Sonnen’s “Community”: Aggregating Domestic Battery Storage


Creating Virtual Power Plants (VPPs) from small-scale batteries

Unlike most of the case studies here on greycellsenergy.com, this article isn’t about one specific project. Instead it is written to collate and compare different market deployment examples and pricing/revenue-generating approaches taken by one specific company. The company profiled is Sonnen, a German company formed in 2007 in the small Bavarian village of Wildpoldsried, but since spreading its business approach worldwide. Sonnen focuses on distributed, behind-the-meter, residential-scale energy storage; and integrating this (battery) storage with generation (particularly solar PV).

Sonnen’s approach goes beyond just selling small-scale batteries, delving much more into the ongoing services (and revenues) that these batteries can create. In particular, Sonnen has been one of the pioneers in the aggregation and management of thousands of domestic-scale batteries. Through aggregation, multiple batteries can behave and look (to entities such as grid system operators and utilities) like much larger systems. They become “virtual power plants” (VPPs).

Important Note: there are various figures in this article, including customer numbers, prices and so on. Although these were correct at the time of writing, it’s important to note that they may have changed since and I do not regularly track them (Grey Cells Energy is not a market data business!). If the specific numbers are important to you, you may want to check if they’ve changed. If not, the central aim of the article still holds: to give insights into the kinds of strategies and market approaches that Sonnen have taken.

 

The “sonnenCommunity”: domestic power trading in Germany

At the heart of Sonnen’s offer, and the basis of their virtual power plant operation, is their “Sonnencommunity”. This is a large group of customers (about 10,000 currently) with battery storage, solar PV generation or, increasingly, both.

This community allows a resident in Frankfurt with solar panels on their roof to trade power with another solar-powered home in Hamburg, Berlin, or anywhere else in the country. They can sell when they have excess generation and buy from the community when they aren’t generating enough for their own needs.

This nationwide, cloud-based, virtual power plant (VPP) launched in 2015.

Energy transfers use the existing grid infrastructure. The regional utility companies that usually manage the sale and distribution of energy are cut out of the value chain and Sonnen works directly with the grid operator. Since Germany has one interconnected grid system and a suitably deregulated market, Sonnen can work with the grid operator to manage the community energy flows, and act like a nationwide utility.

A battery capacity can be sized anywhere from 2kWh up to 16kWh, in 2kWh steps, and power output can be 1.5 to 2.5kW. Multiple batteries can be clustered up to a maximum of 48kWh. The inverter, energy management and control software are all integrated into the installed product.

On top of paying for any domestic infrastructure installations (PV system or battery module), membership of the sonnenCommunity requires a monthly membership fee of ~€20. As well as removing the need to pay another electricity utility service, membership includes:

  • Discounts on battery purchasing
  • Electricity from 23 €cents/kWh, sourced from the sonnencommunity. This compares favourably with average German electricity prices from other utilities (which are closer to 30 €cents/kWh).
  • Software updates.
  • Weather forecast updates.
  • Energy usage optimisation to match these weather predictions.
  • Remote maintenance and monitoring.

As of October 2017, statistics for the sonnencommunity over a 12-month period were that it had seen 14,746,807 kWh of electricity fed into the community (from home generation) and 8,240,783 kWh consumed.

Worldwide, around one-third of Sonnen’s battery storage units are participating in a community program. By the end of 2017, Sonnen expect to have ~180,000 customers worldwide.

 

No, not a fridge, a battery (image source: sonnen-batterie.com)

 

No rooftop? No problem

In January 2017, Sonnen extended the opportunity for membership of their VPP community to home owners who had a battery but no PV. Previously, the community had only been open to households who generated their own power too (mainly using PV, but also some wind turbine and small biogas units).

Since a battery system can easily be installed in an apartment, but that apartment dwellers have no rooftop for PV, the aim was to open up access to many more customers; particularly those living in cities.

At launch, the offer to battery-only customers was as follows:

  • They would pay (from) around €4,000 for the battery.
  • They would receive 2,200 kWh of electricity, free of charge, every year for the next 10 years. (The average household consumption in Germany is around 3,500 kWh).
  • They would save approximately 300 kWh per year using a built-in smart energy manager.

