For more than a century, governments have offered electric utilities a monopoly over the sale of electricity to homes and businesses, so long as they are willing to serve everyone and submit to regulation.
But as homeowners have started installing solar panels and batteries, this simple arrangement has become more complicated. This has led to fierce battles between utility companies and relatively fledgling solar companies that sell and install rooftop systems for homes and businesses.
On Thursday, Sunnova Energy, one of the nation’s largest rooftop solar companies, filed with the California Public Utilities Commission to let it compete directly with investor-owned utilities as a private “micro-utility” to power homes in new housing developments. which is illegal in much of the United States.
The company said it would offer these residents electricity that is up to 20 percent cheaper than rates charged by investor-owned utilities like Pacific Gas & Electric and Southern California Edison. If approved by regulators, the micro-utility model, aka microgrid, could undermine the growth of these larger utilities by barring them from new homes or forcing them to lower their rates to sustain that business.
Sunnova executives argue that the approach they are seeking approval for was approved under a California law passed nearly two decades ago for a resort south of Lake Tahoe. Additionally, the company says advances in solar and battery technology mean neighborhoods can be designed to generate more than enough electricity to meet their own needs at a lower cost than relying on the grid.
“If they don’t want to vote for me, that should be their right; If they don’t want to vote for you, that should be their right too,” said John Berger, CEO of Sunnova.
A small number of homeowners have gone off the grid as the cost of solar panels and batteries has fallen. However, this can be difficult or impossible. Some local governments have rejected permits for off-grid homes on health and safety grounds, arguing that being connected to the grid is essential.
However, connecting a single home to the grid can cost tens or even hundreds of thousands of dollars, which means an off-grid system can actually be cheaper — especially for properties in remote areas or places where the local grid is at full capacity and would require significant upgrades to serve more homes.
Off-grid setups can also be attractive because once a system has paid for itself, its operating and maintenance costs are often modest and predictable, while electricity prices can soar. Electricity bills have skyrocketed in recent months as the war in Ukraine has pushed up natural gas prices. The nationwide average retail electricity price rose 11 percent in June from a year earlier, according to the Energy Information Administration.
But the kind of micro-suppliers Sunnova hopes to create have also had problems. The utopian visions of generating electricity where it is needed often encounter maintenance and other problems. Many tiny utilities created on such models in the United States and Canada were later swallowed up by larger energy companies.
In California, the Kirkwood Mountain Resort near Lake Tahoe used a micro-utility company to provide residents and tourists with electricity for years. But the electricity produced sometimes costs as much as 70 cents per kilowatt-hour, or three to five times the rates of larger utilities in the state. Eventually, the City of Kirkwood took over the utility and connected it to the state power grid.
Sunnova’s microgrid approach could suffer a similar fate. But the cost of solar panels and batteries has come down over the past decade, making the energy that off-grid systems produce much more affordable than when the diesel-based system was built at Kirkwood.
Sunnova is asking the State Utilities Commission to allow him to become a micro-utility company under the same state law that allowed that in Kirkwood. Mr Berger said his company will work with developers to install solar panels and batteries as part of home construction in developments of fewer than 2,000 units.
The company has enlisted support from at least one major homebuilder, Lennar, who said it would consider using Sunnova’s microgrids if regulators approve them.
“We are a proud partner of Sunnova and support highly qualified participants trying to solve some of the world’s most pressing problems,” said Stuart Miller, Executive Chairman of Lennar. “We value the current power grid and are intrigued by new microgrid solutions that complement and support the traditional utility grid and can help solve extreme weather and peak load reliability.”
The Supply Commission said it would review the Sunnova application, a process that would involve gathering public responses. Representatives from investor-owned utility companies said they could not comment on the proposal and that they needed more time to consider it.
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Solar panels and batteries will be installed in each home and in common areas such as clubhouses. All of those devices would be tied together, Sunnova executives said. The company expects such microgrids will experience outages of 30 minutes or less annually, compared to an average of two hours per year for California’s large investor-owned utilities.
Consumers would receive a single, simplified electricity bill showing how much electricity the system is producing on their own properties, how much they have used and what their net benefit or cost is.
New homes and developments offer the most realistic opportunity to create microgrids, as existing homes are typically already served by private, municipal, or cooperative utilities.
Sunnova said its systems would not be fully isolated. There are plans to connect them to the larger nationwide grid so that excess power can be sent to other utilities or energy can be withdrawn in the event of an emergency. But its systems would not be owned or operated by the state’s three major electric utilities — Pacific Gas & Electric, Southern California Edison, or San Diego Gas & Electric.
According to Sunnova, this would reduce consumers’ electricity bills by up to $60 per month for a typical California home, based on the state’s average electricity price in June. The recent rise in interest rates is a testament to the superiority of Sunnova’s approach, Mr Berger said.
“People aren’t just going to get bigger and bigger electric bills every quarter,” he said. “The politics of it will demand changes.”
Still, energy pundits said the odds were stacked against Sunnova.
The utility industry and its regulators, including the California Utilities Commission, have a vested interest in preserving the status quo. The companies tend to be much larger and more politically influential than rooftop solar installers like Sunnova or Sunrun, the largest rooftop solar company in the country.
Bernard McNamee is a former member of the Federal Energy Regulatory Commission, which regulates transmission lines, gas pipelines and other parts of the energy industry. He said the traditional regulated utility monopoly model may seem antiquated but has ensured that everyone, regardless of income, has access to a universally reliable power grid.
“What we need to ensure is that the system is designed to provide every customer with a reliable and affordable electricity service,” said Mr. McNamee, a partner at McGuireWoods, a law firm. “People throw things like competition and markets around. All of these things are complicated.”
However, Mr McNamee acknowledged that regulators would have to figure out how to deal with popular new technologies such as residential solar and battery systems, which could allow some homes or neighborhoods to generate enough electricity to function without the bulk having to draw electricity from the grid saves time.
“Regulators are struggling to integrate these new technologies,” said Mr. McNamee. “It’s something we have to work through as a country, as states.”
Electric utilities have been urging regulators to reduce the compensation homeowners receive for the excess solar power that their rooftop systems feed into the grid. The companies have argued that customers with solar panels are being offered generous credit for electricity that they are not adequately contributing to the cost of maintaining power lines and other network equipment.
The California Utilities Commission is expected to soon release a proposal for solar compensation on rooftops, after scrapping an earlier proposal that many roofing companies and homeowners criticized as being too cheap for utilities.
Rooftop solar companies, which have grown rapidly in recent years, face their own challenges, particularly how to become consistently profitable. Many of them rely on the tax breaks that the federal government offers to encourage the use of renewable energy. The Anti-Inflation Act that President Biden recently signed into law has expanded and expanded these credits.
Building and operating microgrids could provide a steady stream of revenue for companies like Sunnova. That could essentially transform rooftop solar companies into the kind of utilities they have long struggled against.