In Germany, startup Sonnen has been operating a nationwide shadow utility of networked home solar and storage systems for several years. But when the company arrived in the U.S., the policy landscape made that grand vision impractical to replicate.

After a few years of selling energy storage as a premium alternative to the early home battery contenders, the company has now compiled a landmark deal that will single-handedly dwarf the residential market, such as it is.

Lacking the deregulation that gave Sonnen access to the wires in Germany, the company tackled the project from the other end: the home.

Over the next few years, Sonnen will outfit a high-efficiency housing development built by Mandalay Homes in Prescott Valley, Arizona, stocking some 2,900 new houses with its signature storage system.

As told by U.S. Senior Vice President Blake Richetta, this effort bypasses the “bullshit bingo” that plagues industry discussions of virtual power plants, in which buzzwords and small pilots stand in for substantive action.

“Sonnen is a company that likes to get things done: We want the virtual power plant to really exist, and it does exist in Germany,” Richetta said. “We’re not going to be paralyzed by pilots anymore in this country.”

Residents won’t need to worry about paying extra for pricey storage; they won’t even have to own or maintain it. Mandalay has wrapped that equipment, along with a modest solar array, high-tech insulation and other energy saving measures, into a package that will cost marginally more than high-efficiency homes already on the market.

For an approximately 1 percent premium, the homeowners will pay 40 to 60 percent less to operate their homes than currently available high-performance homes, said Mandalay CEO Dave Everson.

Once built, the companies will have a massive distributed power plant on their hands. With just the first fifth complete, the neighborhood will have 10 megawatts of dispatchable power at the ready, far beyond the miniscule pilots that pass as virtual power plants these days.

Notably, Mandalay is moving ahead without a utility contract in hand. There isn't really a model yet for virtual power plant aggregation in Arizona. By going ahead and building it, Mandalay will then have a model to take to the utility, rather than the other way around.

All about the home

For Mandalay, storage represents the latest addition in a five-year effort to design the highest-performing homes it can make.

“It’s not a jump; it’s more like a half step from where we were,” Everson said.

The model home that implements these ideas has been in service since May, and recently secured the company’s third Housing Innovation Award from the Department of Energy.

That effort includes iterative refinement of the building envelope to enable passive heating and cooling, cutting down the energy needed. A final piece of this involves the AeroBarrier, an aerosol spray developed out of UC-Davis that fills the house and seals any remaining leaks that would let it escape.

Minimizing load means the buildings don’t need much solar power. In fact, the economics worked against large solar capacity. Mandalay decided on a standard configuration of 3.9 kilowatts of solar (a fraction of a typical home capacity) and an 8-kilowatt-hour Sonnen battery.

The designers did not try to maximize onsite generation; they tried to get the best economic return for the capacity included. This makes for a more targeted use of storage compared to retrofitting it on inefficient older homes with lots of load and lots of solar generation.

“It’s a totally different value proposition now,” Richetta said. “It’s not about storage versus bill savings; it's about the whole.”

Nor was the goal to turn the home into a self-reliant microgrid: Grid interaction sits at the heart of the design, he said.

Finding the right rate

In Everson’s vision, the homes will power themselves during daylight hours with rooftop solar, storing the excess for later. That should last through the evening peak.

The battery can then charge up in the wee hours of the night, on the cheap and production from must-run generation, which tends to be cleaner than at high-demand times. That powers the early morning activities until the sun comes back out.

The development will utilize a new pilot retail rate from Arizona Public Service designed to incentivize peak demand reductions from residential customers.

The rate combines a $0.50 per day service charge with a very low per-kilowatt-hour energy rate (around $0.05) and a stiff monthly on-peak demand charge (up to $20.25 per kilowatt). Customers have to have a number of distributed energy assets like rooftop solar, energy storage or electric vehicle to qualify.

This rate structure means families that can minimize their demand during the peak hours of 3 p.m. to 8 p.m. on weekdays stand to benefit from low overall energy rates. The structure of the Mandalay home design suggests customers can expect to use very little, if any, grid power during the peak.

This would save money for the homeowners, but it also tackles a real need for the broader grid. Arizona has a growing supply of surplus daytime solar generation, such that batteries soaking that up provide value to the grid. The utilities also grapple with meeting peak load, which drives costly purchases of gas peaker plants that are used only rarely, but are very expensive to operate.

Adding more standalone solar on new homes contributes marginally to both challenges. Sizing new solar systems to an onsite battery allows for home energy optimization with the ability to assist utilities in navigating the emerging distributed grid.

Untapped grid asset

The value of distributed assets for the grid is something that many smart people are trying to define, but little consensus has been established thus far.

Investment in aggregation only pays off once there is some mode of getting paid for it. Outside of select markets, that has stymied the business case for distributed fleets of storage acting as a capacity or grid services tool.

Mandalay sidestepped the issue by making the economics work without needing a utility contract.

“They’re not waiting for the utility companies; they’re doing this with or without them,” Richetta said. “That is the secret sauce to us getting out of the ‘paralyzed by pilot’ mode.”

Once the companies have battery and solar systems operational -- the first phase will include 600 homes -- they’ll have greater credibility to offer that network for grid services. They’ll also have the option of installing additional battery capacity if a deal comes along, Everson said.

Under current plans, the full 2,900-home project will total 11.6 megawatts of power input and output and 23 megawatt-hours of energy storage capacity, the companies said. They think that could be enough clean, flexible capacity to knock out a coal peaker plant in northern Arizona.

There’s much to figure out in terms of how the community would deliver peak capacity to the grid while maintaining the local needs of each homeowner.

Then again, Sonnen has been operationalizing that concept with its network in Germany for several years. Its challenge now is to pull that off amid the peculiarities of the American grid.

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