by Fereidoon Sioshansi, Menlo Energy Economics

The traditional power utility business model is being challenged on multiple fronts usually because technological innovation allows better ways to deliver the same services at lower cost. The incumbents, especially the investor-owned utilities (IOUs) who historically relied on earning a regulated rate-of-return on their capital investments are especially hard hit since the utility business is a zero-sum game: someone’s gain usually comes at someone else’s loss.

Recently, Sunnova Energy International, a large solar installer, made a proposal to the California Public Utilities Commission (CPUC) that it be allowed to build, own and operate privately-owned micro-grids serving newly built residential communities of 500 to 2000 homes in California.
If approved, Sunnova would work with builders and developers of new residential neighbourhoods building a community of super-efficient homes equipped with rooftop solar, batteries and efficient appliances centrally managed by Sunnova.

The community’s distribution network would be built from the ground up with Sunnova optimising generation, storage, and consumption as well as trading energy and other services with the Californian grid. Sunnova claims that its application meets all of the CPUC’s requirements while offering customers savings of 20% or better with superior reliability. It says if approved, it can take advantage of the Biden Administration’s Inflation Reduction Act which offers a 30% tax credit.

California’s three main IOUs [utilities], however, are adamantly against the proposal because it would be the end of business-as-usual by allowing competition from a new player in what has been their exclusive domain for over a century. And if Sunnova is allowed to compete with the IOUs, it won’t be the last.

The IOUs argue that Sunnova aims to duplicate the utility’s service without adequate oversight by the regulator. Clearly, they prefer to preserve the status quo, where only they can provide service and at rates set by the regulator.

Sunnova, on the other hand, has urged the CPUC to dismiss the IOUs’ "sky-is-falling" claims, pointing out that the consumers in the master planned communities would be better off and there won’t be any harm done to the grid or other customers served by the IOUs. Sunnova’s application is supported by 16 groups who say the CPUC should, at the minimum, hear the arguments before deciding.

Of course, there will be ramifications for other customers if Sunnova’s proposal is approved because it could conceivably deprive the IOUs from at least a significant portion of their future growth opportunities. Their high retail rates, which are due to rise, will have to rise even more making them even less competitive compared to self-generation and future Sunnovas.

The CPUC finds itself in an unenviable position facing a bad and a worse option. If the regulator agrees with the IOUs, it may come across as being too lenient or sympathetic to their cause. If it agrees with Sunnova, it might open a floodgate to others who may wish to do similar things – and who will then protect the vulnerable customers who rely on the service provided by the regulated monopolies, despite all its flaws?

As reported in a 25 Oct 2022 post by Utility Dive [1], the Public Advocates Office at the CPUC said the agency should dismiss the application because” …there are many regulatory issues related to multi-customer microgrids that the commission must address before determining whether [Sunnova’s] proposal is reasonable.” This editor does not find the argument convincing.

Sunnova is pushing back against the IOUs pointing out that the CPUC has said it wants to remove barriers to microgrid commercialization:
“Required commercialisation of microgrids does not mean leaving microgrid ownership and operation as the sole province of the large IOUs, who will not commercialise micro-grids, but instead will monopolise them to the detriment of customers.”

The CPUC’s micro-grid rulemaking process, which is focused on developing rules for utilities to own multi-property microgrids served by third parties has been underway for some time. In the meantime, more than a dozen organisations have said that the CPUC should hold a formal hearing on Sunnova’s microgrid proposal so that its merits and flaws can be examined.

Regardless of the fate of the Sunnova’s proposal, the IOUs’ exclusive service area and business model is beginning to break down.
In early Nov 2022, KB Home, a big American homebuilder, announced that it was developing an all-electric, solar, and battery-powered micro-grid community in Southern California. A 7 Nov 2022 EnergyTech.com post [2] reported that every home in the energy-smart community will feature efficient and digitalised appliances, rooftop solar, and backup batteries with the entire community managed as a microgrid capable of operating independently even during grid outages.

