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Open Circuit
Does residential solar have a bad product?
00:49:45
With rooftop solar in a downturn, where the industry needs to improve to ensure sustainable growth.
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- [00:01]
Stephen Lacy
A few quick things before we start the show. Katherine Jaeger and I are recording a live virtual show on April 16th at 1pm Eastern. You can sign up and watch from the comfort of your own Chair. Go to latitudemedia.comevents to sign up. Also, we will be live in person at Latitude Media's Transition AI conference on June 12th in Boston. You can buy tickets to that show on our events page and that's going to feature a killer lineup of experts at the AI Energy Nexus and we will be there to dish on the latest trends. And finally, we are making Open Circuit swag. If you want to enter our Swag Sweepstakes, go to latitudemedia.com merch or click the link in the show Notes to sign up to win Free Gear My.
- [00:41]
Jigar Shah
Dream come true Latitude Media Podcast at.
- [00:47]
Katherine Hamilton
The Frontier of Climate Technology have either.
- [00:51]
Stephen Lacy
Of you ever worked in door to door sales?
- [00:52]
Jigar Shah
You know, my dad bought a ton of books from door to door salesman back in the 70s, but those people had to carry 70 pounds of books in their bag like college students selling door to door.
- [01:05]
Stephen Lacy
Catherine, did you ever do door to door sales?
- [01:08]
Katherine Hamilton
Girl Scout cookies? That's it man.
- [01:11]
Stephen Lacy
A rite of passage.
- [01:12]
Katherine Hamilton
Yeah, exactly.
- [01:13]
Stephen Lacy
I have a weird relationship with door to door sales though because I hate being solicited.
- [01:18]
Katherine Hamilton
Me too.
- [01:18]
Stephen Lacy
Like I can't stand it when someone comes to the door, but I'm also incredibly nice so I like talk to them and I work through it and inside I'm like please make this end. It's a very confus way to live.
- [01:28]
Katherine Hamilton
I'm lucky that I have dogs that are a deterrent.
- [01:32]
Stephen Lacy
From Latitude Media. This is Open Circuit this week, a perfect storm for residential solar. With interest rates still high, massive shifts in state and federal policy, and major installers struggling financially, what's the path forward for an industry that has long faced cycles of boom and bust? We'll look at how the industry may emerge from the current downturn and also ask what could happen to Sunova's loan guarantee as the company faces its own struggles. Plus, as data centers get creative about sourcing power. A novel solution off grid solar micro grids that could bypass grid constraints entirely. Is this an answer to the AI power crunch? Open Circuit is brought to you by On Energy Some industries simply can't afford power failures. Data centers, airports, manufacturers. When the power goes out, operations grind to a halt. That's where one energy comes in. They design, build, own and operate megawatt scale battery storage to keep businesses running and grids stable. With proprietary energy management software and in house expertise they make energy more reliable, efficient and resilient. Need backup, peak shaving, faster interconnections One energy has the solutions because when reliability matters, their track record speaks for itself. Learn more at on energy OpenCircuit is supported by Kraken, the only proven AI powered operating system for utilities. Kraken's tech helps utilities provide excellent customer experiences, increase product innovation to support a distributed grid, unlock new revenue streams, and make huge operational savings. Yep, that is all possible with Kraken. Click the link in the show notes or go to Kraken Tech to learn more about how Kraken is helping utilities improve the experience for over 60 million customers worldwide. Upgrade your utility with Kraken. Welcome. I'm Stephen Lacy. I'm executive editor at Latitude Media. I am joined, as always by Kathryn Hamilton and Jigar Shah. Katharine, you are in a new recording location. It looks like one of those fake. It's so beautiful. It looks like one of those fake backgrounds on Google.
- [03:43]
Katherine Hamilton
Yeah, it's my she shed. I'm in the mountains and we took an old, nasty old tool shed, really, that was full of animal traps and rusty nails and old axes that Lord knows what they were used for. And I made it into a place where I can work and have tea by myself.
- [04:01]
Stephen Lacy
No Sarah Week?
- [04:02]
Katherine Hamilton
No. One of my kids is on spring break and we had a bunch of family things going on, so I was just like, okay, I'm gonna skip it this year and just see how it goes. And evidently the Secretary of Energy literally gaslighting everybody.
- [04:15]
Stephen Lacy
Why did he gaslight people?
- [04:17]
Katherine Hamilton
Basically, the message being that gas is cheap and plentiful and we need more of it and renewables are super expensive and are causing consumer rates to go up, which is. That last point is simply not true.
- [04:28]
Stephen Lacy
Katherine Hamilton is the co founder and chair of 38 North Solutions and Jigar Shah is a clean energy investor and former director of the DOE's Loan Programs Office. Why were you not at SARAH Week this week, Jigger?
- [04:39]
Jigar Shah
Oh, I did a lot of Sarah Week the last three years. I feel like I need to recover from Sarah Week. This is, this is like my therapy of not being at Sarah Week.