Apartment owners can tap into the electricity pool when the whole community generates more electricity than it requires, both to meet their loads and charge the battery. These batteries can then be discharged in situations where consumption within the community exceeds generation.

 

Using ancillary service revenues to offer flat-rate electricity 

In summer 2017, Sonnen’s large pool of batteries became available to the power grid for stabilisation services (primary frequency regulation: keeping the grid frequency close to 50Hz). Compared to other alternatives such as pumped hydro storage, their distributed “virtual” storage resource can react very quickly (sub-second).

To encourage their customers to allow the batteries to be used for these services, Sonnen created “SonnenFlat”: a flat-rate electricity package. Apart from their monthly community membership, customers pay nothing more – i.e. no further per-kWh usage charges.

A small part of their storage is made available to the German power grid. This means, for example, that wind turbines need not be switched off on very windy days; when their electricity would otherwise overload the grid. This activity benefits both the renewable power sector, by making its variability less problematic, and reduces expensive grid expansion requirements. By being paid for these benefits via the frequency response market, Sonnen can then provide battery owners with “free” electricity.

Since the battery is only needed sporadically, for a few minutes a week, the availability, performance or life span of the battery is practically unaffected.

For existing battery owners, entry into this service requires the retrofitting of intelligent meters, a move which may have been necessary regardless: in Germany it has become a legally stipulated rule for PV systems with a nominal output of 7kWp.

By October 2017, Sonnen’s flat-rate service was available in four versions, depending on the annual electricity consumption of a household.

At its smallest size was a configuration for households using up to 4,250kWh of electricity per year, configured with a PV system of at least 5.5kWp (or an output above 4,400kWh per year), plus a 6kWh battery. The monthly fee was €20 (effectively the community membership fee). Beyond that monthly fee, there were no further electricity charges unless the annual electricity usage was exceeded. Even if it was, extra electricity was charged at the community electricity charge of 23 €cents/kWh (lower than the 30 €/kWh average electricity price in Germany).

The largest of Sonnen’s packages caters for annual usage of up to 8,000kWh, with a PV system of 9.5kWp (or >7,600kWh annual generation), combined with a 12kWh battery. The monthly fee is €30.

In terms of customer tie-in, the Sonnen community minimum contract term is 24 months with a notice period of 3 months. For entry into the flat-rate scheme, the contract term is unlimited and can be terminated monthly.

 

Bypassing traditional utilities: not just Germany

In March 2017, Sonnen announced its “sonnenFlat” proposition in Australia, with the marketing message: buy a battery to store solar and never pay for electricity again.

As in Germany, the basis for this bold claim was that the cost of providing distributed power can be offset by the income generated by ancillary services sold to the grid operator, by leveraging the aggregated storage capacity of customers’ batteries. Sonnen pays customers’ grid usage costs in return for access to the batteries, so that they can access power when needed, selling it to the grid operator.

As in Germany, the amount of storage installed determines the amount of free electricity the owner is entitled to, with different tiers defined. If a customer exceeds the amount of consumption included in their tier, they are charged only for electricity imported from the grid (not for energy generated from their PV system solar or used from the battery). Even then, the import rate is set “significantly lower than standard retail electricity rates” (at community rates).

 

source: sonnen.com.au (last accessed November 4th 2017)

 

According to data in July 2017, a 6kWh battery system installed and connected would cost from around A$11,500 for users already with their own solar PV, or from A$13,500 for systems including solar panels. Return on investment was claimed to be 5 to 6 years, so well before the battery warranty ends (in 10-years or 10,000 cycles).

As in Germany, but unlike in the US (see below), Sonnen has become an electricity retailer in Australia, going head to head with other suppliers. Like in Europe, Australia’s deregulated electricity markets allow this approach.

Two reasons given by Sonnen for an adversarial rather than collaborative approach to existing utilities were:

  1. It was just too time-consuming to reach agreements with utilities.
  2. The brand image of utilities was so poor that attempts to recruit customers into a VPP programme would make them more likely to go elsewhere: partnering would be counter-productive. Their own brand, although little known, had the advantage that it also came without a poor past reputation.

As a local partner, Sonnen signed up Natural Solar (the same firm that was installing rival Tesla Powerwall systems).

