Sonnen, Solrite to offer free batteries and solar to Texas homeowners

Regan George, CEO and founder of Solrite Energy, believes that virtual power plants can pay big dividends in Texas. He’s so confident, in fact, that he’s willing to bear the cost of installing thousands of home solar and battery systems based on his expectation that they’ll earn far more over their lifetimes by serving the Texas power grid.

That’s the idea behind the ​“virtual power plant power purchase agreement,” or VPA, officially launched on Thursday by the startup Solrite and major solar and battery provider sonnen. Under this VPA structure, households across Texas can get rooftop solar panels and up to three sonnenCore+ batteries to provide backup power during grid outages — all installed at no upfront cost to them.

The catch is that those households do not own the solar and storage systems. Instead, Solrite retains ownership and thus full control over their moneymaking potential on the energy markets managed by Texas grid operator ERCOT. That’s the big difference between this VPA program and similar residential solar-battery offerings from companies like Sunrun, Sunnova, and Tesla.

“When the power goes out, those batteries convert over immediately to provide backup resilience to the home,” George said. For Texans who’ve faced severe power outages over the past few years, that backup power is the main motivation for adding a home battery today. But when the grid is working fine, ​“we can monetize the revenue stream generated by the batteries, to an extent that we offset the cost of installing them.”

Solrite already has skin in the game. Thursday’s official launch has been preceded by about five months of quiet work with Texas retail electric providers to deploy about 40 megawatt-hours of battery storage across more than 1,000 homes.

In a sense, this pay-its-own-way approach is a distillation of the broader promise of virtual power plants, or VPPs, which could save billions of dollars by providing an alternative to building costly centralized power plants and grid infrastructure to meet the country’s growing electricity demand.

The U.S. Department of Energy forecasts that electric vehicles, rooftop solar, batteries, smart thermostats, and other devices that can either shift when they use power or share it with the grid could meet 10 to 20 percent of U.S. peak grid needs by 2030. That could avoid about $10 billion in costs that utility customers would otherwise have to bear via increases on their electric bills — and reduce greenhouse gas emissions by more effectively using customer-owned solar and avoiding new fossil-fueled generation.

Today, however, big moneymaking opportunities for VPPs are relatively few and far between. At the higher end of the pay scale, VPPs in the U.S. offer participants several hundred dollars per year in discounts or payments, which represent a slice of revenues that VPP operators are handing back to customers rather than keeping for themselves.

That may be enough for companies to justify giving away free smart thermostats or to entice households that already have solar and batteries to relinquish some control over them to a VPP. But it’s far from enough to cover the $10,000 and up of a typical residential battery installation.

Now the question is whether Solrite, a self-funded startup that hasn’t disclosed any debt or equity partners to date, can capture the VPP moneymaking opportunities it needs to make its bet pay off.

George conceded that Solrite is taking some risks by putting its money in front of its VPP revenues. He said that it’s managing those risks by working with financing and tax-equity partners and by ​“not getting over our skis” in terms of deployment.

“We’ve given installers quotas of how many accounts we’re going to be doing in a month, and we have them build to that quota so we don’t outspend what we have,” he said. ​“We’re not in that ​‘Grow at all costs, spend it today and hope you can find it tomorrow’ situation.”

That’s not a guarantee of success. But Blake Richetta, CEO of sonnen’s U.S. business, believes that innovative models like Solrite’s are needed to take the solar-battery VPP approach to the next level.

“Solrite moves extremely fast, and has very big risk tolerance, and is ready to roll,” he said. ​“It’s adding the virtual power plant not as a cute marketing thing but as a centerpiece of the economics.”

Why Texas is the hot VPP market

Just how those economics play out differ from region to region and from utility to utility. Take sonnen and Solrite’s first three markets, for example: Puerto Rico, California, and Texas.

In Puerto Rico, VPPs are built on programs offered by Luma Energy, the private consortium that operates the island’s transmission and distribution grid to help residents protect against storms and grid outages. That’s drawn VPPs from Sunrun, Sunnova, Tesla, and others, but they’re designed largely to provide power only during grid emergencies — an unpredictable source of revenue that’s required subsidies from the U.S. Department of Energy to get off the ground.

In California, sonnen is one of many residential solar and battery vendors working with multiple partners to provide VPP programs aimed at maximizing the value of batteries, which have become more and more popular under the state’s reformed net-metering policies. Beyond that, VPP providers have largely shifted existing solar-battery customers between the various iterations of programs and market opportunities that have emerged (and sometimes disappeared) in the state over the past half decade or so.

Both Puerto Rico and California ​“pale in significance to what we can produce in Texas” in terms of reliable revenue potential, however, Richetta said.

Texas happens to be the closest U.S. analog to sonnen’s home market of Germany, where the company has more than 175,000 batteries deployed. In Germany, home battery systems can earn money for grid services from multi-hour peak grid demand reduction to sub-second grid frequency stabilization, he said. What’s more, Germany’s deregulated energy markets allow retail electricity providers to compete to win customers with special offers — including cheap solar and batteries that those companies can control.

