The idea that only rich people can afford to install rooftop solar is being turned on its head by innovative business models around the world
SUNNY OUTLOOK
Solar and battery systems have dropped massively in price, bringing energy generation to homes around the world COMMERCIAL INNOVATION
Companies and administrations are looking to PV and storage for the delivery of energy to a growing array of consumers KEY QUOTE
There is an ongoing relationship with the customer and asset to provide energy services to the system, but not necessarily to the owner
European utility customers will remember 2022 as a year of painfully high energy costs. AleaSoft Energy Forecasting, an energy market analyst, says prices in Q3 have been the highest registered so far in the European electricity markets. Around the world in Australia, in contrast, customers were being offered the opportunity to pay nothing for their electricity supplies for five years. All they had to do was buy a household solar and battery kit from a company called Reposit Power. “We will take responsibility for your electricity bill—including all fees, charges and taxes—in full and on time for five years, guaranteed,” says the promotional blurb for Reposit’s No Bill offer. The scheme seems to have been popular, with Reposit’s Dean Spaccavento declining to speak to FORESIGHT Climate & Energy on the grounds that, “We need no upside.” NOVEL MODELS Still, Reposit is an example of how solar and residential battery systems are leading to a raft of new electricity commercialisation models and giving consumers a level of energy independence not seen since pre-industrial families lived off firewood. “There are many novel solar and storage business models in Australia,” says Will Edmonds, a Sydney-based analyst with research firm BloombergNEF. “Enough rooftop solar systems have been bought here to cover one in three houses.” Australia’s rush to rooftop solar, which is being emulated in markets from California to Germany, is powered by massive declines in the cost of photovoltaic (PV) and battery technology. In the decade to 2020, the cost of residential PV systems plummeted 64%, according to the National Renewable Energy Laboratory, a research institution in the United States. Meanwhile, the price of lithium-ion batteries has dropped 97% in the last three decades. The low cost of these distributed energy resources (DERs) has prompted manufacturers, retailers and installers to court domestic customers with growing success. This has put electric utilities on alert because customers who produce their own energy at home obviously pay less to their electricity supplier. Recognising it is hard to stop customers installing solar, the endgame—not just for utilities but also challenger brands in the energy space—is to help homeowners benefit from PV systems while retaining revenue streams at the same time. The most basic way to do this is simply by charging a fee to look after the solar arrays. “A lot of people find it very convenient to have it all taken care of,” says Josefin Berg of analyst firm S&P Global. Then there are more elaborate approaches, such as the one taken by Reposit. The company’s No Bill scheme, which is being piloted in New South Wales in partnership with local utility Ausgrid, relies on customers paying a reported A$18,000 for a solar array, battery system and controller. ENERGY AS A SERVICE As part of the deal, the customer lets Reposit shift energy back and forth from the solar-plus-battery system to Ausgrid. Reposit uses this capability to help stabilise the grid, for which it gets paid by Ausgrid. These payments, Reposit believes, will allow it to make a profit while covering the portion of customers’ electricity consumption that cannot be met through the solar installations. “The Reposit Power No Bill product is, I guess, an energy-as-a-service offering,” says Jill Cainey of consultancy Erne Energy. “The customer invests in the DER, purchasing their system via Reposit, and then Reposit manages the DER to ensure the customer sees no bill. Reposit will be using customer assets to provide ancillary services and wholesale demand response.” As far as the utility is concerned, Reposit is operating a virtual power plant or VPP. This is an assemblage of distributed assets that can be managed centrally to behave like a traditional power plant, supplying the grid on demand. VPPs are becoming commonplace in markets such as Australia where there is plenty of spare generation and storage capacity installed in private homes. The electric-vehicle-to-battery leader Tesla, Cainey says, also taps into its customers’ batteries to provide support services to the Australian Energy Market Operator, which manages electricity and gas systems and markets across Australia. Residential solar and battery systems are prime candidates for inclusion in VPPs, but not the only assets that could be considered. “There are a number of non-traditional players, like hot water tank manufacturers, who are looking to use the flexibility available from managing hot water production to create value for themselves and customers,” Cainey says. “The manufacturer doesn’t just sell an energy thing and walk away. There is an ongoing relationship with the customer and asset to provide energy services to the system, but not necessarily to the owner of the hot water service.”
