Sunnova’s Rooftop Solar: Selling a Bad Product Requires ….

By Robert Bradley Jr. -- April 25, 2019

“There is no longer any question that solar energy is feasible and cost effective.” (Jimmy Carter, 1979)

“This is the technology that will allow us to provide solar electric power at competitive prices, both in the United States and in other areas of the world.” (John Urquhart, Enron Corp, 1995)

“Solar is going to rip apart the energy business as we know it.” (John Berger, Sunnova Energy Corp, 2019)

The impending competitiveness of solar-generated electricity is a siren song of a dilute, intermittent energy trying to compete with dense, storable energies. As it was a century ago, the reality today is that mineral energies producing electricity are far more economic than isolated power for homes and businesses in urban (and many rural) areas.

Background

From the time of Thomas Edison to the present, economies of scale in electrical generation, transmission, and usage has resulted in central station service. “Jumbo” generators displaced isolated plants more than a century ago, and transmission linkage was found to be more effective for reliability than building redundant generators per area.

Battery storage to decouple instantaneous production/consumption has always been prohibitively expensive, requiring tightly coordinated infrastructure anchored by cycling fossil-fuel power plants. Complicated experimental storage pilots funded by special ratepayer and/or taxpayer programs try to match the integrated infrastructure approach.

Interestingly, scale economies apply to consumption, not only the generation of electricity. A key metric of power economics is the load factor. The more level it is (compared to the peak), the better the utilization of fixed costs. More users, even if from the same customer class, it was found, improved the average load factor to benefit all users.

The upshot? Distributed electricity (think dilute, intermittent rooftop solar) is very uneconomic compared to grid electricity. The solar proposition on-grid, consequently, is a pure crony play with government subsidies and forced service from the local utility.

An Enron Colleague Goes Solar

For some years I have watched a former Enron colleague sell a bad product, solar panels for the roof. Off the electric grid, there is certainly a market niche for solar panels. On the grid, it is a guaranteed loser requiring a raft of special government and utility subsidies–and then a lot of risk bearing/shifting compared to conventional electricity.

Sunnova CEO John Berger is very well educated and charismatic. He was involved with Enron’s renewable business and has gone on to found and manage several solar-related businesses: Contango Capital Partners (2003–2007), Standard Renewable Energy (2007–2010), and SunCap Financial (2010–2012) before starting Sunnova in that year.

John invited me for coffee many years ago only to hear my complaints about his (government-dependent) product. He just smiled, wanting me to somehow be supportive. Some people are born to be crony capitalists, I thought ….

Sunnova’s Pitch

The short description of Sunnova:

With nearly 60,000 customers across the U.S and its territories, including Guam, Puerto Rico and the Northern Mariana Islands, Sunnova uniquely provides a 25-year service commitment with every homeowner’s customized solar + storage system. Sunnova’s goal is to provide the choice of affordable, worry-free solar energy and battery storage technology that generates long-term value for customers and facilitates continued business growth for its network of trusted partners.

“On average,” the headline at Sunnova’s website states, “Sunnova customers save 20% on their energy bills with solar.*” The fine print is as follows:

* Individual savings will vary based on your utility rate, your energy consumption habits, the solar system equipment installed on your property, your tax incentives eligibility, weather and other factors.

In some states Sunnova’s products are not designed to offer savings. Customers located in states or territories other than CA, CT, MA, RI, NY and NJ are likely to perceive savings substantially lower than 20%, if any.

Individual savings estimates are based on your solar energy production, your solar kWh rate, potential tax incentives, your utility kWh rate at the time of purchase, and projected increases in the utility rate (based on historical data and national averages).

Estimates do not take into consideration other changes in utility rates. Such changes could affect your overall estimated savings. Sunnova does not guarantee savings.

Refer to the Limited Warranty in your agreement for complete warranty terms and limitations. Your solar system production will vary based on weather and other factors. Solar system’s cumulative production will be evaluated to validate annual production guarantee. Refer to your agreement for details. Restrictions and limitations apply.

The service agreement can be transferred to the new homeowner. Sunnova’s approval required. Some restrictions apply.

Twenty-five years? What buyer can possibly know what is going to happen five or ten years out, much less 25? Will the house be sold or even still standing?

Seems like the fine print would want to have something else like

Near-term performance will be more predictable than medium- and long-term service. Your present contractor relationships will probably change, and Sunnova as you know us today may not exist. The buyer takes these risks.

Here is the deal. The homeowner rents their roof for 25 years to Sunnova, which utilizes the 30 percent federal tax credit. That’s just one subsidy. The second is requiring utilities to continue to provide service to that customer so that service can be firm (meaning that fossil-fueled and other generation is part of the mix).

Without reliability-backup by the utility, Sunnova would be required to provide storage, ruining the economics of the deal even with the federal subsidy. (Off-grid is another story where, solar-plus-storage is the electrical option.)

A third subsidy: some states require utilities to buy back excess generation from the home. That’s where Sunnova gets to promise savings compared to regular utility service.

