In this #Solar100 Interview, Richard Matsui, Founder and CEO of kWh Analytics, speaks with Anne Hoskins, Chief Policy Officer of Sunrun.
Anne Hoskins is best known for her work as an energy policy buff.
What people might not know is that she is an applied economist and lawyer by training (and holds degrees from Cornell, Princeton, and Harvard). Within her analytical economist track, Hoskins describes a rigorous quantitative course load that became foundational to her policy career.
Like Smith, Hoskins’ ideas shape policies. She thrives at the intersection of economics, policy, and energy, and now applies her analytical background to her work at Sunrun as their Chief Policy Officer.
In this interview, Hoskins talks about the frontier of home solar and batteries, whether utilities are “natural monopolies” for behind-the-meter storage, and the quantitative side of policy.
ARE POLICY EXPERTS “SAFE FROM SCIENCE”?
Richard Matsui: How did your interest in economics start, and how did that result in a career in energy policy?
Anne Hoskins: I studied applied economics as an undergrad at the College of Agriculture and Life Sciences at Cornell, which encompassed energy and other resource economics. I continued to focus on economics in graduate school at the Woodrow Wilson School at Princeton, including taking a course with professor Bobby Willig, who is renowned in antitrust and utility regulation circles. We studied economics related to monopolies and the regulation of them. Because of this, the economics I studied had practical applications in energy and utilities.
My formal introduction to energy began when I worked at the Energy Committee at the New York State Assembly. I supported the Chairman as he tackled the controversy around the closing of Shoreham nuclear power plant, as well as proposed incentives to support energy efficiency. It was a challenging area to apply analytical thinking and it’s pretty incredible that many of the same issues are being debated in state legislatures today.
Richard Matsui: I went to Georgetown’s School of Foreign Service (SFS), and it had the nickname “Safe from Science.” There is an assumption that people in the policy world tend not have a quantitative background. Is that true from your experience? And how does your quantitative experience change the way that you view some of these policy issues?
Anne Hoskins: People definitely look at us that way, but it’s so far from the truth! At the Woodrow Wilson School, there is an analytical economic track in which we took very serious quantitative economic courses. Many of my grad school colleagues pursued highly analytical positions, such as at the Office of Management and Budget, Congressional Budget Office, or economic consulting firms. I took a different path and became involved in policy roles right away; I went to a governor’s office, then to a policy shop, and then onto Harvard Law School. My economic and analytical background was invaluable as my career later expanded into working in the utility industry and as a public utility commissioner. Today, my economics foundation is making me a stronger advocate for distributed solar and a more diversified electric grid. Having a handle on topics ranging from rate structures to the trade tariff case last year has given me insights to understand what is going to work for Sunrun’s consumers.
SOLAR + STORAGE, OR SOLAR vs STORAGE?
Richard Matsui: Sunrun is obviously leading the charge when it comes to residential energy storage. I once met a policy person from Tesla, who noted that after the SolarCity merger, they suddenly had to contend with two—often competing—policy priorities. What is good for solar is not necessarily good for storage, and vice versa. How do you balance that dynamic as Chief Policy Officer for a company that sells both?
Anne Hoskins: Well, first I challenge the premise. I don’t think they’re antithetical. We want to encourage customers to do both—to get solar and a battery, which they can use for backup and time-of-use management in a place like California. The technology allows customers to participate in the grid. We view the combination of solar and storage as maximizing the customer’s experience. Simply speaking, solar and storage go hand-in-hand.
Richard Matsui: The specific observation that the person was making had to do with net metering, unsurprisingly. Could you comment on how the rise in behind-the-meter storage changes the debate, or shifts the evolution of net metering?
Anne Hoskins: It’s pre-mature to shift away from net metering. It provides a simple construct for supporting customer adoption of solar, which is foundational for storage. In California where solar penetration has reached higher levels than in most states, NEM has been adapted to incorporate time-of-use rates, which encourages customers to shift their consumption and adopt batteries. Net metering rules can be adapted to support storage where appropriate by incorporating time-of-use rates. Society benefits through cleaner, reliable energy, along with job creation when a customer makes an investment in solar. The best way to encourage that is to have a simple system, one in which customers are going to understand what they’re paying for and what they’re receiving for the power they share with their neighbors.
Richard Matsui: When Sunrun installs and owns the battery, who’s the primary customer? Is it the homeowner or the utility? I read about how Sunrun is going to be delivering grid services, but my presumption is that it’s still the homeowner who needs to sign on the dotted line of the Sunrun lease contract. So the homeowners still needs to see some kind of value proposition from storage.