In Australia, frequency response markets were the primary ancillary service target. However it was also suggested that a critical mass of around 2,000 units could be enough to allow Sonnen to pursue revenues through intraday electricity market trading too (charging batteries at times of low price and discharging/selling at peak times).

 

More microgrid than VPP: bringing aggregation to US households

To enter the US market, Sonnen had to pursue a different business strategy.

In October 2017, it announced a new project in Prescott, Arizona, whereby 2,900 homes will be connected to act as a virtual power plant. The project is in partnership with Mandalay Homes, a leading “green” (energy efficient) builder.

This new-build “planned community” will include rooftop solar generation (PV), installed as solar tiles, combined with Li-ion battery storage. At the time of writing, the Jasper project will be the biggest residential power storage project in the USA.

As elsewhere, Sonnen’s software will operate the community as a virtual (clean) power plant, one with the ability to work independently of the grid. To achieve this, each home’s storage system will be able to communicate with the others. The difference in the US is that these homes are all in the same place, rather than geographically distributed.

Initially there will be a total of 23 MWh of energy storage system capacity and 11.6 MW of power input (and output) potential. However, each home will have the ability to upgrade from 8 to 16 kWh of energy and from 4 to 8 kW of power. Total PV generation capacity will be around 10MW.

Although Sonnen doesn’t need to partner with the local utility to offer (and gain revenue from) additional grid services or the sale of excess energy, it is in discussions to do so (with Arizona Public Service, APS). Its major sales pitch will be avoiding the need for the utility to invest in new generating infrastructure, along with other potential grid (ancillary) services.

Until then, the community can operate as a microgrid. Homeowners will be able to reduce their utility costs by using self-generated energy and by taking advantage of time-of-use rates to do some load shifting. Sonnen will offer its own, new time-of-use rate plan. This will have a huge price swing, from about 4 cents/kWh off-peak to about 30 cents/kWh at peak times.

Two load shifts are planned. Firstly, between 3am and 5am, extra energy from a nuclear power plant tends to be wasted in the region: energy which can be used to charge part of the batteries instead. These batteries can then be discharged during the early morning peak, when people wake up, offsetting power otherwise generated by a coal plant. (Of course, from an environmental perspective, the onsite solar generation means that the community will contribute to “cleaning” the grid’s energy mix, whatever the eventual business model).

A second load shift can happen between 8am and 1pm, when PV systems are generating but few people are home to use it. The batteries will charge, then discharge during the second set of peak hours later in the afternoon and early evening.

Note that this project isn’t aimed at “grid defection”: grid connectivity is crucial for charging and discharging the batteries (and achieving price arbitrage).

It also aims to be “grid-friendly”.

To avoid the grid stability issues seen in other distribution networks with high solar power penetration, the Jasper homes have been engineered to generate almost exactly as much energy as they need during peak hours, without straining the grid. On sunny days, rather than overload the grid, excess power is dumped into the batteries. The batteries interact with a smart home controller, not just to store solar power, but also to distribute it to each home’s lighting, and key loads, such as pool pumps.

Estimates are that the systems will allow residents to be 75-80% energy independent, with residual bills around $24 per month. This is in no small part due to Mandalay Homes’ energy efficient design: the houses will not need air conditioning due to this design, despite the climate there. The batteries can cost between $10,000 and $20,000, but this cost will be “hidden” as part of the home’s sale price and wrapped into the mortgage.

The new community is expected to break ground in Q4 2017, with the first residents moving in during Q2 and Q3 2018.

 

Challenges to VPPs in the US market

From a regulatory and structural perspective, the US is a very different market for aggregation than are Europe or Australia, for example.

In Germany, rather than having to build a project in a single geographical location, Sonnen has created a virtual power plant community by connecting households spread across the country. That approach is almost impossible in the US, for two main reasons.

One is that, unlike Germany, the US grid is made up of a complicated network of independent system operators at the state level, nestled within larger regional transmission organizations. That means that sending energy across state lines is counted as interstate commerce and overseen by the federal government. Another difference is that most US areas have single, monopoly, regulated utilities. These can’t be easily cut out of the equation, making the linking together of customers in different utility territories a major logistical and business headache.

