German home energy storage company sonnen fulfilled a long-time dream for its U.S. operation: It will supply battery systems to an entire new residential community, with a contract in place to deliver grid services to the local utility.

Sonnen will install more than 600 ecoLinx batteries in developer Wasatch Group's Soleil Lofts apartments in Herriman, Utah, a rapidly growing region south of Salt Lake City. The fleet of batteries will total 5 megawatts/12.6 megawatt-hours of storage paired with onsite solar generation.

The deal brings to life the company's long-avowed wish to harness residential clean energy investments to help the broader grid run more efficiently.

Sonnen, which was acquired by Shell in February, previously struck deals to supply new eco-conscious developments in Arizona, Florida and Illinois. But this is the first time the company has contracted with a utility — in this case, Rocky Mountain Power — to put its devices to work for the grid.

"This is transformative," said Blake Richetta, chairman and CEO of sonnen's U.S. business. "This is what we’ve been working on for years."

The network of batteries, dubbed a virtual power plant in industry parlance, will shift the community's solar production to serve the evening peak, incrementally reducing the utility’s need to run fossil-fueled plants during the hours of highest electricity demand. The batteries will also deliver demand response for the utility and provide backup power to the residents in case of grid outage.

Rocky Mountain Power sees it as a trial run for a statewide push to tap distributed energy tools for the broader grid.

Even more surprising, this deal is not pegged for future delivery after 2022, like the capacity market contract Sunrun won for its own network of home batteries earlier this year. Sonnen installations started last week, and customers will move into their battery-equipped rental apartments later this year.

How it works

The story of the Soleil Lofts deal really starts in Germany, where sonnen operates a shadow utility network that balances supply and demand for tens of thousands of customers.

That structure works in Germany's deregulated power grid, but a startup can't simply show up in the U.S. and start trading power over the wires; here, there's a fractured, state-by-state regulatory regime to decipher.

While marketing its battery systems to a generally affluent clientele interested in clean power and backup during outages, sonnen toiled behind the scenes to forge homebuilder partnerships. Richetta drew on experience in the home automation industry to launch the ecoLinx, a storage system marketed for high-end connected homes.

Richetta argued at the ecoLinx launch last fall that going to market with a high-priced, high-value product would pave the way for reaching a broader audience. Soleil Lofts shows how that transition can happen.

Instead of palatial mansions, sonnen is outfitting rental apartments. Tenants will sign a standard lease, said Jay Oman, vice president of Wasatch's solar power division. That lease will provide them access to a newly built, high-efficiency, all-electric apartment in a community that produces its own solar power and includes free EV charging for a year.

An 8-kilowatt/20-kilowatt-hour ecoLinx storage system will stand inside each apartment unit, like any other home appliance. The tenant does not own it, but will benefit from backup power and the good vibes of clean energy production while living there. The high-efficiency design will produce lower-than-normal utility bills for residents, the developers said, although the onsite solar energy production does not translate directly into bill credits.

Selling storage as part of a new home can help storage vendors (and solar installers) slip their price tag into a much larger tab. But it doesn't work like that with the Soleil Lofts, because the end user is not paying for the storage directly. 

Instead, a separate entity affiliated with the Soleil community owns the solar and storage, and monetizes the 30 percent federal Investment Tax Credit and a 10 percent state credit. That entity also gets paid for grid services by Rocky Mountain Power, the final piece that makes the business model achieve liftoff.

"We’re paying for the right for full control of the batteries," within certain constraints to ensure a backup reserve for the residents, said Bill Comeau, managing director at Rocky Mountain Power. 

The utility's involvement follows the state legislature's passage of the Sustainable Transportation and Energy Act of 2016. Rocky Mountain Power used that legislation to ask regulators in March for permission to enter into a contract with the Soleil community for demand-side management. Sonnen guaranteed the hardware and software performance for 25 years.

"We’re creating a platform to learn from this in the future," Comeau said. If it works out as expected, "We are going to be able to scale this for customers that want it."

Notably, the three parties made the deal work in a market with low power prices, which reduce the relative value of solar bill savings. Nor is there much risk of blackout in the part of the grid where these batteries offer backup power, Comeau noted. On paper, this would seem to be an inauspicious market in which to pitch early adoption of residential solar-plus-storage.

"The parties came together and...are using our batteries in such a way that it all pencils [out economically] because of the engineering of the deal itself," Richetta said. "Utah really is a state, in my opinion, that’s about getting things done."

Strategic implications

In the U.S., sonnen products come in at a higher price point than competitors like Tesla and LG Chem. The company avoided competition on upfront cost by pitching on higher value and packaging the devices in new, energy-conscious home developments.

Even those early deals left some questions, namely, if distributed batteries were so valuable, why didn't anyone want to pay for the aggregated grid services? Utility hesitation offered one explanation, but then again, there weren't any real-world virtual power plants (VPPs) to contract with. Given the novelty of the product, sonnen's strategy of "build it and utilities will come" deserved at least the benefit of the doubt.

Now, with a contract in hand and initial customer move-ins scheduled for September, empirical proof can stand in for theoretical plausibility. The achievement solidifies sonnen's early-mover status in the burgeoning VPP market, although it's worth parsing exactly how those definitions work.

Sonnen described Soleil Lofts as "the first large-scale, utility-controlled residential VPP community in the USA, for immediate implementation."

The "large-scale" distinguishes it from pilots; this is a commercial project, after all. "Utility-controlled" differentiates it from the accumulated customer bases of battery installers like Tesla and Sunrun, although Vermont utility Green Mountain Power's Powerwall VPP, as well as Sunrun's upcoming deals with power providers in Oakland and Glendale, could claim that title.

Soleil differs in being a single, purpose-built community, as opposed to a network of customers across a service territory. And the "immediate implementation" refers to sonnen's jump on the various VPPs announced for rollout in the coming years.

Grid theorists or company surrogates can debate the merit of clumping resources in homes in one location versus homes across a territory. The key practical difference is financial efficiency: A homebuilder offers a single, business-savvy counterparty for a battery vendor to sell to, rather than going door to door across hundreds of homes.

Sunrun, the nation's largest rooftop solar installer, disclosed that it installed 1,000 new home batteries between its earnings reports in December and August. Sonnen, not known in these parts for its volume plays, moved 600 more lavishly priced units with this single deal.

In the past, critics could charge that sonnen's real estate channel offered a refuge from the hard-fought melee of mainstream battery sales. Now it looks more like a thrust than a parry.