Solar:

Sunnova Energy's Berger talks competing industry business models

How do the solar industry's various competing business model concepts fit into the United States' utility evolution? During today's OnPoint, John Berger, co-founder and CEO of Sunnova Energy Corp., discusses his company's role in expanding residential solar and the challenges facing the industry as net metering is debated around the country.

Transcript

Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. With me today is John Berger, co-founder and CEO of Sunnova Energy Corp. John, thanks for coming on the show.

John Berger: Thanks for having me, Monica.

Monica Trauzzi: John, Sunnova has an interesting business model concept of solar as service. There are different business models at play within the solar industry as we see residential use expanding. How is yours different? How does it fit in?

John Berger: Well, it's very similar to some of the companies that are out there now, some of which are well-known like SolarCity, and that is simply that we sell -- we're a power company, and we sell solar electricity to homeowners as a service. They don't put any capital upfront. They don't worry about any maintenance or any issues. The contract transfers when they sell the house. So it's a service just as they're used to getting a service from a utility. How we differ from SolarCity is that we're just focused on the long-term customer ownership and maintaining that solar system or that power plant over the long term. We do not have a sales force. We do not have the installation. So we're a bit like an ADT or a Time Warner where we essentially partner up with entrepreneurs who have those sales forces and those installers, really in some cases mom-and-pop operations, father-and-son operations, et cetera, that are much more entrepreneurial, and therefore we keep our costs much lower than, say, a vertically integrated player like a SolarCity.

Monica Trauzzi: How does this fit into the evolving utility business model?

John Berger: Well, that's an interesting question. I think, you know, first of all no one knows at this point in time. We're all trying to figure this out. It's much like going back into the '80s and saying, "How is this cellphone going to fit into the telephone business?" and then who were to know that Internet came and IP telephony came and et cetera, which maybe ... you know, energy storage such as batteries. We're starting to see that in Hawaii, for instance. That surprises me a great deal. But something like that is probably on the forefront to further change this, in answer to your question.

But I think that what we'll see is very clearly, you know, right now we're serving the customer in conjunction with utility power, and over time I could see that a utility in a -- say an investor-owned utility in a holding company could buy a company like us and get into that business, not unlike what AT&T bought McCaw Cellular and got into the cellphone business. Or we could just work together in partnership, and how do we serve the customer -- or they continue to provide a backup or a minority supply of the power and we can come in and supply the majority of the power to the customer.

Monica Trauzzi: So you're asking customers to sign a long-term contract. What are the risks involved there? I mean, solar could become more competitive as time goes on; the price could come down. So if someone's locking into a long-term contract, don't they risk overpaying for the service that you're providing?

John Berger: Great question. The answer is no. In fact the best time to sign a contract was even two or three years ago, which sounds kind of strange because the price of solar, right, has come down tremendously since then. But things such as the subsidies in the market are pretty much gone right now, and that had the price of solar even cheaper than it was in some cases today because those subsidies are no longer there.

But most importantly as a consumer, oddly enough, what you ought to ask for is an even longer term in the contract. You're getting shielded from interest rate risk. You're not taking that on as a homeowner. You're getting shielded from power price moves that the utilities are going to -- or have been doing for decades and will continue to do in terms of moving those costs up on you. So the longer the contract is actually better for the homeowners. I'll be the first to admit that that can be somewhat scary for some folks to get into that type of a contract, but truth be told as an industry we transfer the vast, vast majority, 99.99 percent of the contracts, so the homebuyer because it's in our best interest and it's in the customer's best interest and the new customer's best interest to have that contract transfer. So it's really not unlike having a home security contract that you transfer to the homebuyer, particularly one that -- this is the cheapest electricity you can buy, and everybody -- unlike home security, everybody needs to have power and water.

Monica Trauzzi: How broad is your company's reach right now?

John Berger: Very broad. We're the largest geographic footprint in the United States. We are now in 21 U.S. states and territories. We're in states providing solar power as a service to homeowners that no one else is in, specifically New Mexico, oddly enough Missouri, Indiana, Puerto Rico, and we just entered the U.S. Virgin Islands. So we have a pretty aggressive footprint, and we've built around because we run on a partnership basis. So again what differentiates us is we're looking for entrepreneurs who are really good at acquiring solar as a service customers and installing those systems and partnering up with them -- not competing with them like my competitors do, but partnering up with them to provide a lower cost of service and better service to the customer.