- [04:50]
Stephen Lacy
You didn't want to join Chris Wright on stage?
- [04:52]
Jigar Shah
No, I thought he, you know, commanded the room all on his own. I think people were like, who wrote those talking points for you?
- [05:00]
Stephen Lacy
Well, it was interesting because NextEra CEO John Ketchum was on stage and he basically said what we explained a couple weeks ago, which was like, we don't have the equipment to be able to meet a significant portion of demand with gas. Like we can only meet a very small sliver of demand with gas plants.
- [05:18]
Jigar Shah
And then Joe Dominguez went on stage from the Sea of Constellation and said that he didn't think that he was going to build a lot more nuclear plants because you could pretty easily unlock capacity through the use of batteries and debottlenecking the grid, which, and he referred to Tyler Norris's paper from Duke University. And so I was like, I was like, that's pretty amazing to get a shout out from Joe Dominguez on stage. But so I thought it was a fascinating tale of two stories. But the story coming out of Sarawak is definitely the President is talking down oil prices and everyone's like, we don't make money at $50 a barrel and gas is ascendant. But GE, Vernova and others are not sure whether it's ascendant. So they're not going to spend a ton of money on new manufacturing capacity. And, you know, solar and wind and battery storage continue to provide 90% of everything that gets connected to the grid. So there you have it. You didn't have to go to Sarah week for that.
- [06:20]
Stephen Lacy
Should we just call that the end of the episode? Yeah, man, let's take a ride on the solar coaster, shall we? There was a point in my career when I covered the solar industry, particularly the residential solar industry, extensively. And it's been a while since I've immersed myself, so this feels like a really good time to do it. The residential solar industry is going through one of the most challenging periods in years. Just last week, Synova, the second largest residential solar financier in the country, issued a going concern warning in its earnings call, saying there's substantial doubt about its ability to continue operations for the next year. The company's stock plummeted nearly 60% in a single day. And earlier this week, CEO John Berger stepped aside. This follows SunPower's Chapter 11 bankruptcy filing last summer, where they sold off three business units and laid off hundreds of employees. And meanwhile, companies across the country are shutting their doors, with hundreds of solar dealers and installers shutting down or declaring bankruptcy in the last couple of years. So we're seeing a reversal from the hypergrowth that defined residential solar for much of the past decade. In Q2 2024 US residential installations declined 12% year over year, marking the third consecutive quarter of decline. And this trend is consistent across major solar markets internationally. So before we get into the industry wide factors, I do want to start with Sonova specifically, which is both a Story about the market and the political moment. In 2023, the company secured a $3 billion loan guarantee from the Department of Energy when Jigger was leading there. It was the first loan guarantee for a virtual power plant and the federal government's single biggest commitment for solar. And it was designed to support over $5 billion in financing residential, solar, battery storage and tying them together for virtual power plants. But that loan has faced a lot of scrutiny from congressional Republicans who have called it the next Solyndra, even before Sonova's recent troubles. So let's talk about sort of Sonova as a company and some of those political dynamics. Jigger, what's happening with Sonova?
- [08:24]
Jigar Shah
Well, let's first get out of the way that, that I personally have never owned Sonova stock or made money on Sonova, although I get accused.
- [08:33]
Stephen Lacy
Was that a claim?
- [08:34]
Jigar Shah
Oh, yeah. I get accused of all sorts of things. But I think it's important to understand what we did with Sonova, right? Is that the US Government did not directly loan Sonova any money, right? So what Sonova does is they provide loans to customers to buy solar, or they might do third party owned systems, right, where they raise the tax equity and debt. And then they go to Wall street and they say to the credit rating agencies, how much money will you give? You know, in terms of how much of our cash flows will you say are credit worthy? Right? And what we did was we said, hey, if you use this DOE data, would you push that a little further than you otherwise would, showing that poor people actually pay back their loans when it's a result of energy? And, and we guaranteed those bonds. So the federal government guaranteed those bonds we'd never actually wired money to Sonova like we did with other people. And so today, like, as of taping, the bonds are still trading at par, which means that no one believes that those bonds will fail. Everyone still wants to buy those bonds, etc.
- [09:47]
Stephen Lacy
Jigger, why is Synova struggling as a company right now?
- [09:51]
Jigar Shah
I mean, Sonova took corporate debt, right, like at the Sonova corporate level out, and, you know, their business has had, you know, tough gross margins, and so they've been having a hard time paying back that corporate debt, right? When you have corporate debt, you can't pay back, you either have to renegotiate with the provider of that debt to settle things so they don't put you in default. And if they do put you in default, then you have to actually maybe go through a restructuring and have the courts force the debt provider to take a haircut. On what they get paid back, but the underlying bonds for the individual loans that they provided to residential homeowners, those are all doing fine. Not just the ones that LPO guaranteed, but also lots of other bonds that they've issued. Those are all doing fine as an asset class. This is really about synova corporate taking corporate debt out that they shouldn't have taken out.
