Deep dive: Residential energy — the fastest-moving subsegments to watch

The North American residential energy market installed 1,250 MW of battery storage capacity in 2024—a 57% year-over-year surge that defied a broader residential solar contraction of 26%. This divergence reveals the defining tension of today's distributed energy landscape: while headline metrics suggest slowdown, the fastest-moving subsegments are accelerating precisely because they solve measurement, integration, and grid-value problems that rooftop solar alone cannot address. For founders, investors, and corporate sustainability teams tracking residential energy transformation, understanding which subsegments are genuinely scaling—versus those producing impressive-sounding but hollow metrics—separates actionable opportunity from measurement theater.

Why It Matters

Residential buildings account for approximately 20% of U.S. energy consumption and represent the largest untapped distributed energy resource in North America. The Inflation Reduction Act's 30% federal tax credit, combined with state-level incentives totaling over $7 billion through the Solar for All program, has created unprecedented capital availability for residential decarbonization. Yet the gap between deployed capital and verified emissions reductions remains poorly understood.

The residential energy transition matters because it determines whether the grid can absorb variable renewable generation without massive transmission infrastructure investment. Virtual power plants (VPPs) operating from residential assets reached 37.5 GW of capacity in North America by 2025—a 13.7% year-over-year expansion—demonstrating that aggregated home batteries, smart thermostats, and electric vehicle chargers can provide grid services previously requiring utility-scale infrastructure. The Department of Energy's target of 80-160 GW of VPP capacity by 2030 suggests residential assets could avoid $15-35 billion in traditional infrastructure costs over the next decade.

However, the sector suffers from systematic measurement problems. Installation counts, capacity figures, and carbon reduction claims often conflate potential with verified performance. Organizations that can distinguish between capacity installed and capacity delivering measurable grid value will capture disproportionate returns as utilities, regulators, and corporate buyers increasingly demand performance verification rather than nameplate specifications.

Key Concepts

Battery Attachment Rate: The percentage of new residential solar installations that include battery storage. This metric reached a record 45% nationally in 2024, with California exceeding 28% following NEM 3.0 policy changes that reduced solar export compensation. The attachment rate indicates market maturity and customer sophistication—higher rates suggest buyers understand that solar alone provides diminishing value without storage.

Third-Party Ownership (TPO): Financing structures where companies like Sunrun or Sunnova own residential solar and storage systems while homeowners pay monthly fees or power purchase agreements. TPO share increased sharply in 2024 as high interest rates made direct ownership less attractive. Understanding TPO dynamics is critical because these arrangements determine who captures long-term value from residential assets.

Virtual Power Plant (VPP): An aggregation of distributed energy resources—including home batteries, smart thermostats, EV chargers, and water heaters—that operates as a single dispatchable resource for grid services. VPPs provide peaking capacity at approximately 50% the cost of utility-scale battery plus gas peaker alternatives, according to the Institute for Energy Economics and Financial Analysis.

Measurement Theater: The practice of reporting metrics that appear meaningful but fail to capture actual energy or emissions performance. Common examples include citing installed capacity without utilization data, counting enrollment numbers without participation rates, or reporting carbon reductions without baseline verification. Avoiding measurement theater requires moving from capacity metrics to performance metrics validated through independent measurement and verification (M&V) protocols.

Low-to-Moderate Income (LMI) Access: Programs designed to extend residential energy benefits beyond high-income homeowners. LMI subscribers to community solar programs grew from 2% in late 2022 to 10% in late 2023, with projections reaching 18% by 2026. This metric matters because residential energy transition that excludes >60% of households faces political and ethical limitations.

What's Working and What Isn't

What's Working

Home battery storage paired with solar is achieving product-market fit. The residential battery market installed 1,250 MW in 2024 with a 57% year-over-year growth rate, even as the broader residential solar market contracted. Tesla's Powerwall achieved 63% of EnergySage marketplace quotes in H2 2024, up from negligible share in 2021, driven by the Powerwall 3's integrated inverter design that simplifies installation. Tesla's energy segment revenue exceeded $10.1 billion in 2024 with 26.2% gross margins—demonstrating that residential storage has moved beyond subsidized niche to profitable scale.

