Navigant Research Blog

The Battle for the End Consumer: Residential PV and Battery Business Model Innovations in Germany

— June 29, 2017

While solar capacity additions in Germany have collapsed in recent years, the range of innovative residential energy solutions based on solar PV and batteries has blossomed. In recent months, battery OEM SonnenBatterie has introduced a free refills battery solution, while E.ON has introduced a batteryless electricity storage service.

The VPP Approach with SonnenBatterie

Sonnen’s solution, called sonnenFlat, allows the buyer of a Sonnen battery to opt in to sonnenCommunity. This is an independent virtual power plant (VPP) consisting of Sonnen battery owners and Enerix solar systems. The solar and battery assets are optimized to reduce the need to buy electricity from Germany’s wholesale market and to enable participation in Germany’s ancillary services markets.

A residential battery owner joining sonnenCommunity receives a €1,875 ($2,100) discount off the battery price. If purchased together with a PV system, they also get up to 6,750 kWh of free grid electricity on top of the electricity generated by the PV system. This is the approximate number for customers that bought a residential system with 9.5 kWp of PV and a 10 kWh battery, which cost around €27,200 ($ 30,500).

E.ON Envisions a Battery-Free Home

E.ON’s solution seeks to eliminate the battery altogether—at least in the customer’s home. The SolarCloud service offers to store the electricity generated by the customer’s PV system virtually in the grid and return it when needed by the customer (at night or on cloudy days, for example). E.ON charges a €21.99 ($24.60) monthly fee for this service (for a 4 kWp installation). If this service sounds familiar to US readers, that’s because it is net metering—but at a cost.

In essence, Sonnen is offering free electricity with its hardware and E.ON is offering free (virtual) hardware for a flat fee. Both aim to help their customers to reach 100% solar self-consumption (on a net basis).

The Battle for the End Consumer

Although E.ON and Sonnen are very different types of companies, nowadays they are battling each other for the long-term ownership of the customer relationship. From its background as a traditional power utility, E.ON knows that any customer who installs a PV plus battery system at home is a lost customer for at least 10 years (the lifetime of residential batteries). E.ON is therefore willing to use its energy trading capabilities to create a product that replicates what a battery offers.

Sonnen approaches the issue from a different direction. It knows that battery technology is being commoditized and therefore it cannot compete in the long term against utility players without monetizing the services its batteries can provide to other energy users and the grid. Hence, Sonnen has had to become a virtual utility to sell its hardware.

Regulation Matters

This sort of competition between traditional utilities and newcomers is something we expect to witness more and more as the Energy Cloud evolves. It is also important to highlight the key role of Germany’s energy market regulation in allowing this type of innovation. The German market was unbundled years ago with short intraday call auction times (15 minutes). It allows aggregators to participate in the market—and importantly, there is no capacity market. This allows companies like Sonnen to offer free electricity to their customers, which is paid for by trading the customer assets in the wholesale and ancillary services markets.


Community Solar Program Design and Procurement Considerations

— December 12, 2016

Wind and SolarWith interest in community solar continuing to grow, utilities are asking questions and facing similar challenges as they work through program design and solar procurement. As part of the US Department of Energy’s SunShot-funded Community Solar Value Project (CSVP), Navigant has spent the past year conversing with utilities, developers, and program designers that are experienced in developing community solar projects with the goal of sharing best practices and lessons learned. Navigant advises both utilities interested in developing community solar programs and developers/financiers that are considering entering the market.

On December 1, CSVP hosted a recorded webinar titled Smarter Procurement for Community Solar Solutions. During the presentation, I led a conversation between Erin Buchanan from Cedar Falls Utilities in Iowa, Karen Poff from Austin Energy, and Ricardo Luna from CPS Energy in San Antonio discussing the choices utilities face in procuring community solar resources and support services and the measures that these utilities have taken to increase the net value of their community solar programs and lower overall project costs.

Last week, the CSVP also released additional financing and procurement resources, including:

Based on our conversations, Navigant also recently published an article in Renewable Energy World listing tips for utilities that are considering community solar. If you will be at the Renewable Energy World International Conference in Orlando this week, check out the panel where I’ll be speaking about community solar and the CSVP. If you’re a utility looking for expertise in developing a community solar program, don’t hesitate to reach out.


A Fresh Take on the U.S. Community Solar Market

— June 10, 2016

solar panels and wind turbines under blue skyAs discussed in my blog last October, community solar (also known as shared solar) has become a hot topic across the United States over the last couple of years as residences and businesses seek alternatives to conventional energy sources. This past year, Navigant has been working on the U.S. Department of Energy’s Sunshot-funded Community Solar Value Project, which seeks to make community solar better through project design, procurement, targeted marketing, and incorporating companion measures that attack solar integration challenges.

In March 2016, Navigant Research released a new slide-based report, Community Solar and Virtual Net Metering, which examines the burgeoning community solar market in the United States. The report focuses on technology and policy trends, customer adoption, program business models, utility program rollouts, and the vendor landscape through 2025, and is one of the first community solar reports released after the extension of the Federal Investment Tax Credit in December 2015.

Driven by reduced system cost and sustained demand for clean energy in the residential and commercial sector, Navigant Research expects the total installed capacity from community solar programs across the country to reach 1.5 GW by 2020, then to grow fourfold from 2020 to 2025.