- [10:45]
Stephen Lacy
So is there any risk to taxpayers?
- [10:47]
Jigar Shah
No, I mean, not as of now. I mean, basically the way that the guarantee is structured is we would need to have a financial crisis of the level of the global financial crisis before the government would have to pay out. Right. So a mild recession wouldn't cause us to have to pay out. Right. You would have to have, you know, like the mass failures we had during the global financial crisis before, we'd have to pay out of that guarantee.
- [11:12]
Stephen Lacy
So the struggles at Synova are unique to the company, but also representative of a broader contraction in the residential solar market here in the US and globally. Catherine, what are the forces at work here? What are the anxieties gripping the industry right now?
- [11:30]
Katherine Hamilton
Yeah, there was a really interesting survey done by Solar Reviews. It's the 2025 Solar Industry Survey, and it captured between December 2nd of 2024 and January 3rd of 2025. So they did a survey of like 59% of the survey respondents were RESI and small commercial developers, 8% equipment and manufacturer, 4% sales, 2% energy storage installers, 6% utility scale, and then 7% CNI solar O and M companies. And most of the companies, remember, do business in five states. California, Colorado, New York, Texas and Florida. But they had some respondents from every single state and D.C. and Puerto Rico. So they did have some representation from everywhere. And I would just say that some of the fears that are gripping the industry are 56% said new tariffs. And there's a reason for that. Then the tariff issue has been seemingly capricious in that the administration and the president change their tune on taxes constantly. And I think that's just the uncertainty is, is huge in that regard. On tariffs, 50% said changes in solar incentives. So you look at both state and federal incentives, you know, what are the changes that are gonna happen? 46% said legislative and political uncertainty. And again, that's, you know, what's going to happen that leads to the fear. On the solar incentives, 35% said supply chain challenges, although the supply chain issues are now. And then 30% said financing challenges. And I think that would include some interest rate issues that are still lingering, although not as bad. So Those are kind of the big fears that this survey indicated the industry was feeling.
- [13:17]
Stephen Lacy
Jigger, which of those anxieties do you think are most acute in the residential solar industry in the US right now?
- [13:24]
Jigar Shah
I mean, I don't know that I care.
- [13:26]
Stephen Lacy
Why?
- [13:27]
Jigar Shah
I mean, residential solar has a bad product today, right? And no amount of financing, innovation can solve the fact that they have a bad product, right? We have talked for years about the fact that it's a dollar a watt to install residential solar in Australia or a dollar of 20 a watt to install it in Germany, right? Anya Schoolman at Solar United Neighbors and I chooser like does these solar co ops where they can get it to $1.90 a watt installed in the United States, right? That's it. Everyone has to hit $1.90 a watt in the United States. Like put your big boy pants on and fix your goddamn product, right? Don't expect that financing or net metering or additional incentives or other thing will solve the fact that you have a bad product, right? It doesn't have to be bad. Like if you were to do do it yourself solar, you could buy a solar kit on your credit card for a dollar a watt, $1.15 a watt, have it shipped to your house and install it yourself, right? If you need help from an electrician or a laborer, you could put it in for 50 cents a watt, right? And install it in your house. But for whatever reason we have this cockamamie scheme where people are paying above $3 a watt for stuff and then they're blaming that metering, they're blaming this, they're blaming that. Grow up as an industry. Grow up, right? Like we should be able to install solar for a cost effective point. You should add batteries so that utilities actually like you. Because utilities want capacity. They do not want additional power being shipped back into the grid from noon till 2pm when all the utility scale solar is flooding the markets with power, right? Like we just have to grow up as an industry. We were great 10 years ago when we were fledgling, fine, but now like we're on track to 10 million rooftop solar units because the demand hasn't gone away. To be clear, right? People desperately want solar on their roof because their investor owned utilities have failed them and have raised rates by 40% the last four years. So they want an alternative. So they want solar, but they want to be treated fairly. They want good customer service, they want equipment that works. They want a 24 hour response time. They don't want like to wait six months for something to you know, someone to get their system fixed. Right. And so the industry just has to grow up.
- [15:50]
Stephen Lacy
Strap in, Catherine. Jiggers, hit the accelerator.
- [15:53]
Katherine Hamilton
Well, I was going to actually dig in a little bit on Anya Skullman Solo United Neighbors because that's a different, a slightly different model. Of course it is a nonprofit model, but it's also very much about local advocacy and like kind of self determination. And she's getting, she says in most states she gets $1.80. So, you know, they are also able to drive the costs down and that's often because of bulk purchases. But they're using, they have a partnership with a Dutch company where they're, that's really good at marketing and really good at getting local companies vetted, really getting many, many more installations than having somebody come in from, from outside to do this. And it feels like what she's doing. And just by the numbers that also her, you know, all of her reports show that they have really good success and that it's also, not only are they installing systems that are cost effective, that aren't causing issues with sales people, but that are, they're also more durable and sustainable because of where they're coming from, because they are coming from the homeowners driving the market and communities driving the market.
