From Grid Defected to Grid Connected

RMI’s recent report The Economics of Grid Defection explored the potential for solar-plus-battery systems to reach economic parity with the electric grid. That analysis reached a striking conclusion: solar-plus-battery systems could become cost competitive with purchasing electricity from your utility in several areas around the country much faster and for more customers than traditionally thought. The implication is that customers could choose to become their own power provider. In fact, a March 2014 Morgan Stanley report strongly reinforced that possibility.

Yet the same solar and storage trends that could enable some customers to economically defect from the grid simultaneously unlock exciting prospects for evolving and optimizing our grid-connected electricity system. Far short of cutting the cord, integrating solar-storage hybrids into the grid creates a powerful combination that can maximize value for multiple grid-connected customers and service providers, including solar-storage customers themselves.

How? Coupling distributed storage with PV can do more than simply provide a source of back up or uninterruptible power supply to a customer. The combination turns an otherwise passive energy resource into flexible capacity that provides power when it’s most valuable to the customer that installed it. When connected to the grid, distributed solar-storage hybrids can increase reliability and enable value exchange for the benefit of all. Both customers and utilities can benefit from demand response, peak load reduction, renewable generation smoothing, and ancillary services provision.

Recognizing this value proposition, companies such as eLab member Sunverge are combining solar power and battery storage to provide multiple value streams to customers, utilities, and society today. I recently talked with Sunverge vice president of products Steve Wolford about how grid-connected solar-plus-battery systems are already helping the grid’s ongoing transition to the electricity system of the future.

Virginia Lacy: Let’s start with Sunverge’s system. What’s included and how does it work?

Steve Wolford: The Sunverge Solar Integration System (SIS) is a simple, intelligent, and cost-effective distributed energy storage system that captures solar power and delivers it when needed most. It combines batteries, power electronics, and multiple energy inputs in a UL-certified appliance that is controlled by software running in the cloud. It is a utility-grade product designed for the consumer market.

SIS units are installed along with solar at homes and businesses. Each SIS provides power to the site while energy from each and every SIS unit is pooled in the cloud. From this virtual pool, utilities or other providers can reserve and schedule energy in advance and request energy in real time.

This single platform delivers benefits to multiple groups. Energy consumers receive more reliable power at a lower cost. Utilities reduce grid management and energy delivery costs. Energy retailers increase revenue by bringing value-added products and services to market. Society as a whole accelerates the adoption of solar, wind, and electric vehicles. The key is placing generation and storage nearest to the consumer to capture the most value for all parties.

We often get a response of “Oh, you’re helping people go ‘off-grid’.” Actually, our goal is quite the opposite: we want to strengthen both the grid and utilities’ relationship with customers. In the process, we help the utility provide better service to those customers. Our belief is that the grid is a social good. It should be made stronger and more resilient for everyone’s benefit.

VL: One of the important aspects of Sunverge’s business model is that it is as flexible as the market application requires. Can you expand on the types of applications and ownership structures that utilities, customers, and third parties are exploring?

SW: I like to describe our business model as a series of layers.

The first layer is the product itself, which works both at the site and on the grid to orchestrate and optimize energy delivery. On top of real-time awareness and some complex algorithms, we run applications that reduce consumers’ bills, provide backup power when the grid goes down, provide stability and support to the distribution grid, sell power into ISO or other markets, and more. The SIS runs multiple applications at once—each of the over two hundred units now in service across the globe is doing at least three or four separate things at any one time. The system is also harmonizing the value across these applications by looking for the highest value for each kWh of energy dispatched.

The second layer answers the question: How best to divide up all this value among consumers, utilities, and vendors for a given project? Simply put, the consumer needs to receive clear and compelling benefits, and the utility and the vendor need to make money.

We work with utilities to design and implement programs to not only deliver a set of services on top of our platform, but also to deliver the right incentives to the end customer, whether tariffs, payments, or other on-bill mechanisms. And, perhaps most importantly, the right kinds of customer experiences. You’ve got to focus on the interface to the customer, and by that I don’t mean just what appears on a screen. It’s about the full spectrum of engagement, from marketing to installation to support and beyond.

Finally, the third layer answers the question: What ownership and operational model best supports all of this? One key element is the choice of financing. Sunverge is financing projects in at least three different ways. The first option is for the utility to place our system in the regulated asset base. The second is to finance assets on the utility’s balance sheet. A third is to use structured finance from third parties, using the same mechanism the solar industry uses here in the States. We can also mix and match options to best meet the desired outcomes of our customers and partners.

The product supports all of these arrangements. Given that we have direct, real-time control over not only the operation and configuration of each and every unit, but also across the fleet of units, we can ensure that the entire system adapts to changing conditions over time, with the criterion always being maximizing the value that is delivered.

Let’s say a utility deploys our SIS units in a neighborhood where the grid goes down a lot. Providing backup power is a key selling point to those consumers. But then say the distribution infrastructure is gradually upgraded in that area, and reliability becomes less of a concern for all involved. The utility can immediately re-purpose those units for customer bill reduction, bidding power into contingency reserves markets, or other applications.

