Homes & cars are electrifying as our economy decarbonizes: 42% the US’s energy-related emissions come from household appliances and cars. At the same time, energy generation is gradually moving from utility scale to the home, and intermittent energy is causing energy prices to fluctuate more dramatically than in the past, variance that is starting to get passed on to consumers. This all creates large opportunities for homeowners to optimize their electricity use.

This article explores how the grid is changing, what’s changing inside the home, and how these all come together. California is used to illustrate the current state of home electrification, though most of the trends apply globally.

Our electrifying homes

Step by step, homes are electrifying. Here in California, there are 1.8M small-scale solar installations today of which about 5% are coupled with a battery. 25% of cars sold in California are now electric – up 10X in a decade – and they typically charge at home. 28% of homes are heated electrically and 6% of homes use electric heat pumps.

And that’s just the early stage of things to come: due to decarbonization efforts (including investments and subsidies driven by the US’ landmark IRA climate bill) and the decreasing costs of solar, electric cars, appliances and batteries, these solutions are expected to mostly replace their non-electric (typically fossil-fuel powered) predecessors over the coming decades.

This means that most homes will be their own electricity generators, have their own energy storage, use more electricity than they do today, and interact with the central grid in more complex, bi-directional ways.

The home and the grid

Choices inside the home are shaped by trends of the electric grid, from pricey electricity motivating solar adoption to the future income-earning potential of grid-connected vehicles.

Current & future state of the grid

Residents in California pay among the highest electricity prices in the nation: residential customers pay 30¢/kWh, 50% higher than the national average of 19¢/kWh. Because Time-of-Use plans are default in California, peak costs reach even higher: San Diego’s SDG&E tops out at 84¢/kWh.

The high prices are surprising given that the cost of generating electricity is cheaper than ever, especially from renewables. High costs are driven by the need to build more transmission and distribution infrastructure as the economy electrifies, combined with increased costs of building them. (This is described nicely in Cheaper Energy, Pricier Wires.)

Electric rates in California have increased 2.5x inflation since 2014. And costs will likely increase for upper income Californians as a new state law mandates that rates include an income-based fixed fee (details & rates are still being decided).

California’s high electricity costs historically encouraged residential solar. New NEM 3.0 net metering rules significantly reduce the compensation of exported residential solar. Solar owners before NEM 3.0 were paid the retail-rate for electricity (say ~25¢/kWh), but under NEM 3.0 they’ll be paid the “wholesale rate” (4-8¢/kWh). This incentivizes combining solar and batteries so customers can store solar, then use it later themselves or export electricity during peak times.

Grid reliability

One would think that pricier electricity means higher quality electricity, but the opposite is true: the grid is experiencing more outages than ever before. In 2022 PG&E had 44% more outages compared to the previous 5 years, and outages were 19% longer. Old equipment and wildfire prevention are the primary culprits, and more frequently affect rural customers. Frequent outages will continue to accelerate home battery adoption.

Utilities are helping in-part via batteries: PG&E just announced a $5,000 Powerwall battery rebate to customers at risk of wildfire-related outages. Vermont’s Green Mountain Power has also helped customers buy batteries.

But if the grid is so flakey and increasingly pricey, why even stay on it?

Going off-grid

With the prevalence of rooftop solar, lower battery costs, and widespread frustration with high electricity prices, going off-grid sounds inevitable.

But it’s not so simple: going off-grid still requires customers to oversize solar and battery systems in preparation for extreme weather. This is illustrated with some basic math:

An average fully electric home requires 40-60kWh/day. Running the home for 2 days with minimal solar (like during winter storms when the days are short) would require about 100 kWh in backup, or ~8 Tesla powerwalls. Solar would similarly need to be over-sized to accommodate for shorter winter days. And these cold winter days are when the need to heat the home is greatest.

Not only are over-sized solar and batteries expensive, not being connected to the grid deprives homeowners of the opportunity to resell their electricity back to the grid during lucrative peak times.

It is safe to assume <1% of households in California are off-grid. With the above factors, grid defections will likely continue to be a niche endeavor.

What to know about the grid:

1. Grid electricity will continue to get more expensive this decade
2. High prices will continue to motivate behind-the-meter solar paired with batteries
3. Battery adoption will be pushed along by the ability to re-sell electricity to the grid and the increasingly frequent outages
4. While technologically possible, grid defection won’t likely be widespread

Inside – and on top of – fully electric homes

About 1% of California households are fully electric: these homes use no fossil fuel appliances or vehicles. That number is set to increase rapidly. What do they look like?

Fully electrified homes aren’t radically different from current homes – no flying cars or robot housekeepers just yet – but they feature key new technologies:

1. Solar on the roof, paired with batteries
2. Electric vehicles in the driveway, connected to EV chargers
3. Heat pump HVAC for space heating and air conditioning
4. Electric water heaters, stoves, and dryers inside the home
5. Electric service and panel

These new technologies are often more efficient and are increasingly connected to the grid and smart home systems. We’ll review each category, then discuss how they come together.