Community solar is expanding access while maintaining growth. The sector installed a record 1.7 GW in 2024, a 35% year-over-year increase, reaching 8.6 GW cumulative capacity across 44 states. New York led with 861 MW installed (66% growth), while Illinois and Maine set quarterly records. Community solar now represents 40% of total U.S. non-residential solar installations. The model's ability to serve renters and homeowners without suitable rooftops addresses a fundamental limitation of rooftop solar.

VPP programs are demonstrating grid value at scale. Sunrun's California VPP scaled from 34 MW in 2023 to 361 MW by mid-2025, enrolling 56,000 customers with 75,000 batteries. Green Mountain Power's Vermont VPP saved customers $3 million in summer 2025 through transmission demand charge reductions. Policy momentum reached 105 actions across 38 states in 2024, with California, Texas, Illinois, and Colorado each implementing four or more VPP-related policies.

Heat pump adoption is outpacing incumbent HVAC. Heat pump unit sales surpassed gas furnaces for the third consecutive year in 2024, rising 27% year-over-year despite a challenging interest rate environment. The North American residential heat pump market reached $6.64-7.9 billion in 2024, with cold climate heat pumps growing at 9.8% CAGR as technology improvements enabled operation at -35°C/-31°F. The residential segment captured 80-90% of total heat pump market share.

What Isn't Working

Rooftop solar without storage faces structural headwinds. Residential solar installations declined 26% in 2024 compared to 2023 after several years of 30%+ annual growth. Rising interest rates made cash purchases less attractive, while net metering policy changes in California (NEM 3.0) reduced solar-only export value by 75%. The sector's historical reliance on favorable export compensation created a business model vulnerable to policy rationalization.

Installation metrics obscure utilization reality. Industry reports celebrate capacity additions while rarely disclosing capacity factors, dispatch rates, or actual grid services delivered. A 13.5 kWh home battery that never participates in demand response or arbitrage delivers different value than identical hardware enrolled in an active VPP. Without standardized utilization reporting, investors and policymakers cannot distinguish genuine performance from installed potential.

LMI participation remains marginal despite programmatic emphasis. While LMI community solar subscriptions grew to 10% in 2023, this still excludes the vast majority of low-income households. Rooftop solar and battery storage remain concentrated in high-income zip codes due to credit requirements, homeownership prerequisites, and upfront costs exceeding $15,000 even after incentives. The $7 billion Solar for All program addresses this gap, but disbursement has been slower than anticipated.

Interconnection backlogs constrain deployment. The residential sector faces the same interconnection queue challenges plaguing utility-scale development. Community solar's projected 15% contraction in 2025 stems partly from mature markets like New York and Illinois approaching policy caps while new state programs face interconnection delays. The gap between policy enablement and grid integration capacity creates execution risk for developers and investors.

Data quality standards remain fragmented. No single framework governs how residential energy performance should be measured, reported, and verified. Different utilities, states, and program administrators use incompatible methodologies, making cross-program comparison impossible. This fragmentation enables measurement theater—organizations can choose reporting frameworks that maximize apparent performance while obscuring actual grid or emissions impact.

Key Players

Established Leaders

Tesla dominates residential battery storage with 63% of the EnergySage marketplace in H2 2024 and 1 million cumulative Powerwall installations reached in September 2025. The Powerwall 3's integrated inverter disrupted the solar inverter market, reducing Enphase's inverter share from 73% (2022) to 53% (2024). Tesla's vertically integrated approach—manufacturing hardware, operating DERMS software, and managing utility interfaces—provides competitive moats that component suppliers cannot replicate.

Sunrun operates the largest residential solar and storage fleet in North America with over 56,000 VPP customers and 75,000 enrolled batteries. The company's third-party ownership model generates recurring revenue while aggregating assets for grid services. Sunrun's Puerto Rico deployment, serving 175,000 solar households, demonstrates the model's applicability to resilience-focused markets.

