Home Business A solar firm plans to build an off-grid neighborhood in California

A solar firm plans to build an off-grid neighborhood in California

by SuperiorInvest

For more than a century, governments offered power companies a monopoly on selling power to homes and businesses if they agreed to serve everyone and submit to regulation.

But as homeowners began installing solar panels and batteries, this simple arrangement became more complicated. This has led to bitter battles between energy companies and the relatively young solar businesses that sell and install rooftop systems for home and business use.

On Thursday, one of the nation’s largest rooftop solar companies, Sunnova Energy, asked the California Public Utilities Commission to allow it to compete directly with investor-owned companies to provide electricity to homes in new residential developments as a private “micro-utility” — and a business model that is illegal in much of the United States.

The company said it will offer those residents electricity that will be up to 20 percent cheaper than the rates charged by investor utilities such as Pacific Gas & Electric and Southern California Edison. If approved by regulators, the microutility model, also known as a microgrid, could undermine the growth of these larger utilities by denying them access to new homes or forcing them to lower rates to retain that business.

Sunnova executives say the access they are seeking approval for was allowed under a California law passed nearly two decades ago for the resort south of Lake Tahoe. In addition, 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 if they relied on the grid.

“If they don’t want to pick me, that should be their right; if they don’t want to choose you, that should be their right too,” said John Berger, CEO of Sunnova.

A small number of homeowners have fell off the grid as the cost of solar panels and batteries has fallen. But doing so can be difficult or impossible. Some local governments have refused permits for off-grid homes on health and safety grounds, arguing that grid connection is necessary.

But connecting a single home to the grid can cost tens or even hundreds of thousands of dollars, meaning an off-grid system can actually be cheaper – especially for properties in remote areas or places where the local network is at capacity and would require significant upgrades to serve more households.

An off-grid setup can also be attractive because once the system is paid off, the costs to operate and maintain it are often modest and predictable, while utility rates can skyrocket. In the last months electricity bills skyrocketed because the war in Ukraine caused the price of natural gas to skyrocket. The national average retail electricity rate rose 11 percent in June from a year earlier, according to the Energy Information Administration.

But the kind of micro-utilities that Sunnova hopes to create have also had problems. Utopian visions of generating electricity where it is used often ran into maintenance and other problems. Many small utilities built on such models in the United States and Canada were later absorbed by larger utilities.

In California, Kirkwood Mountain Resort near Lake Tahoe has used a micro-utility to provide power to residents and tourists for years. But the electricity it produced sometimes cost as much as 70 cents per kilowatt hour, three to five times the rates charged by the state’s larger utilities. Eventually, the city of Kirkwood took over the plant and connected it to the state power grid.

Sunnova’s microgrid approach could meet a similar fate. But the cost of solar panels and batteries has plummeted over the past decade, making the power generated by off-grid systems much more affordable than when Kirkwood’s diesel system was built.

Sunnova is asking the state Public Utilities Commission to allow it to become a micro corporation under the same state law that authorized the one in Kirkwood. Mr. Berger said his company would work with developers to install solar panels and batteries as part of home construction in projects with fewer than 2,000 units.

The company has lined up support from at least one major homebuilder, Lennar, which has said it would consider using Sunnova’s microgrids if approved by regulators.

“We are proud to partner with Sunnova and support highly skilled participants who are working to solve some of the world’s most important problems,” said Stuart Miller, executive chairman of Lennar. “We value the current power grid and are interested in new microgrid solutions that can complement and support the traditional grid and help address reliability during extreme weather and peak demand.”

Solar panels and batteries will be installed in each house and in common areas such as clubhouses. All of that equipment would be tied together, Sunnova executives said. The company expects such microgrids to experience outages of 30 minutes or less per year, compared to an average of two hours per year for large investor-owned California utilities.

Consumers would receive a single, simplified electricity bill showing how much electricity the system produced on their own land, how much they used and what their net benefit or cost was.

New homes and buildings offer the most realistic opportunity to create microgrids, as existing homes are generally already serviced by investor, municipal or cooperative businesses.

Sunnova said its systems will not be completely isolated. It plans to connect them to a larger national grid so it can send excess electricity to other utilities or draw power in an emergency. But its systems would not be owned or operated by the state’s three major power providers — Pacific Gas & Electric, Southern California Edison or San Diego Gas & Electric.

That, Sunnova says, would reduce consumers’ electricity costs by up to $60 a month for a typical California home, based on the state’s average electricity rate in June. The recent rate hike is a testament to the superiority of Sunnova’s approach, Berger said.

“People aren’t just going to pay a bigger and bigger electric bill every quarter,” he said. “This policy will require change.”

Still, energy experts said the odds were stacked against Sunn.

The utility industry and its regulators, including the California Public Utilities Commission, have a vested interest in maintaining the status quo. The companies are typically much larger and more politically influential than rooftop solar installers like Sunnova or Sunrun, the nation’s largest rooftop solar company.

Bernard McNamee is a former member of the Federal Energy Regulatory Commission, which regulates transmission lines, pipelines and other parts of the energy industry. He said the traditional model of a regulated utility monopoly might seem outdated, but that it ensured everyone, regardless of income, had access to a generally reliable electricity grid.

“We need to make sure the system is designed to provide reliable and affordable electric service to every customer,” said Mr. McNamee, a partner at law firm McGuireWoods. “People throw around things like competition and markets. All these things are complicated.”

But Mr. McNamee acknowledged that regulators need to figure out how to deal with popular new technologies such as residential solar and battery systems that could allow some homes or neighborhoods to generate enough electricity to function without having to draw most of their energy from the grid . time.

“Regulators are struggling with how to integrate these new technologies,” Mr. McNamee said. “It’s something we have to work through as a country, as states.”

Energy companies are pushing regulators to reduce the compensation homeowners receive for the excess solar energy their rooftop systems send to the grid. The companies argued that customers with solar panels are being offered generous credits for electricity that they do not adequately contribute to the cost of maintaining power lines and other grid equipment.

The California Public Utilities Commission is expected to release a proposal for rooftop solar offsets soon after scrapping an earlier proposal that many roofing companies and homeowners criticized for being too favorable to public services.

Rooftop solar businesses, which have grown rapidly in recent years, face their own challenges, particularly in finding how to become consistently profitable. Many of them rely on tax credits offered by the federal government to encourage the use of renewable energy. The Inflation Reduction Act, which President Biden signed recentlyextended and extended 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 kinds of utilities they’ve long fought against.

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