Solar & batteries

Roughly 20% of single-family homes in California have solar, and state law mandates that new homes have solar. Of homes with solar, only about 6% have batteries, so less than 1% of all homes. But growth is strong: by 2027, it is estimated that 80% of new solar installations will have batteries in California, up from 11% today.

The benefits of residential solar are clear: cheap electricity. While selling excess power back to the grid is now less lucrative for new solar customers given California’s new NEM 3.0 net metering law, the low cost of rooftop solar (just $0.06/kWh) still makes sense for homes with EVs, AC heat pumps, or batteries that can use cheap daytime electricity. 

Batteries have multiple benefits. They provide resilience in the face of increasingly common grid outages and they allow customers to save money by using their inexpensively generated solar power after the sun sets. Even more exciting, batteries are starting to be an income source by exporting electricity during peak electricity demand times. A recent PG&E program paid Sunrun battery customers $750 for a few months for participation, and Tesla Powerwall owners received about $200 in 23 days of export testing.

Because solar and batteries will be a very financially-driven decision for most homeowners and are often financed, high interest rates will slow adoption.

What to know about solar and batteries:

• ~20% of standalone homes in CA have solar, and about ~6% of them have batteries  
• Solar-only systems are now less lucrative with CA’s new net metering law
• High electricity prices will still encourage solar installation as batteries, EVs, and heat pumps consume this “behind the meter” electricity
• Battery owners will be nicely compensated well for selling electricity & services to the grid during peak hours

EVs, Charger, and Vehicle-to-home & -grid (V2H / V2G)

The electric vehicle is perhaps the most visible symbol of residential electrification. About 3% of the cars on the road in California are EVs, but that’s growing fast with EVs being 25% of all cars sold. After subsidies, EVs are often cheaper over the full lifecycle of the vehicle, given lower maintenance and fuel (usually off-peak electricity) costs.

EVs should be considered part of the electrified home because they’ll significantly increase home electricity demand and require coordination with the grid, solar, and batteries to save costs. Today, the average Californian single family home consumes about 26kWh of electricity daily. 2 EVs per household driving each ~35 miles daily adds an additional 20kWh of load (assuming a Model Y’s ~3.5 mi/kWh). Electrical work is often needed to accommodate this additional electric load.

High electric use also means that EV owners are (and will remain) conscious of how and when EVs charge, such as on cheaper night time-of-use rates. While logical, aligning EV charging with excess solar can be cumbersome because solar systems and EVs are rarely made by the same company. EVs and chargers are also often different companies (Tesla is an exception, not the norm). Households will likely have multiple EVs, a solar system, and a battery all from different manufacturers, presenting an opportunity to coordinate them all.

While EVs often require electric work and software setup, they do have one exceptional asset: a huge battery. A standard Model Y, the top selling EV in the USA, has a ~80kWh battery. That’s over 6 Tesla powerwalls (each 13kWh) in a single vehicle! This brings the future promise of vehicle-to-home to help residents weather grid outages, and vehicle-to-grid to participate in lucrative peak electric markets. While nascent now, we believe that government legislation and favorable economics will make V2H and V2G commonplace soon. This will build on existing commonplace vehicle-grid coordination (V1G) where vehicles don’t charge when demand is high.

What to know about EVs and chargers:

• A large share of home electricity will be used to fuel up EVs
• It matters when EVs charge to save costs: currently it’s either during cheap night rates or from abundant solar
• Vehicle to home and grid technologies will provide reliance and future income

Heat pumps HVAC and thermostats

72% of households in California heat their homes with fossil fuels, almost entirely with natural gas furnaces. As homes electrify, most of these will be replaced with heat pumps. Currently only 6% of Californian homes have heat pumps (other less efficient electric heaters are more common).

Heat pumps are simultaneously mundane and magical. Mundane because they’re all around us: refrigerators and air conditioners use heat pumps. Magical because of their efficiency: because heat pumps move heat rather than converting electricity into it, one unit of electricity input results in three units of heat output. Unlike air conditioners, heat pumps work bi-directionally, providing both heating and cooling. 

Although heat pumps are efficient, homes in California are often large and temperatures can vary a lot, requiring significant electricity. That means heat pumps can be expensive to operate during peak hours and require coordination with grid prices and conditions.

Heat pumps depend on thermostats for control, with Nest and Ecobee as the best known smart thermostat brands. Smart thermostats save customers money by reducing unnecessary use, such as when no one is home, or pausing AC when electricity is most expensive. Some utilities allow customers to earn money when providing these “demand response” services, but the earnings are modest at ($70/year for SDG&E for example) compared to the cost of installing heat pumps (>$5,000).

