Community Energy Trading-A Potential Challenge for Utilities

Germany's sonnenCommunity aggregation solution has the potential to further shake up US utilities.
Published: Fri 19 Feb 2016

Our article All Aboard The (Residential) Energy Storage Train! points to the fact that the residential energy storage is gaining some serious momentum. Now, a German purveyor of smart storage systems is taking this market to the next level in Europe: a community energy trading platform.

sonnen (formerly Sonnenbatterie) launched the sonnenCommunity in its home market in Germany in December 2015. The solution enables residential solar plus storage devices to link into a virtual grid that allows members to trade electricity with each other and sell excess power into the sonnenCommunity instead of to the utility.

sonnen has the potential to expand this business model to the US in the future. Opening its U.S. headquarters  in Los Angeles, the company has already started shipping its storage systems to its American customers and has formed partnerships with several US companies, building its installed network of distributed energy resources.

sonnen has already built a US distribution network of over 30 local solar installation companies and plans to grow that network to over 100 dealers before the end of 2016. The company is also working with clean energy financing company Spruce, which is the product of a recent merger involving Clean Power Finance and Kilowatt Financial. The companies are collaborating on a financing product  for sonnenBatterie energy storage systems to be released in the first quarter of 2016.Under this program, sonnen will offer ownership through an installment plan as a way of attracting customers. The 4-kWh sonnen storage system would cost just under US$10,000 and have as little as a 6.5 year payback period in places like Hawaii.

The partnerships represent the first phase in a strategy that sonnen hopes will eventually lead to the formation of community storage applications similar to its programs in Germany.

Status quo Utility business model challenged

The idea of a community installing a combination of solar panels and storage in order to become independent from the utility grid is an adjustment for utilities since this will obviously substantially reduce demand. But if communities are able to trade energy with each other,  the competition to utilities’ traditional business models  could lead to the evolution of new utility business models and rate tariffs.  Some US utilities are already adapting to the growing adoption of distributed generation and storage resources on the existing utility grid, including Hawaii, California and New York, and this trend is expected to continue.

Some utilities may respond by increasing rates to recover lost income from customers who have left the grid. But, this has the risk of pushing more customers into the arms of self-generation.

Already, utilities in the US have concerned by surge in residential solar that  some have pushed for increases in fixed charges and other rate design reforms, their aim being to manage the growth of distributed energy resources. A report from NC Clean Energy Technology Center found there were 26 open regulatory dockets in 18 states relating to fixed charge increases in the third quarter of 2015. In addition, utilities persuaded regulators in two major solar markets — Hawaii and Nevada — to roll back solar net metering rates before the end of the year. 

While the German sonnenCommunity may be a global indicator of things to come, US utilities continue to play a pivotal role in the future of energy and will not be left out in the cold. But it’s clear that storage and a virtual grid have the potential to accelerate changes to traditional models.

Can sonnen disrupt the US energy market?

sonnen enjoys a large market share in Germany and has over 10,000 systems installed globally. It is estimated that the company accounts for about 50% of the country’s residential battery market. The company would have a long way to go to reach that kind of market share in the US.

Germany has a higher proportion of behind-the-meter solar PV and comparatively higher electricity prices, and it offers subsidies for storage.

But, sonnen views each US state as a country. The company believes that its fragmented regulatory landscape will help shape sonnen’s approach to the market.

sonnen is not looking to compete in markets with low-cost electric power or where the market is dominated by vertically integrated utilities. California, Hawaii and the Northeast are currently sonnen’s entry markets.

Viewed as Tesla’s competitor, sonnen’s product availability, growing distribution network, and proven global track record  make it a company to watch out for.

Further reading

NC Clean Energy-The 50 States of Solar [pdf]