Californians have a tough set of choices to make on home decarbonization.
They could install rooftop solar. But that’s much less valuable than it used to be for most Californians. They could also replace their fossil-gas-fueled heating and appliances with all-electric systems to cut their carbon and methane emissions. But that would boost their use of grid power in a state with sky-high and still-rising electricity rates. 300w Solar Street Light
But what if homeowners could predict the value they might eventually get from both installing rooftop solar and electrifying their homes? Using their own solar to power their new electric heat pumps, induction stoves, and electric vehicles could end up penciling out in ways that any one of those choices on its own would not.
The tricky part is predicting just how much more valuable this “ solar-led electrification” pathway might be, said James Quazi, founder and CEO of newly launched startup Balto Energy. To figure that out, homeowners and the solar and electrification contractors they work with need software that can “ accurately predict the future state and then design your on-site renewables based on those future use cases,” he said.
On Tuesday, Balto Energy unveiled a software suite designed to make that possible — its Solar-Led Electrification Design (SLED ) tool. The San Diego–based startup is already putting its software’s capabilities to use with Northern Pacific Power Systems, a big solar contractor in Northern California.
Balto’s software combines data on home energy characteristics, home efficiency upgrade impacts, solar production forecasts, battery algorithms, utility tariff engines, and manufacturers’ data on appliance performance to assess each household. It then models how a variety of different combinations of products and projects will alter a household’s energy usage patterns and costs for years to come.
“ The idea is, how do you calculate all the various solutions that are possible, and then allow a homeowner to search that space for the thing that makes the most sense to them?” Quazi said. Balto’s software includes user interfaces for contractors and homeowners, as well as a measurement and verification layer that’s valuable for the key step of financing projects.
Quazi has decades of experience in complex energy modeling. Building Solutions, the home energy modeling startup he co-founded, was acquired by SolarCity in 2010 . Quazi served as energy-efficiency operations director at the residential solar leasing pioneer until 2014 , two years before it was acquired by Tesla. He then turned his attention to home geothermal energy and in 2017 launched Dandelion Energy, a home geothermal heating and cooling provider, from Google’s “ moonshot factory,” X.
Now, financed with a $1 million pre-seed round from KDX , Leap Forward Ventures, and other investors, Quazi is targeting what might be the most complicated energy modeling task he’s yet taken on with Balto.
And the startup is doing it in one of the most complicated, though potentially lucrative, markets for solar and electrification forecasting — California, where the value of rooftop solar power and the cost of utility power changes from hour to hour, often quite dramatically.
Predicting years of costs and benefits based on these hour-by-hour shifts is complicated. But it’s also essential, said Andrew Krause, CEO of Northern Pacific Power Systems, Balto Energy’s first deployment partner.
“ It is irresponsible to do anything less than hourly electricity and daily gas models of the house when predicting electrification load impacts,” he said. “ If we do it wrong, we’re setting the industry up for failure.”
In the Northern California areas his company focuses on, “ electricity is about five times the marginal cost of natural gas,” he said, a differential large enough that heat pumps can wind up being more expensive to run than gas furnaces — despite their superior efficiency.
Krause has been in the solar industry since 2008 , and worked on some of the industry’s first solar-forecasting underwriting models, now used to finance installations based on long-term predictions of the power they’ll generate.
But that’s fairly simple compared with modeling home energy usage, he said. “ You think different roof orientations are complex? Try figuring out different R-values in the wall and different configurations of heating and cooling,” he said.
And without a strong model of how homes are using energy now, it’s impossible to predict how solar or electrification will change those equations in the future, he said.
Balto’s SLED tool is the latest in a string of software products aimed at solving the conundrum of forecasting the value of residential electrification projects. Those tools range in sophistication from online calculators and free contractor tools, which build their estimates from relatively simple question-and-answer surveys and libraries of typical household energy usage, to data-intensive, physics-based home energy modeling platforms.
The increasingly attractive economics of solar paired with home electrification have spurred a number of other companies to take on the challenge of building better models.
Aurora Solar, a well-funded startup with software to remotely design rooftop solar systems, unveiled a whole-home electrification modeling system for contractors in early June. “ The move to solar opens up a lot of opportunity for electrification,” Patrick Donahue, Aurora Solar’s chief product officer, told Canary Media this month. “ How do we adequately scale and size these systems to take on the next phase of the process?”
Other companies are moving from home electrification into solar. Qmerit, a company that partners with electric-vehicle manufacturers and dealers to coordinate installation of EV charging equipment in homes, last week launched its PowerHouse by Qmerit offering to expand to solar panels, batteries, backup generators, and other technologies — including heat pumps.
The challenge is to combine ease of use with accurate models and forecasts, Krause said. Simpler modeling platforms don’t provide enough certainty for institutional investors to finance costly home electrification projects, he said. At the same time, solar companies can’t typically spend the hours of on-site work at prospective customers’ homes that the more complex modeling methods require.
“ The level of detailed information I’ve been asking about has historically been very expensive to collect,” Krause said. “ Auditors with tape measures and blowers” — the tools used to measure insulation thickness in attics and determine the airtightness of a home’s building envelope — “ do not pay you back very well on solar workflows.”
“ Our industry is used to giving each customer an hour — you sign or don’t sign, and then you’re out of there,” he said. “ Balto, for me, solves the data-collection issues. I don’t have to go with a tape measure to each home to trust the data.”
That data includes utility bills, a vital piece of the equation, especially in California.
“ More and more accuracy is becoming more and more important, but we want to do that with as little work as possible,” said Jeff Friesen, CTO and co-founder of Radiant Labs, a startup that makes modeling software being used by Balto Energy. “ That’s where utility bills come in.”