If the utility, or the consumer, had invested in a single-purpose technology just to provide backup power, they would be locked into the limitations of that technology, and those costs, as they say, would be sunk. With the SIS, both utility and consumer receive the benefits of technology that can change and adapt. It’s not a stretch to consider one of our main value propositions to be an “option” value.

VL: Since Sunverge’s founding in 2009, how have you seen demand change for battery systems to supplement solar PV? Who is purchasing these systems and why?

SW: The market has dramatically accelerated in the past eighteen months. And it is very much a global market. We currently have projects in California, Hawaii, Australia, New Zealand, Germany, and South Korea, plus prospects in the Midwest, on the East Coast, and in Japan. We firmly believe that is just the tip of the iceberg.

It’s a multi-faceted market. We see our customer as the utility company, with the energy consumer—whether a household or business—as the “customer of our customer.” Serving both well is critical to our business model.

We are working with major utilities to rollout solar and storage programs targeted at consumers. The value proposition to the consumer is cheaper, more reliable, green electricity. The value proposition to the utility is manifold: the utility gains a new revenue stream from selling services to consumers, reduces the cost and complexity of managing the distribution grid, and can seek further revenues by bidding power and energy into frequency regulation, contingency reserves, and wholesale markets.

When you unpack those value streams, a lot of complexity is revealed —specific electricity tariffs, load profiles, the age and profile of the distribution grid, geography, the maturity of open markets, the regulatory environment, available incentives, and more. Part of Sunverge’s value comes from managing this kind of complexity.

But the most powerful driver in the market has to do with an even more basic question: How are utilities going to protect their business in the face of intense competition from all sides? It is not hyperbole to say that we are seeing a battle for rooftops, and a battle for the customers living and working underneath those rooftops. Our utility customers not only understand this, they are aggressively taking action to get into the game.

VL: What are the trends and driving factors you’re seeing in the adoption of grid-tied solar-plus-battery systems around the world and in the U.S.?

SW: For consumers, a high retail cost of electricity is an obvious driver. In regions where the grid is relatively unreliable, backup power is another selling point. And, with the growing realization that when the grid goes down a stand-alone solar installation goes down with it, a much broader segment of the consumer market is interested in reliability. You know, that commercial pretty much writes itself: the day after the next big storm, even though every home in the neighborhood has rooftop solar, only one house has its lights on.

On the utility side, peak demand, network congestion, aging distribution grids, losses of generation sources (nuclear, coal), and the need for reliability are all drivers. Add to that picture high penetrations of grid-tied solar and wind and you have some serious network problems to solve.

In a given market there are always specific needs. In Australia you find isolated communities far removed from the centralized grid, yet the utility has a service obligation to the local residents and businesses. Given the long distances, high price of diesel, and low cost of solar, there is a clear and present value to create a microgrid for each town with the addition of storage and control technologies.

An interesting aspect of the solution is the continued use of diesel fuel—we’re not yet at a point where it is economical to adopt an “all renewable all the time” strategy. So, a design challenge for Sunverge was how to integrate a diesel genset into our system, but to always privilege use of solar power in the overall energy mix. Such a ‘hybrid’ solution has applications in many different geographies and polities.

VL: With growing adoption, we’re already seeing some potential sources of friction in places like California, where utilities are reluctant to net meter solar customers that have battery systems. What hurdles do you see coming down the pipeline, and what do you think is necessary to overcome them?

SW: We’ve been working closely with the CPUC and others on this exact issue in California. That barrier and others like it are coming down rapidly. In fact, the sources of actual friction tend to be more mundane than people might believe, involving practical, technical issues of metering and billing rather than larger political or ideological conflicts. Not to say the latter don’t exist, but we think they are overemphasized.

Consider the CPUC’s recently proposed decision. By removing extra interconnection or standby costs for storage when paired with renewables, it opens the door to exactly the kinds of things Sunverge is doing.

Our main strategy to overcome any such “friction” is the open sharing of information. When we are in meetings in San Diego, Honolulu, or New York and these types of concerns are brought up, our first response is “let us talk to you about what we’re doing to address exactly that in Sacramento, Auckland, and Melbourne.” And then, better yet, we get our customers talking with each other on these issues, exchanging information, experiences, and best practices.

On a broader scale, there is still work to do to open ancillary and grid service markets to allow storage to participate from behind the meter, and at lower capacities and shorter timescales than those of conventional power generation. But to be fair, this is new terrain for the electricity industry, and there is inherent—and justified—caution with placing new technologies onto the grid. The good news is that there are now proof points that demonstrate how products that incorporate these technologies work in practice.

VL: What’s next as you look ahead, especially with costs continuing to drop for both solar and batteries alike?

SW: Projects are coming at us from all angles. Many have a strong, quantifiable ROI with today’s tariffs and today’s prices for solar and battery systems. As prices continue to fall for both into the future, this will simply mean more and varied opportunities in more parts of the globe, for us and everyone else in this market.

Image courtesy of Sunverge.