with partners
4. Installation capabilities: Securing adequate and sufficient installation capabilities is key. Capable, multi-skilled technicians and supporting personnel are limited, especially since they would need to cover all cleantech assets, install and service an integrated system instead of only a subset, and treat the ecosystem system as a more than just sum of its parts
5. Customer-centric solutions: Providing excellent, integrated and simple solutions for home-owners that bring savings, offer convenience and adhere to customer preferences is a must. Easy customer sign-up and transparency on savings or earnings are key for customer acquisition and retention, respectively. Customers are likely unwilling to make hard trade-offs (e.g., an EV must be charged when needed and postponing a hot shower is unlikely a desirable choice). Otherwise, customers will not be retained and the desired long-term customer lock-in will not be achieved

How can Apricum help?

Driving the energy transition forward for over 15 years, Apricum is the transaction and strategy advisory firm exclusively dedicated to renewable energy and cleantech. With offices in Berlin, London, Dubai and Paris and a local presence in 11 countries, Apricum has over 80 employees. Apricum has worked across, and help shape, the entire home energy ecosystem landscape and the services that could be provided, including examples of prior projects, are the following:

• Partnership/JV formation: Formation of partnerships or joint ventures (JVs) to leverage complementary strengths (project example: Apricum supported the formation of the grid services JV between BMW/Ford/Honda – ChargeScape)
• Strategy review/definition: Assistance of companies in discovering their unique position within the ever-evolving integrated ecosystem or entering new markets (project example: Sungrow market entry strategy and partner search)
• Commercial due diligence: Assessing if an investment would allow for value creation or whether deal breaking aspects exist (e.g., Apricum performed commercial DDs for investors in 1komma5◦ and Enpal)
• M&A: End-to-end transaction advisory support from target search to deal closure (project examples: Apricum supported the E.ON’s acquisition of Klarsolar and Octopus Energy’s acquisition of Krakenflex, formerly called Upside Energy)
• Business model design and review: Supporting companies in optimizing their value proposition and other business model aspects (e.g., for Swiss player Homsphere)

If you would like to learn more about how our services and team can support you in this space, get in touch with Apricum Principal Erik Klaassen.

[1] Enerdata (Link)

[2] The learning rate is defined as the rate by which prices decline with each doubling of the installed cumulative capacity

[3] An example is that the purchase of a battery energy storage systems (BESS) may not improve the economics, and in fact extend payback periods, especially if it is not used for energy market participation. However, around three-quarters of the PV system in Germany were bought together with a BESS, similar patterns are observed in other markets