Financial Innovation in Retail Electricity Markets: Residential Solar and Battery Power Purchase Agreements

This study provides a framework for the design and structure of residential solar-and-storage power purchase agreements (PPAs) and provide a comprehensive analysis of these new financial instruments. Over the last two decades, residential solar photovoltaic (PV) systems have become one of the most popular distributed clean energy resources. In this context also solar PPAs have emerged as new financial instruments in retail electricity markets, enabling third-party ownership of residential solar PV systems, while eliminating most financial and technical risks for households. However, financial innovation through combining residential PV installations with battery energy storage systems (BESS) in a PPA structure is a nearly unexplored field in research. In this study we implement a two-step techno-economic model to assess the financial viability of solar-and-storage PPAs both from a third-party and a household customer perspective. We find that residents can economically benefit considerably in terms of electricity bill savings from entering into a solar-and-storage PPA, whereby time-of-use tariff customers save more money than flat-rate customers. In contrast, financing a residential PV+BESS under a solar-and-storage PPA is an economically unbeneficial option for the thirdparty under current electricity tariff constellations in Australia. Nevertheless, the results suggest that BESS increase electricity self-consumption of households from renewable sources, while solar-and-storage PPAs may become a financially viable option with sufficient support from policy measures such as subsidies on upfront investment costs of BESS and high feed-in tariffs.