Conversion Tax: The Hidden Cost of AC-Coupled Batteries

Solar + Storage is Becoming the Norm

More and more homeowners are pairing solar with storage. We saw that EnergySage reported a 4x year-over-year increase in storage attachment rates in the Trendlines chapter. Whether it’s for backup power, time-of-use energy savings, demand response benefits, or reducing reliance on the grid, batteries unlock significant additional value from a solar system.

But not all solar + storage systems are created equal. If you’re using microinverters and AC-coupled batteries, you’re paying a hidden cost we call the Conversion Tax.

‍

The Conversion Tax Explained

Solar modules generate Direct Current (DC) energy. Homes use Alternating Current (AC) energy. Microinverters convert DC energy to AC energy for use in the home. Each time energy is converted from AC-to-DC or DC-to-AC, there are losses. Batteries store energy as DC. As a result, microinverter-paired battery systems must incur additional conversions:

1. DC → AC: Solar modules send DC power to microinverters, which convert it into alternating current (AC) for your home.
2. AC → DC: To charge the battery, the AC power must be converted back into DC.
3. DC → AC: When you use the stored energy, the battery converts it back into AC to power the home.

When the losses are tallied, using a battery with a microinverter incurs 13.3% losses on average. That’s in contrast to a DC-based system that only incurs 8.2% losses, illustrated in Figure 10

‍

DC-Coupled Batteries: A Smarter Solution

Unlike AC-coupled batteries, DC-coupled batteries charge directly from the solar modules without unnecessary conversions. Here’s how it works:

• DC → DC: Energy from the modules flows directly to the battery for storage (no conversion).
• DC → AC: When the energy is needed, a single conversion happens as the battery discharges power to the home.

This streamlined process eliminates redundant conversions, reducing losses and maximizing the energy a homeowner stores and can use.

In Figure 11, we compare the conversion steps from DC to AC and vice versa for AC architecture vs. DC architecture.

‍

AC Architecture (with microinverters)

3 conversions: 1) Module to microinverter → 2) Inverter to battery → 3) Battery to home

‍

DC Architecture (with optimizers)

1 conversion: 1) Battery to home

‍

How The Conversion Tax Adds Up

The losses might seem small at first, but they add up over time. Here’s a simple example:

• Assume a home battery charges and discharges 10kWh of energy daily.
• Microinverters incur 5.1% additional losses compared to DC-coupled storage, as shown in Figure 10.
• At an electricity rate of $0.30/kWh, the additional losses add up to $2,654 over a 25-year project life.

Now scale that up for larger systems or higher daily usage, and the costs become even more significant. By avoiding unnecessary conversions, DC-coupled batteries save homeowners thousands of dollars in conversion losses over their system’s lifetime.

‍

Why this matters now, more than ever

Batteries coupled with solar power have always been appealing for backup power purposes. However, a big reason why battery attachment rates are growing is because utility rate plans incentivize them. The rise of time-of-use utility rates, lower solar export values (like California’s NEM 3.0), and increasing battery attach rates mean energy storage is no longer optional in many jurisdictions—it’s critical to maximize savings and/or avoid energy export limits.

Figure 12a shows the battery behavior that corresponds to the variable rates set by the utility. The utility is incentivizing energy offset during the afternoon.

‍

Below is a sample day in the life of a system in California, where excess solar production during the day is used to charge the battery. The battery is then discharged in the afternoon when exporting electricity to the grid is worth 10 times the value of exporting it during the middle of the day.

‍

California’s new NEM policy sets the incentives that drive this behavior: not only requiring a battery to save money with solar but charging and discharging it nearly every day. We wrote about it here. As a result, a lot of energy is transferred in and out of the battery every day. With daily battery use, the conversion penalties add up to significant value in dollars. If you’re using an AC-coupled battery, you’re losing more of your energy to conversions every day.

‍

Conclusion

The Conversion Tax is a hidden penalty in AC-coupled battery systems, eating away at solar savings with every unnecessary energy conversion, which can add up to $2,654 over the lifetime of an installation. As battery storage becomes a standard part of residential solar, choosing a DC-coupled architecture is the smarter solution.

When combined with the clipping tax, the total Microinverter Tax bill swells to $13,378.

In Chapter 5: More gear, more problems, we’ll dive into why AC-based systems require extra components to achieve worse results, and how a simpler setup can save time, money, and headaches.

‍

‍

Want more?

Webinar: On April 15 (Tax day in the US), we're hosting a webinar that will dive into the details of the Microinverter Tax series. Sign up for the webinar here.

Below is a full list of chapters included in this series (links will be added as chapters are published):

1. Summary: The Growing Microinverter Tax
2. Trendlines: Major Changes in the Solar Industry
3. Clipping Tax: Leaving energy on the table
4. Conversion Tax: The hidden cost of AC-coupled batteries (this chapter)
5. Equipment Tax: More gear, more problems
6. The solution is DC: DC optimizers, DC coupled batteries
7. Bonus: Clipping showdown: MLPE vs. Optimizers
8. Glossary of terms

‍