With a high subsidy sum at the expense of other taxpayers and ratepayers, some customers will save 20 percent. But for 25 years? Imagine all the things that could or will go wrong. Will that solar installer still be around to replace weathered panels experiencing lower efficiency? Will Sunnova still be around? A bankruptcy, common in the solar industry, could leave a homeowner in the lurch.

The fatal flaw in the Sunnova model is that this company is not a full-service company (integrated) and insured for the long term. If solar were a viable model, Sunnova would manufacture the panels, install the panels, and maintain the panels. Instead, it subcontracts everything out to “channel partners” that may or may not be there next month. This portends problems that put Sunnova, and thus the whole contract per roof, at risk.

Houston Chronicle Expose

A lot of customers, even in the start-up period, wish they had “energy independence” from Sunnova. So writes business writer L.M. Sixel in a feature in the Sunday Houston Chronicle. Some excerpts (with subtitles added) follow:

Sunnova Energy Corp., led by a charismatic chief executive, has become one of the nation’s most ardent public advocates for solar power, leasing rooftop systems to thousands of homeowners with the promise of providing them with low-cost electricity.

But Sunnova, in business for less than a decade, is losing some of its glow as customers from New Jersey to California say the company installed defective panels, ignored requests to fix them and delivered the power at higher costs than promised.

Regulators in Puerto Rico found the company enrolled customers in expensive power plans by attaching signatures to contracts they hadn’t signed. And the Better Business Bureau, which once gave Sunnova its top score, is in the process of revoking the company’s accreditation because of the problems in Puerto Rico.

Case Study

Joanna Mares is still kicking herself that she and her husband listened to the Sunnova salesman who knocked on their door five years ago in Menifee, Calif., a town about 75 miles from San Diego. No money down, no maintenance worries and they’d be getting checks from the utility company by selling the excess power. What’s not to like?

But the system had problems from the beginning after circuits were water damaged, requiring panels to be replaced. The transformer was off for more than a year, meaning the solar system wasn’t sending power back to the grid. And the cost? The Mares, both retired, were paying about $1,500 a year for power, but now they’re are paying nearly $3,200 a year, Joanna Mares said. And they’ve yet to get a check from the local utility company….

The residential solar industry, benefiting from state mandates for renewable energy, has been on a tear, selling homeowners on the benefits of going green while lowering power cost. The industry has capitalized on billions of dollars raised by Wall Street to sell and install solar systems and then earned billions of dollars from federal tax credits by retaining ownership of the systems.

High Growth, Trust Me

Between 2012 and 2015, the residential market grew 60 to 70 percent a year, according to Austin Perea, senior analyst with research firm Wood Mackenzie. The industry installed 1 million systems by mid-2016 and is on track to reach 2 million soon, he said.

But there is little regulatory oversight of an industry that relies on door-to-door sales that promise big electricity savings, but then puts customers in iron-clad contracts that leave little recourse when savings don’t materialize or panels leak, consumer advocates say. Buyers, they said, are often attracted by the promise of reducing their carbon footprint and don’t scrutinize the solar deals as much as they do other purchases.

“It’s a new industry with a sort of a halo around it,” said Daniel Stevens, executive director of Campaign for Accountability, a watch dog group in Washington.

Sunnova’s Side

Sunnova said in a statement that it is committed to transparency and responsible business practices everywhere it operates. Mares has not contacted the company recently, Sunnova added, and it has no reason to believe she is unhappy.

Sunnova’s founder and top executive John Berger, a Harvard MBA with dark hair and a chiseled face, touts the environmental friendliness, low cost and disruptive influences of solar power at energy conferences and university symposiums. Residential solar can put a mini-utility on everyone’s rooftop, he says, changing the role of utilities and regulators as homeowners take charge of their own power.

“Solar is going to rip apart the energy business as we know it,” said Berger at the recent industry conference CERAWeek by IHS Markit.

Berger worked early in his career at Enron, founded residential solar company SunCap Financial in 2010 and later sold it to NRG Energy. He launched Sunnova in 2012.

By then, the industry had hit upon a way to get more homeowners into solar power. Instead of having to spend $20,000 or more to buy and install their own panels, homeowners could lease a system with no money down and no maintenance worries over the typical 25-year life of a rooftop solar system. Homeowners would make monthly payments to solar companies, which, in turn, would retain ownership of the solar systems and claim federal tax credits of 30 percent….

Nonintegrated, Stand-alone Company

Sunnova, which has 65,000 customers in 22 states plus Guam, Puerto Rico and the Northern Mariana Islands, has raised $2.5 billion from investors since 2012, according to Sunnova.Customers save an average of 20 percent on their energy bills, according to Sunnova’s web site.

Sunnova and other residential solar companies are mostly financiers, raising money from investors, but leaving most of the details of selling, installing and maintaining solar systems to a network of contractors known as channel partners.