Nexamp leads community solar asset ownership, controlling significant share of 2024 installations and cumulative capacity. The company focuses on subscriber acquisition for LMI households and commercial accounts, addressing the access gap that limits rooftop solar.

Carrier, Daikin, and Mitsubishi Electric lead the North American heat pump market, with Carrier completing the DOE Cold Climate Heat Pump Challenge in September 2024. Mitsubishi's Kumo Cloud platform enables remote monitoring and grid integration, positioning heat pumps as VPP-compatible assets beyond their primary HVAC function.

Emerging Startups

Renew Home emerged as North America's largest residential VPP operator following its May 2024 partnership combining Google Nest thermostats, OhmConnect demand response, and legacy utility programs. The company manages 3 GW of capacity with a stated target of 50 GW by 2030—a trajectory that would exceed many utility-scale portfolios.

Base Power raised $1 billion to deploy 25-50 kWh residential batteries through a monthly fee model that eliminates upfront costs. The company targets Texas's ERCOT grid, where deregulation creates direct revenue opportunities for distributed resources.

Lunar Energy develops the Gridshare DERMS platform powering Sunrun's VPP programs, positioning itself as infrastructure for residential asset aggregation. The platform's technology-agnostic approach—integrating batteries, EV chargers, and solar inverters from multiple manufacturers—addresses the interoperability challenge that limits single-vendor solutions.

Arcadia operates a community solar subscription platform enabling renters and non-solar-suitable homeowners to access solar benefits. The company's technology layer sits between community solar developers and end customers, capturing the subscriber management complexity that developers prefer to outsource.

Key Investors & Funders

Generate Capital has deployed over $10 billion in sustainable infrastructure, including significant residential energy positions. The firm's focus on infrastructure-as-a-service aligns with the TPO model dominating residential solar and storage.

Brookfield Renewable Partners operates one of the largest renewable portfolios globally, with increasing allocation to distributed generation and residential-scale assets.

The Department of Energy functions as a key funder through programs including the $7 billion Solar for All initiative, $40 million for domestic solar supply chain support announced in September 2024, and $90 million for building energy code implementation across 25 projects.

Fifth Wall focuses on real estate technology including residential energy management, bridging the gap between property owners and distributed energy developers.

Examples

Tesla's California VPP Response During Heat Waves: During extreme heat events in 2024, Tesla coordinated Powerwall dispatch across thousands of California homes, providing grid support during peak demand. The aggregated response demonstrated that residential batteries could deliver peaking capacity equivalent to a small natural gas plant—without emissions, permitting delays, or fuel costs. Tesla's vertically integrated control, from battery manufacturing through software dispatch, enabled response times measured in seconds rather than the minutes required by traditional peaker plants.

Green Mountain Power's Bring Your Own Device Program: Vermont's Green Mountain Power offers customers $850 upfront and $850 over 10 years to enroll their own batteries in the utility's VPP. In summer 2025, the program saved participants $3 million by reducing transmission demand charges during peak hours. The model demonstrates that utilities can access residential flexibility without owning the underlying assets—a regulatory and capital structure innovation that other utilities are now replicating.

Community Solar's LMI Expansion in Illinois: Illinois implemented subscriber requirements ensuring LMI households receive priority access to community solar subscriptions. Combined with LIHEAP coordination that applies solar credits directly to utility bills, the state achieved record quarterly installations while expanding access beyond traditional high-income adopters. The model addresses the fundamental equity critique of residential solar—that benefits accrue primarily to wealthy homeowners—through program design rather than general subsidies.

