Changing Current Business Models: Utilities see promise in microgrids, not micro-utilities

By Chuck Ross | Dec 15, 2022
Housing developers are buying into residential solar-plus-storage systems in larger numbers, promoting their ability to boost utilities’ peak demand capacity while lowering bills and providing clean backup power for homeowners.




Housing developers are buying into residential solar-plus-storage systems in larger numbers, promoting their ability to boost utilities’ peak demand capacity while lowering bills and providing clean backup power for homeowners. Many utilities have come to welcome such developments and are partnering with builders in many cases to maximize the value of such installations to the larger connected grid. However, one such proposal from a California-based solar/storage company is drawing fire for a similar plan that would shake current utility business models at their roots by creating its own private utilities to serve new residential developments independent of the local electricity supplier.

In an October filing with the California Public Utilities Commission (CPUC), Houston-based Sunnova Energy International proposed to develop “micro-utilities” for new housing developments ranging from 500–2,000 homes. Essentially, the company is talking about microgrids, including rooftop and community solar and storage batteries with capacities high enough to be totally self-sustaining. The systems would retain a connection to the area grid to export power and import it during emergencies. However, Sunnova would own the developments’ distribution systems and handle customer billing—in effect, the company would become the developments’ utility.

The company’s proposal to the CPUC outlines what might be included in such a microgrid for a typical 500-unit residential community:

  • Photovoltaic panels and batteries located at each home 
  • Community-based solar with approximately 4 megawatts (MW) of capacity
  • Community-based batteries with about 7 MW capacity
  • Backup generator with approximately 2 MW capacity
  • Grid-interconnection substation
  • Local distribution wiring and transformers

Sunnova would own the customer-sited solar panels and batteries, along with emergency generation and related distribution infrastructure. Because this overhead would be significantly less than what an investor-owned utility (IOU) requires to support an entire service area, Sunnova claims homeowners’ bills could drop as much as $60 per month, based on California’s rates in June.

Developers in the utility business 

The state’s large IOUs—Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric—object to the Sunnova proposal. The state has no guidelines for how such micro-utilities should be regulated, though the CPUC is working on a microgrid rulemaking that could address such situations. 

While this might be the first time a microgrid developer has attempted to break into the utility business, systems like the one Sunnova is proposing are already up and running in a number of housing developments across the country. One such community in Florida was able to remain powered during and after Hurricane Ian thanks to its own microgrid’s ability to isolate from the connected grid. Babcock Ranch is located just 12 miles northeast of downtown Fort Myers, which was devastated by the storm. However, its 5,000 residents are served by a microgrid that includes home-sited photovoltaic (PV) panels and batteries, an 870-acre solar farm, battery storage and a natural gas backup generator. With their locally sourced power, and all utilities buried underground, homeowners were able to sit out the storm in relative comfort.

While the advanced technology at Babcock Ranch might be similar to the proposed Sunnova model, the finances are significantly more traditional. In Babcock Ranch, developers worked closely with the local utility, Florida Power & Light, to bring their plans to life. The utility owns and operates the large solar array on land donated by the community. This kind of partnership doesn’t threaten the regulated monopoly business model utilities have depended on for over a century. 

Another example of utility interest in supporting customer self-sufficiency is the partnership the developer Mandalay Homes shares with Arizona Public Service (APS) for several Phoenix-area communities. APS has developed a unique billing structure for the high-efficiency homes, with owners paying below-market rates during off-peak periods and switching over to their own solar-plus-storage resources during the peak-demand period of 3 p.m. to 8 p.m. This schedule is written into homeowners’ purchase contracts.

Similarly, the Soleil Lofts apartment complex in the Salt Lake City suburb of Herriman, Utah, features a combination of rooftop PV panels and in-unit batteries that can support residents indefinitely if the utility Rocky Mountain Power loses service to the development. Under agreement with the developer, the Wasatch Group, the utility can draw on up to 50% of the aggregated battery capacity to support its peak-demand operations.

Utilities’ interest in the flexibility that customer-sited microgrids could add to their operations is continuing to grow—just so long as they have a role in their planning. Lacking this kind of buy-in, Sunnova’s California proposal faces significant challenges. Opponents, including the CPUC’s Public Advocates Office, argue the company wants to duplicate the services offered by IOUs, but with no regulatory oversight. Additionally, customers would be buying electricity from Sunnova through private contracts, without any recourse from the CPUC should the company fall short on its commitments.

About The Author

ROSS has covered building and energy technologies and electric-utility business issues for more than 25 years. Contact him at [email protected].


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