Broken Power Industry Needs Big Changes, Berger Says: Q&A

By Richard Stubbe, BloombergNEF editor. This article first appeared on the Bloomberg Terminal

For the first time in the history of U.S. electricity, a significant number of consumers have the ability to reduce or even eliminate their dependence on the centralized grid, thanks to ever-cheaper batteries combined with solar panels and wind power.

In the view of John Berger, chief executive officer of Sunnova Energy Corp., that technological shift may empower even more consumers and force a much-needed overhaul of the “broken” U.S. power industry, wringing out inefficiencies like bailouts and layers of bureaucracy. He foresees the shifts gaining momentum and expects battery prices in particular to continue, and perhaps steepen, their declines of the past few years.

Sunnova designs and installs solar panels and battery systems for residences and businesses around the world. More recently it’s begun offering service plans as well. Berger answered questions from BloombergNEF in a late November interview at the company’s offices in Houston.

Q: How was 2018 for Sunnova and for the solar-storage industry?

We saw some more growth. From the Wall Street perspective, investors started to understand the space and move back into it, even with the price crash in crude. The sector continues to consolidate around being a service, with batteries coming in much faster than anyone expected, including us, and coming down in cost much faster, as well as additional demand technologies.

Solar’s here to stay. People are starting to understand that the confluence of technologies is putting together something very interesting, which is basically creating a nanogrid on everybody’s home.

So who runs all that, who maintains that, who makes sure it all works? Calling China doesn’t work, even though you have a 25-year warranty on your solar panels. More and more people are going to realize you need a service provider. We launched the service-only contract out on Monday [Nov. 26] and that’s had a pretty significant demand in terms of interest level and media attention. As you move into integration with the grid, that’s going to be even more important to do that.

Q: What’s going to happen with batteries?

We think that battery prices are going to keep falling because automakers need batteries in the range of $80 to $100 a kilowatt-hour to be commercially viable without subsidies. For stationary batteries in all markets, not that all markets are equal, that would be $150 to $180. The market’s been trading in the range of $500 to $700. We think that the pricing will continue to compress pretty rapidly toward those goal points.

Q: Why do you see battery prices falling so fast?

A: The price of batteries has been falling, and we’ve been on an allocation relationship with the battery manufacturers. That’s going to change at some point. There’s going to be enough manufacturing supply out there that we’re not allocated. That’s going to lead to even further price erosion.

Q: So the supply chain is still catching up with demand?

A: Right. When it’s that tight and the price is dropping, what do you think’s going to happen when the supply chain rights itself, as it always does? What do you think the price is going to do then?

Q: Keep dropping?

A: That’s what we see. That’s going to open up everything we’ve been talking about, including going off grid in certain locations when it makes sense.

Q: How much demand is there to go off grid?

A: We’re seeing more and more customers want to do it than we expected. Far more.

Q: Can you put any numbers on that?

A: I don’t think so. We just get calls into the customer service desk.

Q: People call you and say they want to go off-grid?

A: Yes. They say, “I hate my monopoly.” And there’s a lot of locales, not Houston, where two batteries would do it. They’re looking for whole-home backup. Then they ask why, if I can do this in storms, couldn’t I do it all the time? And there are a number of places — Puerto Rico, Hawaii, Guam — where you could do that. We don’t advocate for that.

Q: What does it tell you when you get those calls?

A: We need to have total reorganization of the U.S. energy industry, specifically the power industry. The power industry itself is broken. There’s a lot of different agendas going on, like bailing out the nukes or the coal plants. Utilities hate net metering. Everybody’s at each other’s throats. Everybody’s asking for a bailout or a subsidy.

What that shows is the market’s not constructed right. We need to let the consumers decide what they want. If they want a different level of reliability or decarbonization, they should be able to pay for that. Carbon is a negative externality that the market can’t effectively price, like any other pollutant, so some level of government needs to effectively price it and then let the market decide what technologies and solutions are going to solve that problem.

