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.
