The Department of Energy’s loan office announced its first-ever award for a virtual power plant project Thursday in an attempt to jump-start the national expansion of a rarely used concept.
Virtual power plants envision a network of distributed energy resources that work in tandem to generate and save electricity for the grid or a specific facility.
DOE said it is awarding a $3 billion conditional loan guarantee to Sunnova Energy Corp. to help finance a virtual power plant program known as Project Hestia, which would span most of the country and link together new rooftop solar and battery storage on 75,000 to 115,00 homes.
Those new solar and storage arrays would be paired with Sunnova’s demand response software. It includes an app for homeowners, who would be able to pull back on their electricity consumption and potentially feed solar power back into the grid when it is stressed from high demand, according to the Loan Programs Office.
The office says the project could allow participants to save money and cut greenhouse gas emissions while also improving grids’ reliability.
If the award is finalized, it would mean DOE acts as a guarantor for up to 90 percent of the private loans that Sunnova secures, in order to help customers pay for solar and storage equipment.
“When this loan is finalized, Sunnova is going to be able to provide loans to up to 115,000 homeowners across the country, actively targeting communities that face high energy burdens,” Energy Secretary Jennifer Granholm said Thursday at an event to recognize a new community solar project in Washington.
Sunnova plans to install 568 megawatts of rooftop solar across 40 states, Puerto Rico and three other territories, as well as the District of Columbia, according to the loan office. Over a 25-year lifetime, Project Hestia could eliminate the equivalent of 1.5 million cars, according to DOE.
John Berger, Sunnova’s CEO, predicted in a statement that the program would “make possible a historic private sector investment in disadvantaged American communities and energy infrastructure.”
“The DOE financing would accelerate the adoption of solar and storage, decrease greenhouse gas emissions, and expand the availability of reliable, clean, and affordable energy to those communities who benefit the most from low-cost energy,” he added.
Puerto Rico, an island that has suffered prolonged blackouts after destructive hurricanes, would constitute a special focus of the DOE-backed Sunnova program.
Up to 20 percent of the loans offered by Sunnova to homeowners would be doled out in Puerto Rico. All of those would include battery storage, according to DOE.
More broadly, disadvantaged communities would be a focus for the program as well. Under Sunnova’s plan, at least 20 percent of participating homeowners should have a FICO score of 680 or less, a range that can make it hard to secure credit.
Sunnova said it expected the loan to be finalized in the second half of 2023.
Large power utilities, grid operators and renewable developers have started to introduce pilots and small-scale virtual power plant projects across the U.S. in a bid to improve grid reliability and expand cheap sources of clean power.
For instance, New England’s regional power market became the first in the U.S. to use a virtual power plant last year, with 5,000 small-scale solar installations installed by Sunrun Inc. in four states (Energywire, Oct. 12, 2022).
That same month, grid operators at the Electric Reliability Council of Texas approved an 80-MW virtual power plant pilot, marking the first time that residential solar-plus-storage projects were allowed to participate in that power market.
In California, utility Pacific Gas and Electric Co. and Tesla Inc. said last year they were hoping to enroll more than 25,000 customers of Tesla’s Powerwall storage technology in what they described at the time as the world’s largest virtual power plant (Energywire, July 14, 2022).
Chris Creed, the Loan Programs Office’s chief investment officer, said the loan was meant as “a first step … to the buildings of the future.”
“We’re trying to get [distributed energy resource] equipment out into the marketplace and start the progress of aggregating that information and sending signals out to the market.”
The scale of Sunnova’s DOE-backed plans — including its 40-state geographic scale — may pose challenges, however.
Many utilities, regulators and grid operators have not yet devoted much of their attention or workforce to the virtual power plant concept, noted Mark Dyson, a principal at clean energy think tank RMI. RMI supports virtual power plants and helped launch a partnership to develop them that involves major automakers like General Motors Co., solar companies like SunPower Corp. and Google Nest (Energywire, Jan. 12).
“A lot of people have heard of VPPs at this point, but maybe don’t understand the scale of what’s possible,” said Dyson. The concept may also present an unconventional business case for utilities and their regulators, meaning policy changes could be necessary for its advancement, he added.
Dyson said he hoped DOE’s loan would kick off a “virtuous cycle” in which policymakers make it easier for VPPs to compete in power markets — a step that could improve the business case for the concept.
“This provides muscle memory, if you will, for underwriting this kind of project which hasn’t ever been financed at this scale before,” he said.
A solar slowdown
Along with the loan, DOE announced $82 million in new grants Thursday to boost the domestic solar supply chain and “help integrate solar into the grid.” The grants include projects to develop more recyclable solar panels, grid reliability research, and demonstrations for new solar products using cadmium telluride, an alternative to silicon.
Despite the huge influx of cash for renewables in the Inflation Reduction Act, Biden administration officials and solar industry representatives say supply chain challenges are hampering deployment in the United States.
“There’s an incredible demand to be deploying the cheapest sources of clean power we have,” Becca Jones-Albertus, director of the DOE Solar Energy Technologies Office, told reporters Thursday. “But we haven’t had the modules to supply all of that demand.”
Recent analysis from the Solar Energy Industries Association and Wood Mackenzie, a research firm, finds that utility-scale installations dropped 31 percent last year compared with 2021 (Energywire, March 9).
SEIA blamed the installation slowdown on a Commerce Department investigation launched early last year into potential tariffs on solar imports from four Southeast Asian countries. The administration cited those countries as possible locations where Chinese companies are exporting cells and modules to circumvent tariffs on Chinese goods.
In June, President Joe Biden paused any tariffs that would result from that investigation for two years. That angered proponents of domestic manufacturing and administration critics, who argue that Biden is giving Chinese violators of trade rules a free pass.
On Wednesday, the House Ways and Means Committee voted to repeal the rule to implement that pause. The bill has some Democratic support (Energywire, April 20).
Biden administration officials continue to argue that the pause was needed to allow U.S. developers to shift supply chains and, in some case, build plants in the United States.
“It takes two to three years to build new manufacturing facilities here, and the Inflation Reduction Act is providing tremendous opportunities,” Jones-Albertus said. “In the meantime, we don’t want to slow that deployment.”