The German company wants to extend its European program where retailers are bypassed and customers relinquish control of their energy storage units in return for discounted, flat-rate power.

Why do we need energy prices? It’s a question posed by Christoph Ostermann, the founder and CEO of battery-maker Sonnen. If it sounds like he’s playing a mean trick on us, he isn’t. Ostermann says he has found a way for his customers to bypass energy bills. Free at last! But how?

In its native Germany, Sonnen technology is installed in 20,000 homes and various other locations, enough to grant the brand the opportunity to link its customers into a vast virtual power plant.

Sonnen’s idea is simple. In return for providing grid services, the company earns between €400 and €500 per customer per year. It uses this money to pay its customers’ electricity bills and in return charges them a flat fee it says is 25% below the market price.

“Today we live in a decentralised energy world … and lots of people generate their own electric power,” Ostermann says. “We decided to get rid of electricity prices. We take the established utility out of business and provide grid power to our customers for free.”

The same thing can happen here, he says, once the list of Sonnen customers in Australia expands from about 600 at current levels to about 2,000 installations.

An obvious choice

Australia is an obvious choice on the world map, he says, with a penetration of residential solar PV, terrific levels of irradiance and very high wholesale prices and pricing volatility. And it helps that retail rates rose by about 20% on July 1.

The offer to owners of Sonnen storage systems, a peer-to-peer energy trading market called sonnenFlat, includes packages pitched at three levels of solar PV and battery capacity for flat monthly fees.

The packages vary from 7,500kWh a year for $360 ($30 a month) sold to households with 5kW of solar and 8kWh of storage, to 12,500kWh a year for $600 ($50 a month) sold to owners of systems with 10kW of solar and 12kWh of storage.

Based on average usage around the country, the offer represents about a 90% discount on mainstream tariffs.

The Munich-based company launched the offer in Germany and Italy, its biggest markets, last year. The arrangement allows the company the right to use power from the batteries as needed, which would allow it to sell the energy on the wholesale market when the price of power is skyrocketing during periods of peak demand.

Upfront investment

Nothing’s really free, of course, and a $3,000-a-year energy saving doesn’t include upfront cost of a battery, which needs to be fitted to a customer’s solar system. Sonnen battery systems start from $8,000-$10,000 for the smallest up to $12,000-$15,000 for largest. All systems are installed ready for virtual power plant connection.

Grid connection charges are included in the flat fee in large markets including the capital cities but not included in regions where the grid connection costs are much higher. Grid connection fees go up rapidly in rural Australia, and “this is something we cannot control,” says Sonnen managing director Philipp Schröder. “In terms and conditions at a certain stage we would say to the customer in your region the grid connection charges are too high. They need to be added.”

Sonnen has an agreement with an undisclosed local licensed electricity supplier so it can participate in the Australian market but it plans to secure its own. It guarantees its hardware to 10,000 cycles, which Schröder says is equivalent to more than 20 years’ battery life.

Other trials of virtual power plant projects around Australia include United Energy in Victoria and AGL and Sunverge in Adelaide.

Sonnen earns a better margin from sonnenFlat than participating in the grid services market because its plant – the thousands of distributed batteries – have been paid for by system owners, Schröder says. This beats a utility-scale battery system owner who must amortise capital expenditure against unpredictable grid services revenue events.

Community spirit

In Germany, consumers who do not own solar systems can still join the Sonnen community, Ostermann says, because its connected network includes wind and bioenergy generators with no load profile. “Let’s say someone lives in the centre of Berlin in a flat; if they buy a small storage system we can provide energy services with this system and the income from the energy services is covering their electricity bill, and they get power for free for us,” he says. “We can supply our customers with power throughout the year even though the weather’s bad.”

The proliferation of renewables in Germany makes this “decoupling” of generation and storage possible, but Schröder says he’s not able yet to offer membership of the Sonnen community to non-solar owners in Australia.

If sonnenFlat reaches 2,000 customers is Australia it will become a 20MW producer. That’s a good start, but Schröder has bigger plans. If 25% of the 1.6 million solar systems in Australia fit Sonnen technology the maker can bring 1.4GW in capacity to market, or about the same amount of power pushed out by the coal-fired plant Hazelwood.

“We can replace the capacity and bring in balancing power that would effectively replace the same capacity of that power plant by just retrofitting 25% of the systems that are already out there … and that is not including higher penetration of solar,” he says. “This really is critical mass.”

Crowd power

Speaking at the launch of sonnenFlat in July in Sydney, economist and Zen Energy chaiman Ross Garnaut said: “If just 1% of the more than 1.6 million Australian households with solar added batteries and on average those batteries were 10kW you’d be introducing into our system 160MW of storage. The quantities of contribution from distributed storage could quite quickly become important.”

Such a scenario weaves in with a recommendation in the Finkel review for households to make their own contributions to demand management, he said.

“Distributed power – local solar and battery storage – can cut the peaks off demand and reduce the need for continued investment in the network which is the source of extraordinarily high network costs in Australia,” Garnaut said.

Australian customers would need at least 5kW of rooftop solar PV to be part of sonnenFlat and once it reaches critical mass to deploy services it will become the first solar and storage company to become a utility in Australia.

“We are taking the utilities out of business, because we take over 100% of electric power supply,” Ostermann says.

The company was thinking ahead as far back as 2011, when its slowly growing legion of installed tech started exporting data which allowed Sonnen to remote-control systems and understand production, consumption and consumer behaviour. It applied for a utilities licence in 2014.

The problem-solvers

If incumbent retailers and generators have a problem with Sonnen’s grand plan they should perhaps look at it from another angle, Ostermann says. “At the end of the day, we are a problem-solver,” he says. “We are solving one of the major problems within the whole context of the energy transition for the grid operator. What they need is flexibility and we are supporting the grid with, first of all, the fact that energy at the site of our customers is consumed on site, so not even fed into the grid, which is a saving for the grid operator, and secondly using our flexibility to help them manage their grid.”

The problems caused by local energy are solved by storage, he says, and the regulators recognise that. “They need a solution for that.”

In Schröder’s logic the utilities will be grateful to Sonnen as it takes on the task of aggregating output from a vast array of rooftop solar PV systems and offering it in the wholesale market. Second, the virtual plant will be supplying grid services, which Schröder points out gives the utilities’ trading rooms “a really nice spice to earn profits”.

“Let’s put it this way: there are utilities that understand the change and they will be part of the game, but the ones that are not changing, we will replace them. As a utility you should not close your eyes and go on as you are – you need to change.”

Ostermann puts it another way. “It’s like you’re standing at the train station and you see the train depart. What are you going to do? First of all you’re trying to slow the train down so you can catch it. Secondly, you are running as fast as you can. This is exactly what the utilities are doing.”

The company wants to reach 8,000 installations by the end of next year and double its business each year after that. It is considering manufacturing in Australia if orders take off, whereas units are currently imported from Germany. Sonnen has opened an R&D hub in the United States in Atlanta, Georgia, employing 30 engineers.

Sonnen is a private company and includes among its investors GE, Czech Republic utility CEZ and Shanghai-based Envision Energy.

The incumbents face unstoppable forces, says Schröder. In 10 years’ time most residential solar systems will be written off and generating for free, new installations will be cheaper, the cost of carbon may well be legislated and utilities will have to write off their assets over less operational hours.

“It’s a slow death [for utilities] but it’s a certain one,” he says.