A significant barrier to heat pump adoption is high upfront installation cost, given the labor-intensive installation process of swapping a gas furnace for a heat pump. Financing is more limited and dependent on more traditional lending models unlike solar and batteries, which are more easily financed due to money-making potential. Some new companies like Gradient and Quilt are pioneering cheaper DIY-install window-mounted units to address high installation and upfront cost.

What to know about heat pumps:

• 3/4 of households in California currently use natural gas for heating
• Heat pumps, which both heat and cool, are major home electricity consumers
• Smart thermostats like Nest help save money by shifting and reducing use  

Electric stoves, water heaters, and dryers

Stoves, while using little gas, have been highly visible and a politicized symbol of home decarbonization. In California, 73% of households use gas for cooking. The goal is to replace them with electric induction. Induction stoves are powerful, precise, and easy to clean, but often require new wiring.

While water heaters are less politicized, they use more energy than stoves. The 79% of California residential water heaters that are natural gas powered will eventually be replaced with electric water heaters. Most of these water heaters will use highly efficient heat pumps to warm water. Optimizing water heater usage around cheap electricity presents a modest money-saving opportunity as hot water heater tanks are essentially thermal batteries: water can be heated up to be used later. Companies such as Harvest Thermal heat water during low cost (solar) energy hours and store it for when it’s needed.

Electrifying water heaters is a challenge because water heaters often need to be replaced in a hurry, and converting from gas to electric water heaters often requires time-consuming electrical work and permits.

Clothes dryers are the home appliances that use the least amount of natural gas. Half the residential dyers in California use natural gas; these will eventually be electrified.

Electrifying stoves, water heaters, and clothes dryers often require upgrading electrical wiring to the appliance, adding to the upfront cost. To counter this, companies are starting to produce products that don’t require upgrades and plug into normal outlets. These include a battery-equipped induction stoves from Channing Copper and Impulse, a 120v heat-pump water heater from Reheem, and a 120v heat-pump washer-dryer from GE.

What to know about electric stoves, water heaters, and dryers:

• The majority of California households have gas stoves, water heaters, and dyers
• Electric upgrades usually require rewiring; new 120V “drop-in” appliances might help

Pools, hot tubs, and other appliances

10% of California households have pools and 8% have hot tubs. While these are not new appliances, they are significant energy consumers: pools can account for 30% of current household electricity use. Starting in 2025, California will mandate that new pool equipment defaults to run when electricity is cheaper and cleaner. Any residential electricity management system will need to help orchestrate pool and/or hot-tub energy consumption.

Other “everyday” large electric appliances include refrigerators and freezers, lighting, TVs and computer equipment. These appliances aren’t primed for optimization because their fraction of total home electricity usage will decrease, nor are they easy use cases to shift around.

Electric service upgrades and panels

Roughly 60% of homes in California will need to upgrade utility electric service to accommodate increased electricity demand. PG&E indicates that most service upgrades cost $1,000 to $4,000, but about 25% cost even more. Unfortunately, homeowners usually pay this cost. Even worse, utilities often take a long time to perform upgrades, especially if nearby utility infrastructure like transformers also need upgrading.

Many homes will also need a new electric panel (the box with circuit breakers) to accommodate this new electricity. Panel upgrades are similarly expensive, with most costing $3,000 – $4,000 before IRA tax rebates. SPAN, an SF-based startup, produces anelectric panel meant to act as the “brain” of the fully electric home and save costs as homes run off batteries.

What to know about electric service upgrades and panels:

• Upgrades to grid connections and electric panels are often necessary and pricey

Problems & opportunities

The changing grids and electrifying homes present a number of unique problems and opportunities for homeowners.

1. Optimizing for the lowest electricity rates

Value: high (up to ~$100 per month for typical fully electric California home)

Fully electric homeowners prefer to use the cheapest electricity rates for their electric needs. Given people can get electricity from all of 1) the grid, 2) home batteries, 3) home solar panels and eventually 4) EVs (V2G), this is a non-trivial optimization. It includes factors such as:

• How does the grid electricity price fluctuate throughout the day (time-of-use)?
• How much power are solar panels expected to generate?
• What is the rate at which energy can be sold back to the grid? 
• What’s the charge state of the home batteries?
• What’s the charge state of the EVs?
• What are the anticipated heating / cooling needs?

Shifting grid electricity usage from an expensive to a low cost time of day could save an average electrified California household up to $100 per month. Additional utility bill savings can be generated by exporting energy during the most costly (rewarding) time of day.

For example, charging an EV during low cost grid rates (vs. whenever it is plugged in) can save up to $50 per month. Similarly, an EV charged using home-generated solar saves up to $50 per month vs. an EV charging at regular grid rates and exporting its solar energy (assuming the home is on an electric plan that encourages self-generated usage like California’s NEM 3.0).