- [17:05]
Stephen Lacy
All right, so I wanted to talk about policy, I wanted to talk about business and financial models, and then I want to look at what the path looks like out of the current downturn. So let's just continue on this conversation around business and financial models. The industry has had a number of high profile, very bad customer experience problems, a lot of lawsuits, people feeling like they've gotten tricked into signing solar contracts, they're not getting the promised savings, they're stuck with panels on their roof that are not working. I mean, this is a small percentage of solar on rooftops, but it's still a significant, high profile challenge. And a lot of this is a result of the financial models that drive solar. So, Catherine, there are serious concerns about sales tactics, about the fundamental financial models behind residential solar. How have they created poor experiences for customers and how severe are these challenges?
- [18:05]
Katherine Hamilton
Yeah, and I don't want to downplay customers that are feeling pain from something from listening to salespeople who are not being truthful. And a lot of these solar, I know Solar United Neighbors has on their website and I'm absolutely sure that all the other folks do have, like, here's what you need to watch out for so you're not fleeced by somebody who comes to your door. They are as you mentioned a very small percentage, but those are the stories that people like to tell. So not to downplay their pain and their suffering of those people, I just think, you know, whenever there's a boom of anything, there are gonna be some bad actors and trying to make sure that you have good people doing the jobs is going to be really important. And maybe that means we don't do as much door to door sales. Maybe we, maybe we figure out other ways to make sure people get solar in a way that actually does save them money.
- [18:55]
Stephen Lacy
Jaker, what is causing some of these problems with customers? Is it the basic financialization of solar leases that is causing this door to door sales pressure and forcing bad experiences with customers like break down the root of the problem?
- [19:14]
Jigar Shah
Yeah, in a way I think that's right. Right. You know, the financing companies really just want volume because that's what you need to do financialization. But I think the bigger part of this is that the financial companies have only one rule, which is that the customer has to save money. If the customer saves 5% on the payment, they're fine with that. Right. The fact that the customer could have gotten the system for half of what they paid for it, they don't care. Right. And so if someone pays $4 a watt for solar, even though they probably should have paid $2 a watt for solar, they were not driving that. They were saying, look, it's not really our place. The dealer makes a deal with the homeowner. And the fact that we have all this data and we know that some of the projects were sold at $2 a watt and some of the $4 a watt is not something we have to police. Right. And so then, you know, as Catherine suggested, a very small percentage of customers are, are feeling bad about their purchase on solar and whatnot. And some of them have had bad experiences when they buy a house with solar on it and they had to transfer the lease or whatever it is. But, but ultimately the bigger problem is, is that when they found out that they could have gotten cheaper solar, they're trying to figure out like, well, who's to blame for that? Like, who is supposed to protect me from, you know, unscrupulous practices from local dealers, Right. Or just bad business people. Dealers. Right. And the answer is no. 1. Right? The answer is no one. Right. But in the mortgage industry, everything's regulated, right? You have a regulated realtor, you have a regulated, like, person that makes you sign 77 pages with your initials, right? You have like a standard contract, you have all that stuff, right? So part of what Anya has been trying to do is to put together a cover page on every single financing proposal so that there's truth in lending that makes it crystal clear on who's doing what. But I do think that the big challenge that we have here is that the financing companies do not feel any responsibility at all on driving down the cost of solar. They're just saying as long as the legal contract between a dealer and a customer. And they check, by the way, no one's getting fleeced. Like, I know that everyone claims that they're getting fleeced, but they record every single phone call that they do to check with the customers before they finance it. They say, did you sign up for this price? Do you know that you're only going to save 10% on this thing? Do you know that you agreed to these terms? Right. All of that's recorded. And not because they want to protect themselves on this side. It's because the Wall street banks make them record that and make sure that it's crystal clear that no one got fleeced. Right. Is it your name that was signed on the contract? Am I talking to the person who signed the contract? They check all of that. Right. So no one's getting fleeced. Right. But it is true that no one's in charge of driving the cost down. Everyone's value pricing and saying, oh, you're paying 42 cents a kilowatt hour for your power, well, then I can charge you more for this solar project. And that just feels icky all around.
- [22:21]
Stephen Lacy
So we have a soft cost problem here in the United States. The cost of installing solar, these soft costs are like 13% higher than they were two years ago. What are these costs, Catherine, and why are they a problem for us? Solar?