The Texas competitive energy market offers retail electricity providers — REPs in ERCOT jargon — a similar opportunity. In simple terms, REPs can use customer-sited batteries to hedge the risks inherent in the business of securing wholesale electricity on markets where prices often fluctuate wildly and selling it to customers at competitive and mostly steady rates.

The price of a megawatt-hour of electricity on the ERCOT market can range from tens of dollars during times of plentiful generation and low demand to hundreds or thousands of dollars during heat waves or cold snaps when grid demand outstrips supply. Retailers don’t ask customers to take on those pricing risks — at least, not since one retailer that did went bankrupt and stuck customers with sky-high bills in the wake of 2021’s Winter Storm Uri. Nor can they force customers to not use electricity when they need it most for heating and cooling.

But batteries in customers’ homes can give REPs a valuable tool to ​“shape load in a precise way, every day, by having the customer buy their electricity at specific times,” Richetta said. That reduces the risk that the wholesale electricity purchases that REPs make won’t match up with their commitments to deliver electricity to their customers.

Sonnen is active in other states via programs run by utilities, like Rocky Mountain Power’s Wattsmart program in Utah and Eversource and National Grid’s ConnectedSolutions programs in Massachusetts. But these programs don’t offer the day-by-day moneymaking opportunities that working with an REP in Texas does, Richetta said.

Solrite and sonnen haven’t publicly revealed the REPs they’re working with in Texas, and it’s likely that some will brand the VPA program in different ways, George said. But he did note that the VPA structure has safeguards to deal with customers who decide to switch retail providers before Solrite has recouped its costs.

Under the terms of its 25-year VPA contracts, customers who switch REPs and stop being part of the VPP must take up lease payments to pay off the remaining balance on batteries, he said. If the home is sold, the new owner would inherit the VPA agreement or have an option to buy out the contract and purchase the system.

What’s the competition? 

These dynamics have made Texas the entry point for energy retailers such as U.K.-based Octopus Energy looking to put the techniques they’ve developed for Europe’s competitive markets to work in the U.S. It’s also driven some U.S. demand response providers to partner with REPs or form their own REPs to go after this wholesale-to-retail arbitrage potential.

The scale of ambition in the market is growing quickly. Renew Home, the company formed by the merger of Google Nest’s smart-thermostat energy-shifting service Nest Renew with California-based residential demand-response startup OhmConnect, announced in November a significant VPP partnership with NRG Energy, which owns Texas-based REP Reliant Energy.

Some companies are offering low-cost batteries to homes with or without solar. Base Power, a startup cofounded by Zach Dell, the son of billionaire and Dell Technologies founder Michael Dell, launched last year with a $3,000 home battery system designed to provide backup power during outages and grid services the rest of the time.

Other REPs in Texas already offer rooftop solar ​“buyback” programs that pay customers a set rate for the solar power they send back to the grid. That structure mimics the net-metering regimes that exist in many other states, but which in Texas are largely limited to municipal utilities and electric cooperatives outside the state’s competitive retail energy market.

Sonnen and Solrite’s VPA doesn’t pay customers for solar energy sent back to the grid, Richetta stressed. In fact, the partners size their installations to minimize solar generation in excess of household consumption, largely to avoid putting more solar back on grids already awash in it.

But the VPA does guarantee that customers pay 12 cents per kilowatt-hour for the solar they consume themselves. That’s a little less than current typical Texas residential retail electricity rates, and a lot less than the 19 to 20 cents per kWh most solar buyback programs charge today for the solar that customers consume on their own premises, he said.

As for batteries, Solrite is typically installing two to three 20 kilowatt-hour sonnenCore+ batteries in Texas, George said — a pretty big storage capacity for a house. That’s partly to ensure that customers have ample backup power during grid outages. But it’s also meant to provide extra capacity to charge up with cheap grid power, like the wind power that often floods the Texas grid during overnight hours.

That could transform the traditional role of home batteries as backup systems and repositories of self-generated solar into something more akin to utility-scale batteries that soak up excess wind and solar power and reinject it into the grid when it’s needed. Over the past year, Texas has rivaled California in deploying utility-scale batteries that have helped shift daytime solar into late afternoon grid energy to help the state ride through periods of peak electricity demand. Distributed batteries in thousands of homes could serve a similar role for the state.

REPs are secretive about the results they get from the variety of pricing structures and discounted or free equipment deals they offer customers. That makes it hard to determine whether a free battery and rooftop solar for 12 cents per kilowatt-hour represents a moneymaking proposition in the highly competitive Texas retail energy market.

But George insisted that the evolution of the underlying technologies on hand and the fast-shifting market dynamics at play make it a risk worth taking. ​“As long as it makes sense for the retail electric provider, the solar installer, and the homeowner, you’ve got a product that wins,” he said.