Solar Installation Costs and CS Deployment Curve, United States: 2016-2025

Andrea Solar Blog Image 2(Source: Navigant Research)

Today, 14 states and the District of Columbia have shared renewables policies in place, and many more states are considering policies. Through 2015, Arizona, Colorado, and Missouri developed the most solar capacity through community solar programs. The total installed capacity in the United States as of December 2015 was 88.5 MW. Driven by policy, other states, including Massachusetts, Minnesota, and California, are expected to pave the way in the future. Due to California’s Senate Bill 43, which sets a statewide program cap of 600 MW, Navigant Research estimates that California will represent 50% of the installed U.S. community solar market in 2020.

Distribution of Community Solar by State and Capacity: 2015

ANdrea Solar Blog - c1

(Source: Navigant Research)


Distribution of Community Solar by State and Capacity: 2020 Estimate

Andrea Solar blog -c2(Source: Navigant Research)

With the ongoing debate across the country over the value of solar (VOS) and net energy metering (NEM) policy reform, uncertainty exists regarding how states will compensate distributed energy resources in the future. As solar penetration increases, it is expected that states will continue to consider and adopt changes to full retail rate NEM policy. Although states with NEM initially adopted full retail rate NEM policy for distributed behind-the-meter solar, community solar only receives full retail rate NEM compensation in Massachusetts, while Colorado and Minnesota offer a VOS rate. California values community solar at the avoided cost of energy, and other community solar programs compensate solar electricity on a case-by-case basis.

NEM rate reform may actually accelerate the shift from distributed behind-the-meter rooftop solar to larger scale community solar due to the fact that installing larger systems is more cost-effective. The Rocky Mountain Institute is currently working to further drive down the cost of community solar, testing the hypothesis of whether community-scale solar can be the highest value and lowest cost form of solar on the grid.

State policy, which influences the compensation rate ($/kWh) received by the utility customer for both behind-the-meter, customer-driven and virtually net metered utility or state legislation-driven community solar, will have the largest impact on the continued growth of the solar market. Especially important is (1) whether states will replace full-retail rate net metering for behind-the-meter solar (which seems likely), and (2) how community solar will be valued moving forward (e.g., retail rate, VOS rate, or avoided cost rate). These state decisions will drive the local and national expansion of the behind-the-meter and virtually net metered solar market in the near term.


The Role of Renewable Energy Certificates in Community Solar

— January 12, 2016

solar panels and wind turbines under blue skyWhen community solar subscribers sign up for project shares, they will likely feel proud to be getting solar, even if the project itself is far from home. The question for utilities is this: are customers really getting solar? If their project share includes something less than a renewable energy certificate (REC)-bundled kilowatt-hour, how should the community solar program be marketed? Ever since the advent of RECs in the late 1990s, confusion has surrounded these questions, because according to widely held guidelines, electricity is only renewable if the RECs are included and retired.

Yet, policymakers and program designers know that most solar supporters are eager to get the REC value and would gladly trade away this distinction. Should the utility use REC purchases to sweeten the community solar offer or not? Navigant Consulting is currently collaborating on the Community Solar Value Project (CSVP), one of 15 community solar projects chosen for funding in 2015 by the U.S. Department of Energy’s SunShot Initiative under its Solar Market Pathways Program. The project just released a new factsheet, Understanding Renewable Energy Credits, to address this issue.

RECs in Concept

The REC, defined as the renewable energy attributes of 1 MWh of renewable electricity generated and delivered to the grid, is a concept originally developed for three main reasons. These include federal agency, business, and industry interest in purchasing green power; state-sanctioned accounting to meet renewable energy mandates; and added economic benefits in negotiating power purchase agreements to cover renewable energy project costs.

Today, all claims of using renewable electricity depend on the associated RECs. Even if a renewable generator produces electricity onsite, the project owner is not considered to be using renewable energy if the RECs are not associated with the electricity and retired on behalf of the customer. RECs are a credible way to buy and sell renewable electricity because they can be uniquely numbered and tracked. The electricity associated with a REC may be kept bundled with the REC or sold separately. If it is kept bundled, then it is called renewable (or green) electricity. If the electricity is split from the REC, it is considered standard energy.

Standard vs. Renewable Electricity

Andrea REC Figure(Source: Engineered to Excel)

REC guidelines apply to all renewable energy, including community solar. The most common REC allocation options for community solar programs include:

  • Utility owns and uses the RECs for current or anticipated regulatory compliance.
  • Utility or customer sells the RECs into the local or regional REC market.
  • Utility retires RECs on behalf of the customer.

According to a September 2015 National Renewable Energy Laboratory report, RECs for community solar projects are most often used to meet Renewable Portfolio Standard compliance. Considerations affecting how specific programs treat RECs include program goals, regulatory orders, negotiations with solar developers, and program economics. Many utilities with community solar programs claim that customers either don’t understand or don’t care about the RECs. In some cases, RECs are retained by the utility and aren’t even explained to customers.

Xcel Energy’s Community Solar Garden program in Minnesota has taken an interesting approach, allowing third-party community solar project operators to decide whether to retire RECs on their customers’ behalf or to sell them to the utility for $0.02/kWh-$0.03/kWh. Initially, the Xcel managers thought most third-party project operators would sell the RECs to the utility to improve their economics, but subscribers have been more interested in retaining the RECs than originally assumed.

The jury is still out regarding how the Minnesota community solar market will develop. However, no matter what your utility decides to do with community solar program RECs, it is important to engage customers and stakeholders honestly in the discussion. Clearly explaining the concept and treatment of RECs to subscribers is an important component of marketing any community solar program.


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