- [22:36]
Katherine Hamilton
Yeah. So one is fragmented permitting and regulation, like permitting is done state, local, municipal level. It's all over the map. All the processes are differently. Different. So DOE does has the solar app that NREL developed, and that's been great. I mean, adoption has been a little bit slow, but that's the way you could essentially be able to get through some of those processes more quickly. Customer acquisition costs are high, of course. Like, there's just less awareness of solar than there are, say, in H Vac or windows or roofing, you know, things that people think about on their home all the time because it's a little bit different. And so just having education and people understanding what they're getting is. Makes it a higher cost. Labor cost US has higher labor costs than other countries and also just efficiency Installation efficiency. And that goes back to like all these different permitting regulations and requirements, inspections, utility issues, interconnection and utility resistance. Interconnection is huge issue. It just is. It's expensive and it's slow. Utilities are not really, I'm not gonna say all of them, but some utilities cause issues. I work with this really interesting company called Connect that has a meter socket adapter and there are a few companies that have meter socket adapters. And basically what you can do is just plug it into the meter and then plug your solar into this adapter or plug your EV into it. And that prevents having to upgrade your panel. Cause sometimes you have to upgrade your panel to get all of these extra pieces of equipment. So having things like that would be helpful. Also just like lack of standardization, standardized equipment. And Jigger had talked a little bit about Australia. They have standard equipment installation practices that just, that just allows scale more easily and cheaply. So, you know, there are a bunch of different soft costs and that's always been the case. Soft cost has always been the biggest issue with solar installation. And, and I think those are highlighted especially when you have like a tight labor market and increased, you know, costs, financial costs and interest rates.
- [24:44]
Jigar Shah
I think the big thing though that people don't cover is that there's a lot of dealers who just don't want to fix these things. They're like, the fact that it's super hard to do solar and I know how to do it makes it awesome. Like, I'm the oligopolist who can handle all of this like pain and suffering. And I was like, well, that's a weird thing to like be for. Like, you want like a weird byzantine set of rules for your permitting and for like interconnections so that you can't have competitors. Like, that doesn't make any sense, right? Like, and this is why I'm saying, like, I just think there needs to be someone who's actually driving these savings and saying to mayors, look, we're just not going to serve your town with financing and your people aren't going to get solar unless you just fix all this stuff.
- [25:33]
Stephen Lacy
OpenCircuit is brought to you by. OneEnergy on Energy is one of the fastest growing battery storage ipps, delivering storage solutions for utilities, enterprises and critical infrastructure. With 300 megawatt hours deployed across 65 projects, their proprietary battery solutions are helping bridge the gap to a future where energy is abundant, clean and resilient. With a vertically integrated approach covering design, financing, software and operations, ONEnergy seeks to make storage simple. Building on this expertise on Energy is now expanding its focus on the data center market as energy demands grow in an AI driven world on energy is redefining energy infrastructure because downtime just isn't an option. Click the link in the show notes to learn more or Visit on energy. OpenCircuit is supported by Kraken, the only proven AI powered operating system designed for energy utilities. Now, wouldn't it be great if your utility could easily embrace the adoption of electric vehicles and other distributed resources, develop customer centric products in weeks, not years, and offer excellent customer service to boot? With Kraken, all of this is possible. They are removing the barriers of outdated tech, bringing together everything a modern utility needs in one purpose built platform. Join leading utilities around the world in switching to Kraken. Learn more at Kraken Tech or click the link in the show notes. You have said, jigger, that residential solar companies don't solve problems for utilities, so they don't have much to sell right now at public utility commissions. What do you mean by that?
- [27:11]
Jigar Shah
Yeah, I mean like right now we have an affordability crisis in the United States, right? And so a lot of customers are going solar because their rates have gone up and they want to save money with solar, but the regulator and the utility is in charge of making sure your neighbors actually save money too. Right? And so the question becomes how does your choice of putting solar and battery storage on your house save your neighbor's money? And that's by joining a virtual power plant. Right? And that's why Sunrun and Sonova and others have now rebranded themselves as virtual power plant companies, because they recognize that unless they're actually helping neighbors reduce power, there's going to be a lot of animosity towards the people who put solar on their roof. Right? I don't believe in all the cost shift stuff that folks have accused the solar industry of. So I'm not suggesting that there's this major cost shift issue, but I am suggesting that solar alone doesn't really help you per se. It doesn't provide you any resiliency, it saves you some money. But if you have a power outage and you have a grid connected inverter, you have to shut down your system. So you need a battery to get backup power and people are buying backup power in record numbers. Generac is sold out for the next six months. So I think that when you think about what the utilities need, they need batteries so that they can shift load to get more utilization out of the distribution grids. We've already paid for and make rates more affordable. And what solar residential customers need is batteries because otherwise when they have power outages or public safety shutoffs or other stuff, they don't have backup power. And so I just think that in general the solar industry needs to be solving a problem for utilities, otherwise they're going to lose the license to be able to like deploy this stuff quickly and there won't be enthusiasm on the utility side.
- [29:06]
Katherine Hamilton
Yeah. So I think what Jigger is saying really brings us into policy. And how many states and local jurisdictions also have policies that are really helpful to solar? And those have been around a lot longer, of course, than a lot of the federal policies have. So state tax credits, energy storage rebates, solar rebates, state green banks are doing a ton with low interest loans, SRECs. So all the renewable energy credits, demand response programs for batteries. I know that's happening in states that really are desperately needing to curb their peak demands. And they have all these solar and batteries, why not use them? And then also just community solar gardens and structures that are starting to make sure that those are in place and that they're not illegal. And in fact, alec, which is the right wing legislative council, just passed a resolution on community solar gardens to make sure that we can get community solar. So state, state policies are huge and we should be able to leverage those to bring down the costs of all these programs.