VPP RISKS The types of assets that can be incorporated into VPPs is as varied as the range of business models they can support. Another Australian company, Energy Australia, has a concept that Edmonds at BloombergNEF says is the opposite of what Reposit is offering Energy Australia’s pitch is that you can have a solar and battery system installed for free if you agree to buy a certain amount of energy a day at a fixed cost for seven years. “Bundled products which are a combination of behind-the-meter tech, retail electricity supply and innovative finance are becoming more widespread because they are an opportunity to lock retail customers into contracts,” says Edmonds. However, offering incentives such as long-term fixed-rate electricity tariffs can be risky if the electricity that is not covered by DERs becomes expensive. “In general, it’s hard to skim long-term margins off consumers,” says Jenny Chase of BloombergNEF. In Australia, “Some of these business models would be struggling with the current state of the power market,” Edmonds says. “Some retailers have already failed and it’s unlikely other VPP operators priced in high power prices to their economic forecasting models.” LOW-INCOME CUSTOMERS In some parts of the world, however, residential solar is helping low-income families to cope with these power prices. The US leads the way in the development of schemes where the objective is n0t to lock customers into a tariff but rather help them offset energy tariffs in the first place. “If somebody has low income, the real concern is not how to have a good return on investment over time but how to instal solar without upfront costs,” says Warren Leon of the Clean Energy States Alliance, a national non-profit organisation. “If a person has low income and low wealth, they can’t afford the initial payment. What’s important to them is how they get immediate service savings, even if relatively modest.” A further problem in the US is that financing for solar mostly comes through tax credits. “If somebody is low-income there’s a good chance they don’t make enough to benefit from that credit,” Leon says. The solar industry has largely overlooked low-income families because they are perceived as having a high risk of default, Leon adds. “For a variety of reasons, there’s been much less in the way of solar installations in these communities.” Several US schemes are aiming to address these issues through arrangements where a third party installs and manages the solar systems and then sells the electricity to low-income families. Because the installer retains ownership of the PV system, the customer pays nothing upfront. The installer gets revenues from the sale of solar power while still being able to offer rates that are cheaper than grid supplies. Most importantly, the installer can take advantage of the tax incentives that would not be available to low-income households. “When states have tried to promote these programmes, what they’ve often tried to do, wisely, is provide extra financial incentives to the companies to target the low-income market,” says Leon. “The trade-off is they have insisted there are certain protections that really ensure the consumer will actually save money and that they’ve not signed up for contracts that looked good but ended up costing more than the utility supply,” he adds. ENERGY EFFICIENCY One of the most successful of these initiatives involves the Connecticut Green Bank and PosiGen, a residential solar and energy efficiency provider for low-to-moderate income families. PosiGen links the solar installations to implementation of efficiency measures. “This tends to make the finances better and serves lower-income customers well because they’re more likely to live in a house that hasn’t had the opportunity to do a lot with energy efficiency,” Leon says. The Connecticut scheme has benefited around 3000 households, Leon adds. Research by the US Department of Energy’s Lawrence Berkely National Laboratory shows third-party ownership schemes have helped counteract a tendency for richer households to lead on solar installations. “Most states show declining solar-adopter incomes over time, with generally an average 1-2% drop per year over the 2010-2020 period,” says Lawrence Berkeley’s Residential Solar-Adopter Income and Demographic Trends 2022 update. “The general trend toward lower-income solar adopters can be partially attributed to expanded access to TPO [third-party ownership].” The US National Renewable Energy Laboratory estimates more than 25.5 million low-to-medium income households could benefit from rooftop solar installations, with a total potential generation capacity of 416 terawatt-hours a year. In theory, such mechanisms could also be applied to low-income households elsewhere in the world, particularly in emerging markets where there is a dire need for electrification in rural communities.
DEVELOPING MARKETS In practice, access to funding remains a challenge for these communities. Small solar home systems can be funded through pay-as-you-go schemes, where access to PV-generated electricity is enabled through mobile payments. However, there are few alternative models because, “There remains a lack of credit history and there’s still a general absence of smartphones in many of the markets in question,” says William Brent of microgrid developer Husk Power Systems. This means they cannot take part in the digital economy and access e-commerce platforms that might simplify the development of new PV business models. For now, the key to bringing solar power to low-income families in developing nations appears to be in securing finance for last-mile distributors (LMDs), which sell products such as solar lights and home systems. Research by the Global Distributors Collective, an industry body, shows that 75% of LMD customers earn less than $3.20 a day. Writing for Sustainable Energy for All, an organisation that works to hasten access to affordable, sustainable energy, Emma Colenbrander of the Global Distributors Collective says LMDs have been surprisingly successful in raising finance. “However, most equity and debt has come from family, friends, angel investors, crowdfunders or founders themselves,” Colenbrander says. “The kind of longer-term, larger-scale commercial financing needed for growth-stage companies is not widely available.” This might change as investors become more comfortable with new commercial models that exploit the versatility and cost-effectiveness of low-cost PV and storage. Even in developed markets, innovation in DER business models has only just begun and there is plenty of room for improvement. OPTIMISATION POTENTIAL In developed markets, while customers are more well-off and able to afford rooftop solar technology, it is not necessarily being used in the most efficient way. In the US, for instance, “A lot of people that put up solar panels are also adding storage,” says Fereidoon Sioshanshi of energy consultancy Menlo Energy Economics. “Because these people have more money, they’re also likely to have an EV [electric vehicle] or two. These people are haphazardly using the solar energy that they generate and the battery is not necessarily charged appropriately,” Sioshanshi says. “If they have an EV, mostly these can be charged smartly but very few, if any, are able to discharge. It’s a huge resource that is not properly utilised. If someone were to optimise the system, there’s money to be gained,” he adds. In the UK, Octopus Energy Group, an energy company, is aiming to do just that through a VPP platform called KrakenFlex. Devrim Celal, CEO of KrakenFlex (formerly Upside Energy) says that a little over a decade ago there were around 3,800 generation points on the UK grid. “Now the UK has over a million generation points,” he says. By 2050, electricity demand is set to double through the electrification of heat and transport. “Once it doubles, yours and my relationship with electricity will change,” says Celal. “In that world, we need to change the business models of how we interact with consumers.” •
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Jason Deign