Anne Hoskins: Yes, the primary customer is the homeowner. Depending on where the homeowner lives, the reason that (s)he wants a battery is going to vary. If you’re in California with time-of-use rates, then we would expect one of the top benefits would be time-of-use management. In New Jersey, where they don’t have time-of-use rates, folks are interested in having backup for storms. In that situation, they may have five terrible storms and outages, but there are many other times when that battery is not fully utilized. In that case, if we have a thousand customers in a region, we can aggregate energy and capacity from those batteries and provide grid services for both the distribution system and wholesale markets. We see a future that involves pooling resources from batteries, providing a benefit to the host customer, sharing that benefit with the grid, and providing an overall societal benefit.
At the end of the day, the utility and the homeowner both benefit from distributed solar plus battery systems. The benefits of “value stacking” are not mutually exclusive for homeowners or their local utility.
Richard Matsui: Your example was helpful to understanding this vision. Returning to that scenario where a storm passes through New Jersey and causes a grid outage for a Sunrun customer who has solar plus storage. The homeowner naturally wants to rely on the battery to provide backup power. This presumably could coincide with the societal need for that battery to instead feed that power back into the grid. Does that pose any conflict?
Anne Hoskins: No, it won’t. There will always be a certain amount of power that’s saved in the battery to meet customer needs. When you have thousands of customers, one customer may need the backup, but the one three blocks away may not, because outages are often localized. For the most part, as you get more of these systems, optionality increases. We’re optimistic that this combination of distributed and centralized systems is going to be the best solution, especially compared to relying on one centralized battery, where when that battery or connected transmission line goes down you lose the whole system.
UTILITIES: A “NATURAL MONOPOLY” FOR BEHIND-THE-METER STORAGE?
Richard Matsui: There’s been a marked increase in awareness of how valuable behind-the-meter distributed storage can be from a societal standpoint. A while back, someone from a utility told me, “If energy storage behind-the-meter really does pick up, we are the natural owners because we know where the congestion is and we’re the trusted providers.” Are utilities the natural owners of behind-the-meter storage?
Anne Hoskins: We don’t think that’s the case. Utilities have a lot of expertise in managing the grid, but they have no reason to go into a customer’s home on the other side of the meter. If you look at storage, all it really takes is for the utility to send a signal when they need access to the resource, which they can do. For example, PJM sends signals to energy generators without PJM owning or controlling the generation. Sunrun’s responsibility would be to manage its customers’ storage units and a system that responds to utility or RTO/ISO signals. This is not all that complicated.
The other point here is that utilities are monopolies—but there is no natural monopoly for behind the meter solar and storage. Competitive companies are ready and willing to provide these services. Utilities are given exclusive franchises to own and operate the distribution grid, which gives them greater market power and requires regulators to safeguard consumer welfare. When there is no natural monopoly, as is demonstrably true with storage and distributed solar, there is no justification for enabling increased market power. The best way to maximize consumer welfare is to facilitate—and certainly not undermine—competitive markets. We know that there’s a competitive market for distributed solar and storage, with new companies emerging to offer these services to customers.
Utilities will say, “Well, both can do it—we can own some and you can own some.” We will look at all options, and we know that some commissions may want to explore this. The challenge is that utilities are able to spread the risk of their investments across ratepayers and also are advantaged by access to customer data and all customers. They bear much less risk if technology, costs, or consumer demand changes. How can competitive providers compete with that? One option is for utilities to offer behind the meter services through competitive affiliates. If utility or their affiliates are allowed to offer service in a competitive market there would need to be stronger regulatory oversight of interconnection and data sharing.
Competition drives cost reduction and innovation. That’s what’s going to get us to the next technical innovation. At Sunrun, we have a strong incentive to ask and solve these questions and improve our quality and service in order to compete. I spent seven years at a utility and three as a regulator. Cost of service regulation just doesn’t give utilities the same incentives to reduce cost and try new approaches to problems. In contrast, companies that bear financial risk have incredible motivation to continually improve the product and service in order to stay in business and grow.
Richard Matsui: This discussion reminds me of 2009, when Southern California Edison announced a behind-the-meter solar program for 500 MW. At the time, this was a massive program for solar, and especially C&I rooftop solar. SCE carved out a program that was half rate-based and the other half was not. The hotly debated question was, “Why should half of this be rate-based? Is there really a market failure where the private sector is unable to fulfill that role?” One could argue that utility ownership was necessary because solar technology and capital formation was less mature, at that point in time. Fast-forward 10 years, it’s evident that the argument has been decisively settled in favor of letting market force dictate where, when, and at what cost behind-the-meter solar systems get built. It strikes me that this conversation will likely be re-litigated in energy storage.