- [30:09]
Stephen Lacy
Jigger, how is state policy evolving to push the industry for these more whole home energy offering VPP models?
- [30:18]
Jigar Shah
I mean, we'll see, right? I mean California is a hot mess right now. And so their sales numbers are way down. And the California Public Service Commission has not actually created any real solutions to the problem. When you talk to PG&E in Southern California Edison, they recognize that they need things like the District, the, you know, the dcp, the distributed capacity procurement stuff that Pierre Lafarge has been doing, or other things. Right? And so they need to figure out how they integrate this industry into their integrated their models, right? And right now they kind of are doing it, they're kind of not doing it. And so they're in this weird spot where we have all the technologies needed to make electricity affordable, but they have a huge cultural problem where they're like, but we want to do things the old way. And we're like, well, you've been raising rates by 10% a year doing things the old way, like you've hit your breaking point. And so I don't know how this is going to get resolved. Right. But I do Think that the residential solar industry and the utilities are going to have to find a way for one plus one to equal three. Otherwise I think we're just going to be muddling along.
- [31:28]
Stephen Lacy
So on the policy side, Catherine, in that survey you referenced earlier, it clearly show that people are concerned about tariffs and they're concerned about broader policy changes either with tax credits or broader legislative changes. And this can be on the state level or the federal level. So there's a ton of policy anxiety. What specifically do you think the industry should be concerned about in this current environment?
- [31:53]
Katherine Hamilton
Yeah, on the federal side we have more incentives than we ever had. And I'll mention in a second, like how what people are doing already, but certainly the investment tax credit for solar, for storage, for interconnection, there's also an adder for low income projects. There's also the EPA solar for all program. That was Bernie Sanders kind of vision to get solar financing and inexpensive solar to low income customers. And that program is percolating along so far, so hopefully that will keep going. That was a $7 billion program that's going to all states, everywhere. I think what folks are doing is twofold to try to help push back on any reduction in those programs. One is to of course they're meeting with Congress like Sia has done all these Hill days CEOs and everybody is coming into town to talk to members of Congress. But even more importantly, people are going out into talk to their mayors, their local press, their towns to really talk. And having folks like Anya has like a million people out there who are part of this advocacy network and they are talking and saying like why would you even dream of taking away this program that is saving me money every single day? And so there are a lot of ways to get at it. The hope is that because there is so much support for on the federal side that those will not be significantly reduced. I do think the uncertainty is almost worse than just whether or not they're gonna do anything right now. And we're just in this period of uncertainty which kind of paralyzes folks on the investment and on the financial end.
- [33:42]
Stephen Lacy
Jigger, you are one of the most opinionated people I know on solar policy. So if you could wipe the slate clean and get us beyond the stop start nature of promotion policies, what do you think the magic combination of policy would be that feels sustainable?
- [33:59]
Jigar Shah
Look, I mean I think our industry is like every other industry. It wants to be valued for the product that we produce not for are the financial engineering of tax credits and whatever, whatever it Is that we do. Right. I think we are at a unique moment right now where we are hitting load growth. We have a platinum plated grid that we have overpaid for and we're now at a place where we're using it 25% of the time for residential distribution circuits. Right. I think that the solar industry is the best position industry to figure out how to work with the utilities to actually get these grids used in a much more sustainable way. Right. And I think we should get on with it. We have all the products, we have virtual power plant companies, we have smart panels. Right. We have figuring out how to like, you know, prevent people from having to upgrade their service. We have, you know, batteries, we have control systems that can control your backup generator if need be. Right. We have all of this stuff. And instead of talking about how to get more value for the stuff that we're doing because we're 90% cheaper than upgrading the distribution circuit or the transformer. Right. We're talking about net metering or we're talking about tax credits. And I don't want to talk about that anymore. I want to talk about how we get paid for the essential services that we provide as an industry. Our products are the best products on the market. And I want people to recognize that. When I mean people, I mean electric utility companies and their regulators who continue to want to raise rates by 10% a year instead of putting out these products that we have perfected in a way that is super awesome.
- [35:44]
Katherine Hamilton
Yeah, jigger. That is the nut of it. Like, we wouldn't need all of this if utilities played straight. If utilities let us in and gave us credit for the value that customers can bring to the grid, we wouldn't be having this conversation. But that is not the case.