Monica Trauzzi: So what's the number? How many customers are you servicing right now?

John Berger: Right now we're just shy of 4,000 customers but we're growing at an ever-rapid clip. And I would also say that that rapid clip is growing in and of itself. So we're growing roughly 20-some-odd percent month over month, closer to 30 percent month over month. And, you know, the law of numbers will catch us at some point in time and that will come down, but we still see very rapid growth ahead of us this year. We will acquire -- from where we are today, we will acquire 10,000 customers in the United States within the next 12 months.

Monica Trauzzi: The market penetration for residential solar is still incredible small. How convinced are you then about the economics and modeling that you're pitching, and how much of a risk is there to what you're pitching?

John Berger: To the homeowner? There's very little risk to the homeowner. I personally would put my mother into a solar as a service contract. This is -- actually when you look at what's going on right now, if you don't have solar as a service on your home and you live in states such as California and New Mexico and Hawaii and New Jersey and Massachusetts, and even starting to be the western part of Texas, believe it or not, and Puerto Rico and a growing number of states -- Arizona, Colorado, et cetera -- you are wasting money. You are wasting number. It is an obvious -- there is $100 bill every month laying on the ground or more. You should just pick it up and take it. It's really the risk of not doing something is what most people are taking.

Monica Trauzzi: Right now we're seeing a lot of attention and debates across the country over the use of distributed generation and net metering, who should ultimately bear the cost. Where does Sunnova come down on this issue, and how is it impacting your business?

John Berger: Well, I think it's a -- you know, first of all, you're right. It's a very interesting question and it's something that a lot of folks are debating right now and have been debating for a while, and I see that debate continuing in the future. I think what it comes down to is you have monopolies, whether they're investor-owned utilities or municipal utilities or federal-owned utilities. They are not for-profit entities in the sense -- or have any sort of competition, so they're not capitalists. They are in some cases socialist, owned by the state, but certainly even in the investor-owned utilities their profits are managed by politicians, the regulators. And so that is a nice business model to have, if you will. No matter how much money you spend, I can get other people to give you that money back plus some. We could become billionaires by the end of this show if we had that kind of ability to make money. And so I think it's very understandable that if you had that cash register, if you will, that you'd not want it to go away. And so we're seeing a lot of utilities come back in and fight. They talk a lot of technical garble and everything else and nobody knows what they're talking about, but at the end of the day it comes down to this: the same issue -- again, going back into telecommunications as an example, or what you're seeing in cable TV right now with competition coming in DirecTV and the cable companies.

No company like AT&T, for instance, back in the '80s, liked the cellphone as a competitor. And there's three phases that monopolies or any big companies go through. The first is to deny that it's a threat, and we've been through that. It was insignificant. Who cares about residential solar? I've lived through those days. Utilities are like, "Whatever -- good luck with that." The next stage is, "Let's kill it," and that's for a large number of utilities -- Arizona Public Service to name one, and others -- that's where they are right now. The third stage -- we're starting to see some of this -- is, "OK, this genie's not going back in the bottle. Consumers should have a choice. They're going to have a choice. The regulators in each individual state are going to stand up for consumer choice and lower consumer prices. So how do we -- if we can't beat them, join them." And that could be to buy companies like mine, to look at getting into those businesses, and I think we'll see an increasing amount of that.

But the answer at the end of the day is again similar to what I think the telecommunications industry came to, is, "Let's have a reasonable access fee to pay for those poles and wires, at least on the maintenance side." Most of that stuff's been paid for for decades. And that is reasonable defined as $2 to $10 a month. I pay $8 to AT&T for an access fee for competitive telecommunications providers. I think that's a pathway that's reasonable, down the middle of the road, but still allows to have a level playing field and give consumers choice.

Monica Trauzzi: All right, interesting perspective. Best of luck to you. We'll end it there.

John Berger: Thank you, Monica. Thanks for having me.

Monica Trauzzi: Thanks for watching. We'll see you back here tomorrow.

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