White EV charging provides the most straightforward load shifting opportunities, shifting heat pump usage in time provides significant additional opportunities, and home batteries allow the full home to load shift to make the best use of home generation, grid and net metering rates.

Given batteries, solar panels / inverters, chargers, EVs, heat pumps and other relevant appliances are typically built by different brands, all of this energy use coordination is ideally handled by standalone software.

2. Earning incentive money through demand response

Value: mid (up to ~$10 per month for typical fully electric California home)

As grids see more frequent electricity supply shortages, utilities are offering more money to homeowners (and businesses) that can reduce their usage at specifically requested times, or even provide energy to the grid at those times. Ideally, this is optimized across relevant home assets (heat pumps, batteries, EVs, etc.) and done automatically, perhaps without the home owner noticing, other than getting paid.

Fully engaging in such demand response schemes can earn homeowners additional income, in the order of magnitude of $10 per month, though it can come with inconvenience (e.g. turning off A/C during a heat wave).

Beyond limiting home energy usage, homes could actively supply energy during grid supply crunch events. However, this is more nascent today.

3. Extending (EV & home storage) battery life

Value: mid (translating to ~$10s of value per month per battery)

With stationary home batteries and EVs, managing battery longevity can delay the need to replace batteries by years and limit their rate of capacity degradation. This can be done by keeping battery charge to specific ranges (not too high or low) and limiting charge/discharge speeds. 

Delaying the cost of a battery replacement (which depending on the size and type typically ranges between $5000 – $25000) is of high value. For example, extending the life of a Tesla Powerwall by 5 years would constitute some $3000 in savings, or about $15 per month of operation. However, that value is recouped indirectly in the (far) future, rather than saved on a monthly basis. It’ll be important for the behaviors that enable such savings to be simple – set it and forget it.

4. Backup power

Value: high (resilience / peace of mind)

As grids experience more frequent blackouts, switching to a home’s own energy sources (batteries, solar, potentially EVs) to ensure there is sufficient power for critical loads such as refrigeration becomes an increasingly valuable asset for homeowners. While it doesn’t provide direct monetary value, it provides a significant quality of life improvement during blackouts and an improved sense of safety.

5. Energy insights

Value: mid (could lead to further cost savings)

In addition, as the house now handles a myriad of energy solutions and interacts with the grid in more complex ways than before, a need arises to keep a simple, centralized overview of energy use, income and savings. Plus, understanding home energy use may help identify further saving opportunities.

Solutions

When it comes to orchestrating a fully electric home, there is a mish-mash of solutions in the market today. This category of software is typically called HEMS: Home Energy Management Systems. We can split it in a few sub-categories.

1. Hardware OEM solutions

Inverter companies such as Enphase, multi-disciplinary OEMs such as Tesla, HVAC products such as Nest and battery companies such as Lunar provide HEMS solutions. These will typically be mostly focused on the hardware that is built by the OEM: optimizing the use of solar energy, heating/cooling, or batteries. Depending on the home situation, these can cover many of the opportunities mentioned above without additional software being needed.

2. EV charging optimizers

Various solutions are focused specifically on EV charging cost optimization. Examples are ev.energy, Optiwatt and ChargeHQ, which help users charge their cars using the cheapest time-of-use grid rates and/or their own solar & battery energy. They often integrate (and provide white label solutions for) utilities and their demand response programs.

3. Platforms, APIs and white label solutions

Platform solutions like gridX and kiwiOS provide the communication layers between different home energy resources, the interfaces needed to manage them plus related products and services. They’re typically sold as a white label solution to parties such as OEMs, utilities, or any other party that needs HEMS features.

Related, Home Assistant provides an open source home assistant which includes HEMS functionality, used by technical hobbyists, in particular for its insights.

Others, such as Enode and Arcadia, provide APIs, making it easy for those building HEMS software to interact with energy resources, utility rate data, and more.

Conclusion

While lifestyles won’t change much in the fully electric home, the energy systems will. Getting fossil fuels out means a handful of new appliances that’ll require upfront monetary investment, time to transition, and consumers getting used to new technologies.

There’s a lot to be excited about: solar paired with batteries and vehicles enables new income streams. Electric internet-connected appliances offer troves of data, insights and the opportunity for optimizations and coordination. The home will be responsive to local and regional grid needs, saving money and reducing the need to build costly peak grid infrastructure. And most importantly, the home will contain more efficient, performant appliances, be healthier, and better for the climate.

While we have a sense of what this fully electric home will look like over the coming decades, the hardware and software companies that’ll make this happen are still up-for-grabs. The dominant hardware manufacturers of today still only command a sliver of nascent markets. Software players to help customers coordinate, optimize, and earn from these appliances are just emerging. A space with innovative products and high growth businesses – one to watch!

Written by me and Garen Checkley, originally for Climate Capital.