Increasing renewable energy share in total energy production is a direction that leads toward the European Union’s aims of carbon neutrality by 2050, as well as increasing energy self-sufficiency and independence. Some of the main challenges to increasing renewable energy share while providing an efficient and secure energy supply are related to the optimization and profitability of de-centralized energy production systems. Integration of energy storage systems in addition to decentralized renewable energy production, for example, by solar panels, leads to more effective electricity supply and smart energy solutions. The modeling of such a complex dynamic system can be performed using the system dynamics method. The main aim of this research is to build and validate the basic structure of the system dynamics model for PV and battery diffusion in the household sector. A system dynamics model predicting the implementation of battery storage in private households was created for the case study of Latvia. Modeling results reveal that under the right conditions for electricity price and investment costs and with the right policy interventions, battery storage technologies combined with PV panels have a high potential for utilization in the household sector. Model results show that in a baseline scenario with no additional policies, up to 21,422 households or 10.8% of Latvian households could have combined PV and battery systems installed in 2050. Moderate subsidy policy can help to increase this number up to 25,118.