To achieve this goal, every home will come with a 4,9 to 6,3 kW rooftop solar system and a 13 kWh battery with a larger 2,3 MWh community battery. Given the built-in energy-efficiency features, the homes are expected to generate nearly all their power needs.

KB Home has joined forces with the Department of Energy (DOE), solar installer SunPower, the Advanced Power and Energy Program at the University of California, Irvine, Southern California Edison Company (SCE), Schneider Electric and Korean carmaker Kia to build the new community in Oak Shade and Durango at its Menifee Shadow Mountain master project.

Ten houses in the community will take part in a vehicle-to-house/vehicle-to-grid experiment with Kia. The participants would not only be able to charge their EVs from rooftop solar generated within the community and/or cheap energy from the grid but can also feed the micro-grid and/or the macro-grid with excess stored energy in vehicle batteries.

Since EV batteries are much larger than the batteries that come with each home, this can be a game changer. A Rivian R1S with an extended range, for example, can store 135 kWh, over ten times the 13 kWh home battery. Once the vehicle-to-house/vehicle-to-grid technology is perfected, it can turn many consumers into flexumers – that is they will be able to get power from the grid, from the home battery and/or the EV, or from the community’s much larger battery. At other times, the reverse can happen with the EV feeding the home, the community battery and/or the grid.

Jeffrey Mezger, KB Home’s CEO said, “Working with industry and academic leaders, we plan to explore how these energy-smart connected communities can help protect the environment and turn our homes into their own power centers designed to deliver resiliency while also reducing the overall cost of long-term homeownership.”

If it sounds a lot like Sunnova’s proposal, it is except that in this case the local IOU is on board; it will build and own the distribution network within the community. SCE must have decided that if you can’t beat the competition, you better join them.

Similar examples where a third-party steps in to do what would have normally been done solely by a utility abound, either because the utility is unable or unwilling to do it or – most of the time – because someone else is willing and able to do it better, faster and at lower cost.
Puerto Rico’s feeble electricity grid was devastated by Hurricane Maria five years ago. Much of the island still does not have reliable service and the local municipal utility is totally overwhelmed and understaffed to deliver basic services outside major cities. Which explains why Sunrun, another major solar installer, has decided to step in and fill the gap. As reported in a 2 Nov 2022 post by Utility Dive, Sunrun announced that it was developing a 17 MW virtual power plant (VPP) for Puerto Rico’s electric utility by aggregating rooftop solar generation from 7000 homes.

According to Sunrun’s CEO Mary Powell, “We’re solving energy insecurity on the island by switching the (existing utility) model so that solar energy is generated on rooftops and stored in batteries to power each home, and then shared with neighbours.”
"This will create a “clean shared energy economy,” she said.

As these examples illustrate, the traditional utility business model and the regulation that enabled it for over a century is breaking down at its seams. Regulators must acknowledge that the times have changed, and the old assumptions, rules and roles must change. Ditto for the regulated incumbents.

References
[1] https://www.utilitydive.com/news/sunnova-california-puc-micro-utility-microgrid-proposal/634879/?utm_source=Sailthru&utm_medium=email&utm_campaign=Issue:%202022-10-26%20Utility%20Dive%20Load%20Management%20%5Bissue:45550%5D&utm_term=Utility%20Dive:%20Load%20Management

[2] https://www.energytech.com/distributed-energy/article/21254103/kb-debuts-microgrid-communities-in-california?utm_source=ET+Transition&utm_medium=email&utm_campaign=CPS221104014&o_eid=3934I5521789E0B&rdx.ident%5Bpull%5D=omeda%7C3934I5521789E0B&oly_enc_id=3934I5521789E0B

[3] https://apple.news/A-dvhww-dQwaDc2fRvI4BbA

Acknowledgement

This article was first published by EEnergy Informer and is used with permission.

Contact Fereidoon Sioshansi, EEInformer@aol.com