Hence Sonnen’s approach in Arizona: build a geographically-constrained community first. Then, only once that’s done, approach the local utility to generate additional revenue streams – based on already having a large-scale (virtual) power plant to offer access to.

 

Integrating Electric Vehicle (EV) charging into the Sonnen Community

In February 2018, Sonnen announced a logical extension of their business – to enter the growing market for charging electric cars. Unsurprisingly called “sonnenCharger”, it’s a home charge point – type 2 connector and up to 22kW charging rate – that is connected to the Internet and hence to Sonnen’s community pool of electricity. The chargers aim to start rolling out in Germany from June 2018.

While charging your EV from your own solar electricity is nothing new, linking with the rest of the community extends the idea. If you need more electricity than your own system is producing, you can also buy in PV power being generated elsewhere in the community, from Sonnen’s “virtual power plant”. The charger is designed to integrate with your home battery storage too, so if your solar generation pattern (daytime) doesn’t coincide with your charging pattern (e.g. evenings), you can draw on solar power previously stored in your own battery. Or from solar power stored within the community battery pool.

Charging times and rates can be controlled, opening up the opportunity for a large enough aggregate of EV load to be managed in a way that has least impact on peak electricity demands or local grid distribution capacities. It remains to be seen whether, or how, such managed charging might be rewarded (monetised) in future – but it’s not hard to envisage that it could eventually create an additional revenue stream for the VPP in future. Even in the short-term, adding EVs to the Sonnen storage pool provides an extension of its storage capacity, allowing it to soak up more electricity at times when prices are low (i.e. when there’s excess wind or solar generation compared to levels of overall demand).

From the customer side, they will get the charger for free if they sign up as a new home battery purchaser and become a community member, on a sonnenFlat 8000 tariff. At time of writing, the latter costs €30 per month for 8,000 kWh of free electricity per year (see the earlier notes on their flat tariffing). That much, it is claimed, could power both a home and a driving distance of around 15,000 km.

 

Looking to future services & technologies

In May 2017 Sonnen partnered with German power grid operator TenneT to launch a pilot project, integrating batteries into the power system via a blockchain solution (developed by IBM).

The project’s aim is to ascertain how much these technologies can reduce the need for emergency measures (such as the expensive regulation of output from wind farms) when the grid experiences bottlenecks. In 2016 alone, measures to manage grid congestion cost Germany approximately €800 million, a large part of which was for wind farm regulation. These costs are eventually passed on to power consumers in the form of network charges.

The management of the connected residential storage batteries can be adjusted independently to reflect changes in TenneT’s grid status, absorbing and releasing excess power in seconds.

Blockchain technology could be a crucial enabler in documenting, verifying and securing transactions within a future power system composed of millions of small, decentralized power sources, including both prosumers and consumers. The IBM platform is designed to ensure the verifiability and transparency of transactions by the small-scale batteries, simplifying how suppliers of locally distributed flexible energy can provide services to support power grid operators in future. It is also being tested to ensure it can fulfil TenneT’s requirements for data security, restricted access and privacy.

As well as ancillary services such as the above, but dependent on the evolution of prices in their various markets, Sonnen have already indicated that spot market trading may also become a viable revenue stream for their VPPs. Indeed some analysts believe that innovative pricing models such as their flat-rate scheme are primarily a long-term play: focused on building a large enough customer base to make tapping into larger-scale wholesale market trading volumes possible and profitable.

 

Technology note: home batteries are not car batteries

Although Sonnen’s are Li-ion batteries, they are built specifically for homes and utility storage and not designed for cars. For a car, the battery needs to be dense and light. However, many li-ion batteries built for cars are regarded as fire hazards in homes. For the latter, density and weight are a less sensitive constraint. Specifically, Sonnen use lithium-iron phosphate (LiFePO4) batteries from Sony. They are designed to last 10,000 cycles or 10 years and are claimed to be “the only battery that does not contain any toxic heavy metals”.

[Chemistries used in electric vehicles vary, including those such as lithium-nickel-cobalt-aluminium (in the Tesla Model S) or lithium-manganese-oxide (in the Nissan Leaf). Remember: there is no single “lithium-ion” battery design; instead the term covers a range of different chemical arrangements].

 

Last updated: February 2018

 

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