Sign up to get Canary's daily newsletter and stay on top of our latest headlines.
The first challenge is that customers have to consent to allowing contractors and their software partners to access it, “ which adds friction to the sales process,” Friesen said. Second, utilities themselves may not make this data available in digital and machine-readable formats, although California’s major utilities are required to do so, and companies that specialize in utility billing data, such as Arcadia and UtilityAPI, can streamline the process.
But Quazi said that for the level of accuracy that Balto Energy is after, “ utility bills are a requirement.” With utility billing data in hand, “ we can calibrate that model of the house to what’s actually happening, taking into account weather and the characteristics of the house and occupant behavior, and then show you what’s going to happen when you put in a heat pump.”
That’s particularly important in California, where energy costs are highly dependent on the hours in which homes use electricity. The time-of-use and electrification rates on offer by utilities such as Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric can spike significantly during on-peak hours, typically in the late afternoon and early evening.
And under the new “ net-billing tariff” regime for new rooftop-solar-equipped customers of those three utilities, the value of rooftop solar fed back to the grid is much lower than it used to be during almost all the hours of the year. That makes “ self-consumption” — using as much of the solar power being generated as possible on-site, or installing batteries to store power for use when utility time-of-use rates are higher — a priority.
Balto’s system considers all these hour-by-hour variations to guide scheduling and real-time controls of the equipment it analyzes, Quazi said. “ Post-install, there are a lot of things we can do with smart charging for EVs, controls, and feedback from heat pumps — you can calibrate and control the differential accuracy over time, and start to drive to the outcome you want.”
The end goal, Friesen said, is to plan out a household’s switch from fossil gas to electricity to make the greatest possible use of the solar power that rooftop systems generate at costs at or below utility rates. “ Moving more and more of your load from gas onto electric made the solar system cost-effective,” he said.
Not every household will find that the combination of solar and electrification will pencil out. But Balto has some preliminary data indicating its approach can work for many of them.
Earlier this year, it used its software to assess 60 homes in Sonoma County as part of the Agile Electrification Project, a research program led by the University of California, San Diego. The project assumed that each home would switch their central heating and water heaters from fossil gas to electric heat pumps, as well as upgrade their attic insulation and conduct air and duct sealing.
That’s a fairly expensive set of electrification and efficiency upgrades. But even after subtracting the cost of equipment and installation, fewer than 10 percent of the homes saw reduced energy bills, Quazi said — largely because the cost differential between fossil gas and electricity is too great. “ But if you put on the correct-sized solar and battery system,” on the other hand, “ all of them save money.”
Doing the work to determine what combination of investments now will yield the optimal long-term paybacks is certainly a lot more complicated than the calculations that most solar installers and HVAC contractors do today, Friesen said.
“ But that kind of analysis is needed if we’re going to be able to hit a significant number of homes and get them electrified,” he said. Today, of the roughly 115 million U.S. homes that must switch from fossil fuels to electric heating and appliances to meet national emissions reductions goals, fewer than 1 percent are undertaking those retrofits every year. “ Our goal is 10 million a year.”
More certainty into the future value of solar-led electrification projects could unlock another important value, Quazi said — giving financing counterparties the confidence to invest in them or bring down the cost of loans.
Balto Energy plans to build financing into its business model, he said, although it’s still early days for that. “ Verifying the savings — and verifying the accuracy — is the important next step,” he said.
Finding ways to turn home-solar-led electrification projects from something that individual homeowners finance on their own into something that can attract larger institutional investors could be an important step forward for the industry.
Over the past decade, U.S. residential solar developers have been able to “ securitize” portfolios of home solar projects financed under third-party ownership models and through rooftop solar loans and sell them to investors, driving down the costs involved. Finding ways to do that with home efficiency and electrification, or for the installation of batteries, EV chargers, and remote-controllable appliances that can turn homes into “ virtual power plants,” is seen as an important next step for those sectors.
But for that to happen, investors will need a lot more data, said Ashby Monk, a founder of KDX , a lead investor in Balto, and the executive and research director of the Stanford Research Initiative on Long-Term Investing.
“ A ridiculous amount of the forward projections in this space exist in the world of spreadsheets,” he said. “ What James is building is the opportunity to get precise about cost savings from the interventions, recognizing that every intervention is going to be about as different as every home is.”
Most of the more than 200 ,000 electrical and HVAC contractors in the U.S. are small businesses or sole proprietorships. Most aren’t specialists in home electrification, although a handful of companies have made that line of work their focus. Few have access to the more sophisticated software tools — or connections to deeper-pocketed institutional investors — that have helped bring down the cost of residential rooftop solar.
The end goal, Monk said, is to link the creditworthiness of a home solar-and-electrification project not to the credit score of the individual homeowner but to the forecasted energy-saving value of the project in the home itself.
That approach could also help link financing to homes rather than to owners who are likely to sell them before the assets they’ve installed have reached the end of their useful lives, Quazi said.
“ Underwriting with the equity of a house, and the energy savings derived from that, is the meaningful thing to do, rather than as an unsecured consumer loan.”
To be clear, these ideas aren’t yet being put into practice. Eventually, Quazi envisions the startup earning money from software-as-a-service subscription fees, as well as from the role it can play in driving down the financing costs of the projects it enables.
But if the kind of work being done by Balto and other companies like it is successful, it could be transformative, Krause said.
“ If this is bankable, and it can save a lot of money, can we suggest debt coverage to make this go faster? And that’s a virtuous loop,” he said. “ And the banks are going to be looking for this. But you have to be good at it.”
Outdoor Highpower Solar Street Lamp Led Lighting Jeff St. John is director of news and special projects at Canary Media. He covers innovative grid technologies, rooftop solar and batteries, clean hydrogen, EV charging and more.