- [35:59]
Stephen Lacy
All right, let's turn now to another application of solar that could help solve one of the biggest challenges facing the tech industry and the electricity sector today, and that is powering data centers. It is now very widely understood that AI data centers consume enormous amounts of electricity. And of course, their power needs are expected to grow exponentially in the coming years. And the biggest constraint to data center expansion is securing power grid connections often have waiting times of five or more years. And building dedicated gas plants can take many years given current equipment shortages. So I was struck by a recent analysis from stripe paces and scale microgrids that suggest there might be a faster solution that is off grid solar microgrids. The researchers modeled many different potential system configurations, ran 20 year power flow simulations, calculized the LCOE for each scenario. And they found that off grid solar microgrids could be the fastest and potentially most competitive option for serving large data centers. So let's dig into the research. Catherine, you talked to one of the contributors of the report, that's Duncan Campbell from Scale Microgrids. What did he tell you about the range of options they were analyzing?
- [37:14]
Katherine Hamilton
Yeah, super interesting. Duncan is so smart and I hope I do him justice here. So here are the list of options for meeting AI needs. Right. One is you can expand the grid. This takes a really long time and it's very expensive. You can do things like grid enhancing technologies. You can do things to try to squeeze electrons out of the current grid. But expanding the grid as we know is really difficult to do. The second thing is restarting mothball facilities like Three Mile Island. Again that's a great idea, but they're not that many of them, so that's not going to solve everything. Another thing is to build off grid clean farm energy like next generation geothermal or new nuclear facilities. Those are great options. Again, not quick and expensive until we can scale. The fourth thing is building data centers and infrastructure next to already built utility scale solar and batteries. The problem is that those facilities were built generally to serve other loads. And do they have enough capacity to then also serve new data centers. Another thing is power them with rented portable gas or diesel generators. And that's like a kind of a good stopgap fast solution, but probably not sustainable. Another thing is to build off grid co located natural gas. And we've talked about natural gas and how hard it is to get that equipment. And also not just the equipment, but like getting gas through committed lines is also difficult. So that was also an issue with that. Now all of these will probably need to be done in some way. But the one piece that has been, as he said, conspicuously absent from the conversation is off grid solar microgrids. And those allow for scale and speed. And they found that these are actual competitive alternatives to all of these other options.
- [39:00]
Stephen Lacy
Did he say anything about why this solution hasn't really been considered in the conversation?
- [39:05]
Katherine Hamilton
Yeah, I think folks just didn't realize that it was something that was viable. So the seal hadn't been broken. People had not thought outside the box to include that. And he said now that's happening with Intersect, but that the keys of trying to get to power quickly, time to power is everything for hyperscalers. And that that led them to the conclusion that this is going to be an enormous option and has a massive total addressable market. Out there for microgrids.
- [39:38]
Stephen Lacy
So jigger, the analysis found this hybrid system delivering 44% of energy from solar with the rest from gas backup, comes in around $93 per megawatt hour, virtually at parity with a pure gas solution which is at like $86amegawatt hour. And as Catherine mentioned, remarkably, even a system with 90% solar priced at $109amegawatt hour is still cheaper than what Microsoft has reportedly paying to restart the Three Mile island nuclear plant. What's your reaction to some of these numbers?
- [40:09]
Jigar Shah
I love it. Right. Like I love seeing all of this work being done to try to help ground people in what the costs of the alternatives are, right? I mean, theoretically, if we have 2 gigawatts of solar, wind, battery storage projects sitting in our connection queues waiting to get connected, they could just be built anyway and like powering a data center. Right? So I think having these conversations is super helpful just to ground people in how far our technology has come to be able to solve these problems cost effectively. Do I think they're going to happen? Hell no. Like you would just never in a million years build an off grid solar plus storage plus natural gas like backup power system. Like it was just like the grid is there for a reason. It's right there. Just figure it out. Like when you look at Tyler Norris's paper, like, you know, from Duke University, it says that if you basically solve for 50 hours a year, right, Then you could get way more out of the grid that we've already paid for. So like, the fact that we have options now is awesome. I'm glad that we have now defined what it costs to put this off grid. But would I want the hyperscalers to do that or would I like them to interconnect to a place where they then add 12 hours of battery storage co, locate the data center and now their infrastructure and investment is helping poor people on the grid as well. Not just like off to the side like doing nothing. Right. Like I would like for them to add to the grid that we already paid for and figure out how to provide more tools to grid operators to help provide better resiliency and reliability for everyone who's on the grid.
- [41:57]
Stephen Lacy
You don't think that off grid co located facilities are going to be a significant answer? I mean, there's so much pressure to build these facilities so quickly. I would think that there's enough pressure to make some of this a reality.
- [42:11]
Jigar Shah
I mean, it could be off grid for a little while and then three years later you connect it to the grid and then provide service to the grid. I just think that this notion that, that it's every man for himself and that like we're not part of a collective anymore, that like actually helps share all of these services across all of us. Like, that seems like quite a big departure, like on a one off basis, maybe as a systemic solution to data centers. No, I don't think so.
