Sustainability and self-reliance motivated early adopters of solar energy and battery storage in Germany. Now, falling costs—and rising electricity prices—could compel more people to pull back from the grid.
As solar panel and battery prices drop, research by Harvard Business School Assistant Professor Christian Kaps predicts some 54% of German households would benefit from using a solar-battery combination. The rise of self-generated electricity would have major implications for German utilities and the country’s power grid, which gets a substantial, yet decreasing share of energy from fossil fuels.
Incentives and subsidies helped drive $807 billion in renewal energy investment globally in 2024 alone, as part of efforts to confront climate change. With electricity costs surging in many parts of the world, Germans stand to become producers and consumers of power in one of the most advanced clean-energy economies—even without such enticements.
In many European countries, at least in many markets with higher electricity prices, solar and storage is going to be a profitable investment.
“In many European countries, at least in many markets with higher electricity prices, solar and storage is going to be a profitable investment,” says Kaps, coauthor of “Residential Battery Storage—Reshaping the Way We Do Electricity” with Serguei Netessine, a professor at the Wharton School of the University of Pennsylvania. The article is forthcoming in the journal Operations Research.
The shift wouldn’t be without consequences. Researchers predict that increased solar and storage adoption in Germany would reduce residential electricity demand by 38%, cutting utilities’ revenue. Rising generation and delivery costs could also challenge the industry’s pay-per-use model.
Rapid adoption, dizzying change
Since the early 2000s, solar panel prices have dropped 85%, the authors note. And the cost of lithium-ion batteries has dropped by nearly 90% during the decade until 2020. The trend helped spur a 20-fold increase in German household battery systems between 2015 and 2020.
As more households use battery storage, it becomes harder for utilities to predict how much electricity to generate and send to the grid—and when to do it. Demand from homes with battery-solar setups can drop to near zero when it’s sunny outside, but spike during cold, dark days that deplete home storage. It’s unlikely that most households will be totally self-sufficient and leave the larger electricity grid completely, the researchers write.
Why Germans turned to storage
Kaps and Netessine analyzed solar-storage adoption from 2018 through 2020, using data from 3,200 households served by the German firm Solarwatt. Back then, batteries cost almost twice as much as today, but consumers who installed them prioritized self-sufficiency and the potential to slash climate-damaging emissions, motives the authors call “nonmarket valuation.” The change cost households a median 29 euro cents (34 cents in the US) more per kilowatt hour than relying on the power grid.
“It was really this idea of, ‘I'm producing solar power myself. I want to use more of that myself,’” Kaps says. “It's a sustainability argument. Germany has a long history of debating how to generate electricity.”
Paradoxically, early adopters of battery-and-solar systems used 4% more electricity and lifted overall carbon emissions slightly as they sold less solar energy back to the grid. The authors show how batteries, which enable users to save their power for less sunny times, will be key to leveraging renewable energy in the future.
A ‘tipping point’ for storage adoption?
Kaps and Netessine tested scenarios to gauge not only German solar and battery adoption in 2025 but also the implications for both utilities and the power grid. Their analysis assumes:
No subsidies for solar or batteries, though the researchers also evaluated the impact of tariffs and rebates.
Solar panel and battery prices that declined 22% and 25%, respectively, between 2025 and 2020.
Electricity prices of 38 euro cents per kilowatt hour.
Their model predicts that—unlike the early adopters from 2018-2020 they studied—costs, rather than a desire for sustainability or independence, will motivate the next wave of adopters.
“Residential adoption of this technology in markets with expensive electricity is close to a technology tipping point,” the authors write. “Investment decisions are most sensitive to assumptions on the decrease in storage cost, followed by a moderate sensitivity to the price of electricity.”
Consequences for the power market
A 38% decline in households’ grid demand could create challenges for one of the more reliable—and expensive—electricity systems in the world. With such a drop, the traditional model of volume-based pricing—one rate per kilowatt hour used—might become unsustainable, the authors write.
Utilities will also need to be nimbler and more responsive to the volatile needs of solar-and-storage households, who save by using stored energy on low-demand days but then double their use on high-demand days. For example, utilities could add gas-burning turbines for peak times or install their own huge batteries to quickly meet fluctuations.
The big change for policymakers is thinking about the fact that now individuals can make their own generation—and even strategic consumption—decisions with batteries.
Kaps says policymakers might also need to intervene to maintain stability for utilities by:
Supporting flexible pricing. Such rules would let utilities charge higher prices during peak times. Alternatively, utilities could charge higher fixed fees each month to cover grid costs and reduce volume-related fees.
Incentivizing storage adoption, not solar. Policymakers may encourage households to store their solar energy and time their discharge, rather than just subsidizing its generation as solar becomes increasingly abundant.
Adding parameters to subsidies in key areas. Capping cumulative reimbursement by household or region would still encourage adoption in areas with low solar-battery use.
“The big change for policymakers is thinking about the fact that now individuals can make their own generation—and even strategic consumption—decisions with batteries,” Kaps says. “So, the classic one- or two-tier electricity tariff and straight subsidies may have possibly unintended consequences.”
Image created with asset from AdobeStock/Volodyar
