COP26 not only shone a light on international governments’ plans to accelerate decarbonisation, but also prompted many people to look at how they could improve their own carbon footprint. Residential solar has been at the forefront of efforts to make our homes more energy efficient. Growth has increased steadily in recent years, but overall penetration remains very low and forecasts project significant growth throughout this decade.
As portfolio managers in the environmental sector, our role is not only to identify the newest environment solutions in the marketplace, but also seek out those companies that are truly making an impact. Regular interaction with business leaders helps us keep up to date with the latest trends, innovation and growth opportunities in the environmental space.
Our Uncapped Impact Series aims to share the insights we gain from these conversations. In this first interview of the Series, we discuss the ongoing growth potential of solar energy with John Berger, CEO and founder of Sunnova Energy International, one of the biggest US residential solar companies, and consider why the energy sector is ripe for disruption irrespective of the decarbonisation agenda.
Change is inevitable
Domestic power systems globally are pretty archaic. John believes the energy sector is one of the last major industries to really join the digital age from the industrial age. Partly this is because there were no real drivers compelling such a transformation. However, now there are several – the growing demand for cleaner energy, an acceleration in the transition to electric vehicles by domestic drivers and climate events disrupting the reliability of traditional, centralised systems.
Aside from the desire for a greener form of energy, John feels the notion of reliability will be a major factor in prompting domestic consumers to switch to solar energy. The big freeze that disrupted the power supply in Texas earlier this year was a real eye opener for many. People generally assume that power will always be available, but this episode proved this is not always the case. John says, “we came very close to a system wide blackout. It didn’t happen, but people saw the fragility of the system and started looking around for alternatives.”
A watershed moment for the real-life benefits of solar came during the aftermath of a climate disaster in Puerto Rico. Sunnova Energy International had already observed that the reliability of Puerto Rico’s oil-fired electricity generation was poor and had taken steps to develop a strong market for residential solar here. Therefore when Hurricane Maria devastated the island in 2017, it was able to react quickly. John says, “we sent in supplies, materials, new panels and inverters… and then we bought all the batteries we could from the worldwide supply and sent them all to Puerto Rico.” Helping residents recover quickly from the disaster, and have ongoing access to their own electricity supply and storage had a huge impact. John states, ‘this technological change means that people can have better lives.”
Living life uninterrupted
Yet, it isn’t just climate impacts that will drive change. Many of us are now living our lives differently. Since the pandemic, more of us work from home on a more regular basis and we are also embracing more digitally enabled domestic appliances – the Internet of Things – meaning our reliance on connectivity and having a stable, consistent electricity supply has never been greater.
As solar gains its power from the sun, it’s a decentralised fuel system. As long as there’s even just a little sunlight, you can generate electricity. Homes are still connected to the central grid, which can fill any energy gaps for when there is not enough light for solar to produce power. Batteries can also be used to store excess energy to help householders gain greater benefit from the energy their solar panels produce.
As the price of solar systems comes down and their efficiency continues to improve, John envisions a future where the power system of all countries looks more like the internet, with a combination of centralised and decentralised energy systems. He says, “we call that living life uninterrupted or powering energy independence.” He believes this will be necessary as the growing demand for electricity is going to put a lot of pressure on the system. He asks, “How will we handle the charging of electric vehicles? The utilities say we’ve got to upgrade the system, but in many cases that’s not possible or practical economically. Solar is a way of doing this quickly and this is going to make the system more robust and resilient.”
Virtual power plants
Decentralising an individual property from the central grid is one step of this process, but John also sees this happening on a much wider scale in the form of microgrids or virtual power plants. This would involve linking whole communities together through decentralised energy sources, powered by solar, which would connect individual houses as well as utilise the local commercial roof space to form networks.
He believes incorporating existing structures as part of a boarder solar grid is an intelligent use of land space from an environmental standpoint, as well as economically. He says, “from the very beginning I found that using a rooftop, whether that was on a big industrial building or residential, was utilising something that was not being utilised before.” Additionally, there shouldn’t be any fresh environmental impacts from using rooftops as any environmental damage has already been done when building the structure in the first place.
Virtual power plants would provide communities with greater energy resilience in an environmentally friendly way and give more optionality and flexibility to power delivery systems. While he expects such initiatives to be trialled in the US initially, if proven successful, they could be rolled out worldwide. John says, “this is a really exciting idea, linking together decentralised and centralised energy sources into combined networks and will provide the sort of resilience needed to power the future.”
Innovation in partnership with asset management
Notwithstanding the potential investment opportunities, John acknowledged that the expansion of solar capabilities won’t happen without the support of the asset management community. He praises investors for making “a conscious decision to invest in the new companies that are bringing innovations to the marketplace, as without capital we couldn’t do anything.”
Like us, he believes that regular dialogue between asset managers and business is enormously helpful. He says, “I can pick up a lot from these conversations and they are very helpful in gathering the different viewpoints from the marketplace, as well as giving me a stress test on some of the strategies that we’re thinking about doing.”
However, he cautions against fund managers only picking the de facto success stories as there needs to be multiple companies fighting to find the right ideas and delivering positive change. He says, “competition’s a good thing. It’s a great thing. We want it. That’s why we want to have more choices in power, not just to have a monopoly there.”
We couldn’t agree more. The fight against climate change will result in enormous change in the coming decades. And with such change comes exciting investment opportunities. Having a regular interaction with business leaders will not only help us stay on top of this rapidly transforming marketplace, but also informs how we, as asset managers, can best support the transition to a more sustainable world.
Companies mentioned herein, are for illustrative purpose only, are not intended as solicitation of the purchase of such securities, and does not constitute any investment advice or recommendation.