Action Checklist

• Audit existing residential energy claims for measurement theater—verify that reported capacity metrics include utilization rates, participation percentages, and verified performance data rather than nameplate specifications alone
• Evaluate battery attachment rates in target markets as leading indicators of solar market maturity; rates below 30% suggest infrastructure for storage-paired systems remains underdeveloped
• Map VPP program availability and compensation structures by utility territory; participation economics vary dramatically between ERCOT (direct wholesale access) and vertically integrated utilities (program-based compensation)
• Assess interconnection timelines for community solar development in target states; queue backlogs exceeding 18 months indicate execution risk regardless of favorable policy environment
• Implement performance-based rather than capacity-based metrics for portfolio evaluation; track kWh dispatched for grid services, not just kWh installed
• Monitor heat pump attachment to residential energy programs as the technology evolves from standalone HVAC to VPP-integrated flexible load
• Establish LMI participation tracking as both ethical imperative and policy sustainability indicator; programs serving <10% LMI households face regulatory and political vulnerability
• Develop standardized M&V protocols before scaling—retrofitting measurement systems onto deployed assets costs 3-5x more than designing verification into initial deployment

FAQ

Q: How do I distinguish genuine residential energy opportunities from measurement theater? A: Focus on three verification layers. First, confirm that reported metrics measure output (kWh generated, grid services delivered, emissions avoided) rather than input (capacity installed, systems enrolled, dollars invested). Second, verify independent measurement—self-reported performance from the same organization deploying assets creates obvious conflicts. Third, check for baseline methodology: any carbon reduction claim requires a counterfactual baseline showing what would have occurred without the intervention. Organizations that cannot articulate their baseline methodology are likely producing measurement theater.

Q: Why did residential solar decline 26% while battery storage grew 57%? A: The divergence reflects policy evolution and economic fundamentals. Residential solar's historical growth depended heavily on favorable net metering policies that valued exported solar at retail electricity rates—often 3-5x wholesale prices. California's NEM 3.0 reduced export compensation by approximately 75%, eliminating the economic case for solar-only systems. Batteries restore value by enabling solar self-consumption and providing grid services that generate new revenue streams. The shift indicates market maturation from policy-dependent deployment to economically-rational investment.

Q: What metrics should I track to assess VPP performance? A: Track enrollment (devices registered), participation rate (percentage of enrolled devices that actually dispatch when called), dispatch volume (kWh or kW delivered during events), event success rate (percentage of dispatch calls where committed capacity was delivered), and revenue per enrolled device. Enrollment without participation is marketing; participation without reliable dispatch is operational failure. The most sophisticated programs now track these metrics in near-real-time through DERMS platforms.

Q: How should founders approach the LMI access challenge? A: Three models are proving viable. Community solar with automatic bill crediting reaches renters and non-solar-suitable homeowners without requiring new hardware installation or credit qualification. Third-party owned systems with no upfront cost and income-qualified pricing can serve LMI homeowners directly. VPP enrollment incentives for existing devices (smart thermostats, water heaters) provide value without requiring new purchases. The key insight is that LMI access requires adapting business models to income constraints rather than subsidizing existing high-income-focused models.

Q: What regulatory changes should I monitor for 2025-2026? A: FERC Order 2222 implementation determines whether distributed resources can participate directly in wholesale markets—critical for VPP economics. State-level interconnection reform addresses the queue backlogs constraining deployment. Building code updates requiring electric-ready or all-electric new construction create demand certainty for heat pumps. The IRA's 30% tax credit remains stable through 2032, but state incentive programs including California's SGIP and New York's NY-Sun have defined funding pools that may constrain availability. Maryland, Virginia, and Illinois have VPP pilot mandates with 2025-2026 implementation deadlines that will generate program design precedents.

Sources

• Solar Energy Industries Association (SEIA), "Solar Market Insight Report 2024 Year in Review," January 2025
• Wood Mackenzie and American Clean Power Association, "U.S. Energy Storage Monitor 2024," March 2025
• Wood Mackenzie and Coalition for Community Solar Access, "U.S. Community Solar Market Report 2024," February 2025
• Department of Energy, "Quarterly Solar Industry Update," Q4 2024
• EnergySage, "Intel Report: Home Battery Market Trends H2 2024," February 2025
• Institute for Energy Economics and Financial Analysis, "The Case for Virtual Power Plants," 2024
• North Carolina Clean Energy Technology Center and Smart Electric Power Alliance, "VPP and Supporting DER Policy Developments: 2024 Annual Report," January 2025
• RMI, "Tracking the Heat Pump Market in the United States," November 2024