But when panels leak or unexpected charges show up on bills, customers said they find themselves caught between the solar companies, which refer them to the contractors, and the contractors advising them to call the solar company.

Puerto Rico Problems

In Puerto Rico, where Sunnova has installed some 10,000 solar systems since 2013, more than 400 customers have filed complaints with the Puerto Rico Energy Bureau, which regulates electricity for the island, according to the Center for Investigative Journalism, a nonprofit news organization that first reported Sunnova’s problems in Puerto Rico. Some customers said they never got the savings they were promised. Others said the equipment didn’t work. Still, others said signatures authorizing credit checks were put on contracts without permission.

In a report, regulators determined that Sunnova, which dominates the residential solar industry on the island, violated the rights of consumers by forcing them into expensive arbitration to resolve the disputes instead of allowing homeowners their legal rights to seek remedies through the Puerto Rico Energy Bureau.

Sunnova has challenged the Puerto Rico Energy Bureau’s conclusions, pointing to the policies and training materials it supplies for local partners responsible for sales. The company also provided transcripts of calls confirming customer purchases and supplied the software that reflected time stamps when customers received, opened and signed their solar contracts. Sunnova said it has been at all times ready to address and resolve claims by its customers.

Using arbitration contracts is fully within the company’s legal rights, according to Sunnova.

Sunnova also had problems with its contractors in Puerto Rico. One of them, Maximo Solar Industries, sued Sunnova, accusing Sunnova of withholding payments for installation services and forcing several installers in Puerto Rico out of business, according to court documents. Maximo is asking for millions of dollars for reimbursement of unpaid bills and damages.

Maximo said in a statement that it tried everything to get repaid, including making a visit to Sunnova headquarters in Houston. Sunnova said it would not comment.

Another Case Study

Joe Forkner, 58, said he called and emailed Sunnova about a dozen times without much success after a storm in February caused extensive water inside his home near San Diego from leaks caused by the solar panels. The previous owner tried to get Sunnova to fix the installation problems and now Forkner, who assumed the Sunnova lease when he bought his $400,000 house, is trying, too.

Sunnova offered to reinstall the panels for $9,000, an offer Forkner rejected because the initial installation problems, which he believes caused the damage, were never fixed. Another time, Sunnova said they’d pay if the company’s damage team determined the company was responsible.

But Forkner can no longer use his kitchen because of the water damage. Tarps cover holes in the roof. He wants the lease dissolved and he wants the panels off the roof. “I’m not going through this again,” he said.

Sunnova said that it has tried, with its local dealer, to address Forkner’s problems, but Forkner has not cooperated.

Lost BBB Accreditation

The Better Business Bureau has logged 153 complaints about Sunnova, mostly about installation problems, the use of contractors and buyers not getting the savings they were promised. Most come from California along with Maryland, Hawaii, New York and New Jersey. Only a few are from Texas, which has been slow to adopt residential solar.

Until recently, the bureau gave Sunnova its top rating because the number of complaints isn’t unusually high considering the company’s 65,000 customers. And Sunnova typically responds quickly to consumer complaints.

But the membership committee of the Better Business Bureau, a group of 10 business leaders in the Houston community, voted unanimously on Thursday to revoke Sunnova’s accreditation, a designation that a company adheres to the bureau’s standards of business ethics, said Denisha Maxey, senior director of dispute resolution. The committee cited the recent finding by regulators in Puerto Rico. Later this month the bureau’s board is expected to make a final decision on Sunnova’s accreditation.

“We hate to hear when a customer is not satisfied with their Sunnova experience,” Sunnova said in a statement. “Our goal is to go above and beyond the call of duty for our customers.”

Another Case Study

Al Morgan, 64, said he was paying about $200 a month for electricity at his home in Vincentown, N.J., an unincorporated community about 30 miles from Philadelphia, and liked the idea of going solar to save money. But now he’s paying at least $300 a month since Sunnova sold him on a solar system a year ago. And wet spots are popping up on his ceiling where solar panels have leaked.

Morgan said he asked Sunnova for a copy of his power purchase agreement and was stunned to see someone else signed his name and the name of his daughter, who also is on the contract. Sunnova said that its representatives called and confirmed with Morgan that he had reviewed and understood the terms of the contract.

Morgan has filed a complaint with the Better Business Bureau. He said he feels like he’s handed over this roof to Sunnova so the company can sell the excess power to the utility and collect a federal tax credit. “Even when the panels are making money I am losing money,” he said. “It all goes to Sunnova.”

REFERENCES

Jimmy Carter: Quoted in Robert L. Bradley Jr., Enron Ascending: The Forgotten Years (Scrivener Press and John Wiley & Sons, 2018), p. 532.

John Urquhart: Quoted in Robert L. Bradley Jr., Enron Ascending: The Forgotten Years (Scrivener Press and John Wiley & Sons, 2018), p. 534.

John Berger: Quoted in L. M. Sixel, “Solar Company Sunnova Losing Some of Its Glow Amid Complaints.” Houston Chronicle, April 14, 2019.