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Residential Battery Adoption in Europe Exceeds United States

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Securities In This Article
Enphase Energy Inc
(ENPH)

Rising adoption of residential batteries represents a secular growth driver for our solar inverter coverage, Enphase ENPH and SolarEdge. Batteries accounted for approximately 12% and 1% of revenue for Enphase and SolarEdge in 2021, respectively, but we expect this to rise to 21% and 20% in 2026.

Heading into 2022 we expected the U.S. and Europe home battery markets to be comparable for the year. Fast forward to today and Europe’s 2022 installations are estimated to have been nearly 3 times the size of the U.S. We estimate U.S. storage attachment rates were in the low- to midteens in 2022 as high battery costs and prevalence of net metering limited market demand. U.S. storage attachment rates should continually rise over the coming years—particularly following California’s net energy metering, or NEM, 3.0 decision—which sharply reduces compensation for exporting excess solar generation.

In contrast, the European residential storage market skyrocketed in 2022 as high electricity costs and government incentives spurred demand. Germany represents Europe’s largest home battery market, accounting for approximately 40% of 2022 shipments and boasting an attachment rate of 70%. The German market’s high attachment rate is driven by economics to self-consume given lower export rate compensation. Further boosting Europe’s home battery market in 2022 was Italy, which saw robust demand (increasing nearly 250% year on year) thanks to a generous incentive scheme.

Over the long term, a key question will be to what extent the coupling of solar with storage can expand or contract the moatiness of solar inverter companies. We believe it’s too early to make a call on this at present given the market is still in its early days.

We view shares of SolarEdge and Enphase as fairly valued. 2023 could present opportunities for investors in the solar inverter space as the impact of California NEM 3.0 plus higher interest rates have an impact om U.S. residential solar market growth.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Brett Castelli

Equity Analyst
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Brett Castelli is an equity analyst, energy and utilities, for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. His coverage focuses on clean energy companies across renewables and emerging technologies.

Before joining Morningstar in 2021, Castelli spent more than eight years in various analyst roles for TortoiseEcofin, a boutique asset manager. His coverage focused on North America and included companies within traditional energy, electric utilities, and renewables. Additionally, he assisted with the firm's environmental, social, and governance efforts and played an important role in integrating ESG into the investment process. Castelli spent a year at the firm's London office following an acquisition.

Castelli holds a bachelor's degree in finance from the University of Missouri's Trulaske College of Business. He also holds the Chartered Financial Analyst® designation.

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