- [42:39]
Katherine Hamilton
So Duncan is talking about, first of all, he says this is just one option and they wanted to prove that this option would be cost effective. And they also want people to play with their model. So it's open source, you can go in and fool with it and adjust numbers and just see what you come out with. So, you know, this is just to put it on the table as one of the options because there's a 1.2-terawatt data center capacity issue that's like, that's the addressable market and it's, there's probably room for everybody, but this is one piece of it. He also said that if you get an anchor tenant to build one of these systems, you may very well create a power hub, essentially. These projects have to be so large, that's almost like building a utility. And so of course that also brings us to the policy issue of are you a utility and are you getting into the utility franchise issue? But that then you have sort of a hub and they've done this. They had an El Paso symposium where the mayor, mayors came in and everybody talked about like, what are we doing here with this? Is this going to attract other businesses? Because if you have a big data center out in the middle of nowhere on a microgrid, well, you need a gas station or a EV charging station, you need 7, 11, you need all of the services. And you may often attract other businesses, you know, other community issues. And so part of it is, do you want it as part of a community? Do you want it as its own ecosystem? But I think that this report just gives you some of the background numbers to be able to actually think about that and think about what you want to do with it.
- [44:12]
Stephen Lacy
So jigger, you don't think that this is a viable option? It sounds like maybe as a bridge to an eventual grid connection, but does this put solar on the table in a way that it wasn't before?
- [44:27]
Jigar Shah
So my goal over the last four years has been to educate the solar industry, right? It's not like we're already dominant, right? Where 70% of everything that got added to the grid last year was solar. So we're already dominant. So part of what I've been trying to do the last four years is teach the solar industry on what clean firm power is and what does it mean to be clean firm and why is it valuable to be clean firm. Right. And it basically means that if you're dumping power onto the grid at the time at which no one needs it, Right. Then prices go negative on the wholesale market prices. If you're able to time shift it for four to six hours, well, then it could be worth more. Right. Duncan has taken it to its logical conclusion and said, if you were to do this whole thing off grid, what would it cost? And he's like, well, 44% solar plus battery storage is fully optimized. If we didn't want to be fully optimized and we wanted to spill some solar, then you can be at $109amegawatt hour. Right. Which is great. And so now we actually have a bounded cost structure and we can say if nuclear power costs this and natural gas combined cycle plants cost this, this, and solar plus 8 to 12 hours of battery storage costs this. Well, now you actually have an understanding of what it means to turn solar power into clean firm power. Right. And that's where we need to go if we're going to decarbonize our grid. Solar's got to provide all of these services. So that's why I love this paper. I love the arguments. I love the fact that people are arguing with each other about different variables and getting into the weeds on this stuff.
- [46:03]
Katherine Hamilton
Stuff.
- [46:03]
Jigar Shah
But do I think that we're going to have a bunch of off grid data centers? No, but I think that the intellectual part of this is super fascinating and I hope that all of the solar people are educated and not saying anymore, oh, solar plus battery storage is $42amegawatt hour. No, it's not. That's like solar plus two hours of battery storage, which is basically useless. Right. Like, if you actually want clean firm power, you need 12 hours of battery storage. Right. And then there's lots of other conversations we can have once people understand the basics of what Duncan is putting down.
- [46:40]
Katherine Hamilton
Yeah. He ran a scenario called the abundance scenario that basically says, how far can we get with this? Can we. And an off grid micro grid would be solar storage and gas and say that the hyperscaler's already putting in batteries for power quality issues or ups. You've already got that kind of built into the mix. How far can you get? Because. Because the gas is going to hold you up on price volatility on equipment, on like whether you can actually get gas there or not. So what if you got rid of that? What could you do and how far could you get? And you could probably get, you know, Chris Clack is saying, you know, 70, 80%, but you could maybe get into 95% and then jigger maybe put a few more batteries in or like over time install your geothermal, you know, then you've got it, then you've got a clean system if you build as much as you can. So it is an incredibly interesting thought exercise and also kind of forces the conversation of can we do this in a way that is really clean and not have to rely on natural gas, which is what? Or solely on natural gas, which is what a lot of folks are discussing right now.
- [47:54]
Stephen Lacy
Well, that is it for Open Circuit. Jigger Catherine, good to see you both. Open Circuit is produced by Latitude Media. Jigger Shah and Kathryn Hamilton are my regular co hosts and the show is edited by me. Sean Marquan is our technical director. He also wrote our theme song and Bailey's our senior podcast editor. Latitude Media is supported by Prelude Ventures. Prelude backs visionaries accelerating climate innovation that will reshape the global economy for the betterment of of people and planet. Learn more@preludeventures.com and of course you can find more in depth reporting on the topics we cover on this show. Sign up for Latitude Media's daily, weekly or AI Energy Nexus newsletter, latitudemedia.com you just go there and hit the subscribe button. And of course you can find this show anywhere you get your podcast. So send the word to your friends, your colleagues, your family members, your dog, your cat, anybody who wants to listen to conversations on the energy transition. So many of you have started listening to the show. We got an audience really, really quickly. But I know there's plenty of people out there who used to listen to us who still have not gotten word, so make sure you spread it along. You can find transcripts at Latitude Media as well and we will catch you all next week. Thanks so much for being.