Q: Right now there’s not much in place to reduce carbon emissions. You foresee a carbon tax?

We’re heading toward one because it’s inevitable. So the question is what does that look like. People think of it as whether or not we’re going to price carbon, but there’s more than that going on. There’s a lot of technological shift caused by solar and batteries that will enable power users to spend less time on the grid — maybe 10 percent or even 1 percent. What should a user pay for that?

Q: The customer is paying not just for time using the grid but for having the grid always available. That has some value.

Let the market decide what that value is. What we’re advocating for is a proper integration of the centralized and decentralized system. Congress is about to put some infrastructure money into modernizing the grid. I’m becoming more convinced that it’s not the grid that needs to be smart or hardened or anything else. Infrastructure money is most likely to be spent on what we do, and pushed to the endpoints of the systems. That’s where the money ought to go. Not 100 percent of it but perhaps 80 percent.

What our customers do is decide that what they were doing in the past doesn’t work for them anymore. As those individual decisions continue to accumulate, there will be financial repercussions for basically not making a decision, which is what most of the utilities are doing.

Q: As you say, even regulated utilities are being buffeted by consumers’ desire for decarbonized, decentralized power. Is it not possible to see the industry as more diversified and competitive than ever before and providing extremely high levels of reliability?

I don’t think that’s the reality. We don’t have a regulatory structure that allows the new technologies and choices of consumers to be reflected, because it’s not a market. What you’re seeing is the whole construct that we’re living through, and now everybody’s revolting against it — coal-fired centralized generation, gas-fired centralized generation, the monopolies and so forth.

The monopolies agreed to allow subsidies for solar power [the federal solar tax credit was established in 2005] because it was too small to represent a threat, and because in exchange they got to build a coal plant or a fleet of them. That’s the trades that have been going on. They never thought that solar or batteries were going to pose a threat. And then it happened. Now those plant operators are looking at solar and wind and saying, “This is out of control. They’re going to push me out of business. So now I want my deal.” They want a subsidy, whether it’s the nuclear plants in Illinois and New York or the coal plants in the Midwest.

Q: So how do you deal with that? Reduce all the subsidies and institute a carbon tax?

A: And give consumers choice.

Q: That does require everyone to accept that carbon is a negative externality and attach a cost to it.

A: It’s a scientific fact that carbon emissions and human interference are causing some climate change. I think most of the population of the United States believes that to be the case as well. So we need to figure out what mechanism to put in place and come up with the political will to do it. I’m not saying to expect to see that next congressional session, but I think we’re heading in that direction.

Q: What are the principles of a properly functioning power industry?

A: Consumer choice. No monopoly rights to sell power to a customer. There is a need for monopoly for poles and wires, but the current system — where the federal government has jurisdiction over the big wires and the state governments have jurisdiction over the small wires — doesn’t work because now you have distributed generation. Either you regionalize it through the ISOs and RTOs, or you allow the companies to consolidate.

You have a market-based approach to negative externalities as much as you can. We need to make sure the consumer chooses the winners and the losers, and not politicians or monopolies and so forth. We need some overriding federal principles on interconnections and safety and anti-competitive behavior, with some choice within the states.

There’s 5,000 utilities in the United States. No other country on Earth has anything close to that. It’s crazy. There’s about 4,992 too many CEOs out there. That alone should save some money to put back into safety. There’s a lot of waste in the system that we’ve uniquely created for ourselves.

Q: Trade groups, including the Energy Storage Association, are supporting an effort to have storage classified as eligible for the investment tax credit in the same way solar is. What’s your position there?

A: We don’t like subsidies but what we don’t like even more is a lack of consumer choice. Monopolies need to be ended in regards to power generation and customer ownership. Until that’s all sorted out and we stop talking about bailing out coal and everything else, then if everybody wants to fight for their subsidies, then we won’t stand in the way of a subsidy getting put in place for storage until this mess is worked out.

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