Backup vs. arbitrage battery: What is energy arbitrage?

While home batteries are great for storing extra power, not all of them keep your lights on during a blackout. Consumption-only (or arbitrage) batteries focus purely on reducing your electric bill rather than providing backup power.

In this guide, we'll break down how energy arbitrage works, compare arbitrage batteries with traditional backup systems, and help you determine whether this cost-saving strategy is right for your home.

What is energy arbitrage?

Arbitrage means buying something in order to sell it where it’s more valuable. When it comes to electricity and home battery storage, that means charging your battery with inexpensive power, from your home solar panels or during off-peak periods, and using it to avoid expensive peak rate electricity from the grid. (In some cases, it may be worth it to sell it back to the grid, but those instances are getting rarer.)

Energy arbitrage with solar panels is most valuable in places with time-of-use rates and small credits for electricity exported back to the grid. Timing your battery to charge when electricity is cheapest and discharge when you can avoid the most expensive electricity can help you get the most out of your solar and storage investment.

What is an arbitrage, or consumption-only, battery?

An arbitrage battery — also known as a consumption-only, no-backup, or grid-tied battery — can store and discharge energy to your home or the grid, but will not provide backup power in an outage. When the grid goes down, the battery does, too. However, consumption-only batteries cost less to install than backup batteries.

While arbitrage batteries are cheaper to install, they only improve your overall solar savings in a small (but growing) number of places where electricity is expensive and export rates are low. That means arbitrage batteries are used most typically in California.

Arbitrage vs. backup battery

Both arbitrage and backup batteries let you store your own power and use it. Arbitrage batteries have a lower upfront cost and a shorter payback period.

Which battery is right for your home?

Solar panel systems without a battery, with a backup solar battery, or with an arbitrage battery can be the best choice for different people. Sometimes a standalone battery is right for a home. 

Going solar without a battery system is better when you want a lower upfront cost for a new system and are fine using utility grid electricity when solar power is not available. In locations with 1:1 net metering, where avoiding grid energy and sending electricity back to the grid are equally valuable, batteries may be less important.

A backup battery can be a wise addition if you can save more money by using more of your solar electricity and you want some backup power during blackouts. In most locations, a backup battery won’t pay for itself in savings, but provides the non-monetary benefits of security and greater independence from the grid.

A consumption-only battery gives you a lower upfront cost for adding energy storage to your system but won’t give you backup power in a power outage. You will be able to store cheap electricity from your solar panels or the grid and use the electricity or discharge it to the grid when doing so saves you money.

Either type of battery can help you use more of your solar electricity and gain more independence from your utility.

To see what you can save with solar and storage, get a free savings estimate today.

Frequently asked questions

Will a battery back up my home during a power outage?

To provide backup power to your home or part of your home in an outage, your battery must be configured to do so. How much backup power it can provide depends on if your battery is charged, the size of the battery system, how much of your home draws power from the battery, and if your home solar system can recharge the battery during the outage. 

Can a battery save me more money when I get solar panels?

A backup battery, or bank of batteries, is a significant investment as part of a home solar system and, depending where you live, can increase the solar payback period. An arbitrage battery is less expensive to buy and install. In places like California, you’ll likely save more from an arbitrage battery than a backup battery. 

Why isn’t my home battery keeping my power on after the power went out?

If your battery isn’t designed and installed for backup power and the grid goes out, your battery will shut down, too. An arbitrage battery won’t discharge electricity during a power outage. A backup battery may run out of charge if it doesn’t have a way to recharge during the outage.

Disclaimer: This content is for educational purposes only. Palmetto does not provide tax, legal, or accounting advice. Please consult your own tax, legal, and accounting advisors.