Anne Hoskins: I’m happy to see the utilities are embracing a role for distributed resources, but I’d like to see them embrace it more across the board. We spend too much time fighting over rate design, demand charges, and initiatives that appear to be intended to reduce the ability for customers to invest in solar.
My concern as a former regulator is that utilities are viewing storage as another way to rate-base capital expenditures. Utilities see that demand is falling for electricity, which leaves them unsettled, because we have an antiquated system for how we allow utilities to recover their expenses and earn returns on their investments. Utilities are investor-owned, so when they see customer interest in storage, they think, “We can grow by extending our network to behind-the-meter.” But why would we put a monopoly in charge of something when it is not necessary? I think this points to the need for regulators to start looking at performance-based regulation. Your home state of Hawaii just passed legislation on this. We need to encourage utilities by giving them incentives to reduce their costs and be more responsive to consumers, as opposed to allowing them to grow through capital investment.
A few years ago, Georgia Power was given the authority to do rooftop solar, and they only signed up a handful of customers. It just isn’t in their wheelhouse. Having spent time at a utility, I know that their strength is in engineering and keeping the system running. Utilities have done that for over 100 years. But most continue to think of residents as captive “ratepayers”—not as customers who they need to find and win over with competitive service offerings.
Richard Matsui: That’s an important and powerful point. I’m glad that you are able to bring your experience as a former regulator to this conversation.
BRINGING STORAGE TO THE MAINSTREAM
Richard Matsui: I think it’s widely acknowledged that behind-the-meter energy storage is in its early days. What are the important steps for energy storage to become a mature service that mainstream investors can get comfortable with?
Anne Hoskins: Well, we know that home battery costs are expected to decline significantly over the next 5 years, by approximately 50%-60%. As costs decline, we’ll see greater market penetration.
We’ve been thrilled with how many customers have adopted batteries already. More than 20% of Sunrun’s solar customers in California are adding a home battery to their system, with up to 60% adoption in some markets. The energy storage industry benefits from manufacturing synergies with electric vehicles, and that’s helping us achieve scale and reduce battery costs.
Richard Matsui: That’s stunning.
Anne Hoskins: This is partly driven by offering the customer multiple benefits, such as time-of-use management as well as backup power. With the issues in California with fires last year, we see a lot of customers with reliability concerns. When you put all those things together, you can understand why there’s strong demand.
Additionally, when a few people in a neighborhood get solar panels, those early adopters have a domino effect on their neighbors. I think the same thing is going happen with batteries as people realize they can gain energy independence.
Richard Matsui: For us at kWh Analytics, our lens into the solar market is through its performance data. We aggregate data on ~20% of the US operating fleet, and we use this data to help investors and insurers of quantify the risk and get them comfortable with deploying more dollars into solar. But it’s much more complicated to quantify the long-term investment performance of storage, because of the policy risk. We look forward to continue working with Sunrun and others to build greater investor comfort with this new asset class, because it’s clear that there will be no shortage of interesting challenges to overcome.
Anne Hoskins: Storage will run into many of the same challenges as solar did and many of the answers have already been battle-tested. We’re also seeing forward-looking states recognize the value of storage. Hawaii, California, and New York all have adopted distributed storage policies and incentives, with New York recently issuing a storage roadmap that includes distributed solar and storage. As more policymakers start recognizing the need and opportunity to optimize the use of solar, either for reliability or clean energy purposes, they will create related incentives. It makes a lot of sense to target incentives to nascent technology at the point when customers are on the cusp of adopting the technology, and I think we’ve seen that there’s enough interest in storage to drive these incentives.
LESSONS FROM THIS YEAR’S BIG POLICY WIN
Richard Matsui: You recently had a big policy win in Florida. What’s the takeaway for this industry when it comes to opening markets that have been more resistant to rooftop solar?
Anne Hoskins: I think we achieved that incredible result in Florida because it simply made sense for consumers. We knew from their ballot initiative fight a year and a half earlier that consumers felt strongly about gaining access to solar, especially in Florida, a state that is known for its sun.
As we work with policymakers in places where there should be greater access to solar, we try to keep the focus on the consumer. People want solar, and we have many success stories where we have benefitted not only the direct customer, but also the state as a whole. For example, California is now able to forego natural gas plants and transmission projects because of distributed solar.
My approach is to help policymakers see that not only is there consumer demand for it, but it’s also an avenue for solving larger problems in a cost-effective way. In Florida, we demonstrated to the commission that equipment leasing was perfectly appropriate under their law. When they realized we were focused on serving the needs of Florida customers, they approved it.