A powerful new private sector player has materialized to offer utilities a partner in their drive to become their customers' trusted energy advisor.
Earlier this month, renewable energy financing leader Clean Power Finance and efficiency financier Kilowatt Financial finalized their merger and reorganization to become Spruce Finance.
The new arrival, its CEO says, can complement utility business models by helping power company customers with a full suite of DER offerings. Or it can be a competitor, providing distributed generation and efficiency services that could cut into utility revenues.
Since announcing their merger in July 2015, Clean Power Finance and Kilowatt Financial have have put over $2 billion in capital to work in financing residential solar, water conservation, and energy efficiency home improvements for some 50,000 homeowners.
Going forward, U.S. Bank is committed to $175 million in additional financing in 2016, and Spruce is now working through almost 400 channel and contractor partners, including residential solar photovoltaic (PV) installers, general contractors, roofers, insulation and heating/ventilation/air conditioning (HVAC) experts, and equipment manufacturers.
Consumers now get up to three utility bills — one for heating, another for electricity, and a third for water, explained CEO Nat Kreamer. Helping customers afford the hardware that allows them to reduce their total bill — such as new insulation, new HVAC units, a smart thermostat, LED lights, or a rooftop solar system — is where Spruce comes in.
“Those things all have high capital costs, and we can finance them,” he said. “With the more efficient technologies, the total all-in monthly utility bill, including the financing cost, goes down.”
For this full spectrum of consumer technologies offered by its partners, Spruce offers a diverse set of financing options, including loans, leases, and power purchase agreements.
“We don’t care which you want," Kreamer said.
Consumers don’t necessarily know what they are paying for each of the three portions of their utility bill, he said, but they want to save money on the whole thing.
“Our experience in the solar business showed that offering a solution that only addresses part of the utility bill makes the sale more complicated and makes it harder to motivate the consumer," Kraemer said. "Our financing targets total bill savings.”
Already, he said, solar companies among Spruce’s 400 channel partners are starting to offer efficiency solutions, efficiency companies are starting to offer solar solutions, and they are both starting to see their customers respond to the idea of a total utility bill solution.
What’s in it for utilities?
Many utilities can take advantage of Spruce’s offerings, Kreamer believes.
"In markets where the utility’s revenue model is decoupled from selling kWh as a commodity, we will be collaborative because those utilities' incentive is to build transmission-distribution networks and those networks support the adoption of DERs,” he explained.
Edison International, Southern California Edison’s corporate parent, and the unregulated corporate parents of Dominion and Duke Energy are investors in Spruce, he added.
Many regulated investor-owned utilities (IOUs) are not decoupled but are part of incentive programs designed to drive energy efficiency, he said. “We are complementary to them because we can help them reach their goals."
In the same way, Spruce can complement the goals of the ratepayer-owners of municipal utilities and cooperatives by increasing their access to heat, power, and water savings, Kreamer said. But without any incentives for utility efficiency programs, power companies may see players like Spruce as disruptors rather than partners.
“For IOUs that make money selling kWh as a commodity and have no incentives to drive efficiency in their territory, we are a competitor because we are helping their customers use less commodity," Kreamer said.
Most of those utilities, however, talk about “serving our end customer” and many have names that include “public service,” Kraemer said. They are increasingly turning to unregulated arms to provide the bill savings they know customers want. Those unregulated arms, in turn, could partner with or invest in Spruce.
“It is just a matter of following regulations," Kraemer said. "In some side-by-side markets, there are unregulated arms serving customers in each other’s regulated territories.”
Who will be the trusted energy advisor?
Utilities are increasingly offering services that provide information about things like residential solar and smart technologies as part of an effort to be a “trusted energy advisor” to their customers. Georgia Power, California’s Sacramento Municipal Utility District, Avista in the Pacific Northwest, and Duke Energy are among those that have introduced informational websites.
Other companies, such as ComEd, PG&E and TXU have partnered with energy analytics vendors like Bidgely to offer customers detailed personal usage reports on their personal devices, and many more have upgraded their mobile apps to allow for outage management, bill payment and a number of other functions.
EnergySage, an online solar marketplace, is about to announce a similar deal with “a well-known investor-owned utility” and is in talks with “ten or more” other utilities, according to CEO Vikkram Aggarwal. "They know their customers are thinking about solar but they are not yet equipped to provide it. They want to maintain the customer relationship and provide quality information.”
But how does the utility make money for that? Kraemer asked. Utilities deliver power, heat and water, and maintain a billing and servicing relationship with their customers. “With a few exceptions, utilities have never engaged their customers and shown them a way to better serve their own needs. That is not part of most utilities’ core competency.”
Traditional partnerships with efficiency or demand response vendors to reduce customer usage are well understood in the utility industry. But beyond those offerings, there are newer opportunities for utilities to offer the trusted energy advisor service that are "at least cost neutral,” Aggarwal said.
In the deals it is negotiating, the utilities would share part of EnergySage’s revenue from fees paid by installers who win bids through the EnergySage marketplace.
“That is a very small fraction of the cost of an installer’s customer acquisition cost,” Aggerwal said. “And there are other products and services utilities could potentially offer to further monetize the solar offering and the value chain.”
Utility vs. vendor programs
When it comes to efficiency and DER offerings, it's not "all utilities" or "all private sector," said Public Service Electric and Gas of New Jersey (PSE&G) Director of Marketing and Product Development Susanna Chiu. “Utilities bring a lot to the table. Surveys repeatedly show utilities have a credibility with their customers that is unique because we are not going anywhere.”
The private sector offers “innovation and new products and services and markets,” she added. “But if a consumer gets letters from Spruce Finance and the local utility, which is more likely to be opened?”
PSE&G already works with the private sector through a solar loan program that it largely leaves to solar installers to market. But it also has captured one of the biggest shares of New Jersey’s appliance services market through a Board of Public Utilities (BPU)-approved business operation within the regulated utility.
The solar loan business is probably an exception to usual utility offerings in the power sector, Chiu said. The utility’s strong balance sheet provides access to low cost capital vital to the growth of a New Jersey solar industry strongly supported by state policy. PSE&G was granted a rate of return on its financing programs by regulators because without the utility’s capital the New Jersey SREC program may otherwise impose costs on taxpayers.
A more telling indicator of the limits of utility marketing capabilities may be PSE&G’s energy efficiency programs. Like many across the country, they were taken over by the state because of chronic underperformance.
“We have known for decades that energy efficiency is cost effective but efficiency services are still struggling because it is hard to get the customer’s attention,” Chiu acknowledged.
Part of the problem is that New Jersey has not yet decoupled a utility’s fiduciary obligation to its shareholders from kWh sales.
“People in this company are working with the state toward better aligning the policy goals of New Jersey with customers’ goals to reduce energy consumption, Chiu said.
Utility marketing efforts don't always fall short. Steele Waseca Electric Cooperative (SWCE) was unsuccessfully marketing a demand response water heater program until it got aggressive and added a low cost community solar offering as an incentive.
As a result, the water heater program seems to be getting more traction, according to Solar Electric Power Association Utility Strategy Manager Dan Chwastyk. “Adding the solar gave it more appeal and the program has grown.”
Next steps for proactive power companies
The future is about a full suite of DERs, Kreamer said. “Consumers want a solution to their total utility cost.”
Spruce’s advantage is in being ready now to address the full spectrum of ways to help consumers save. “Our channel partners know how to make money by providing those savings and we make money by doing the financing. It is not aspirational.”
With the range of solutions that are now or soon will be available, both private sector companies and utilities with more limited offerings will find it difficult to compete. A big barrier can be that single sales and single financings have high acquisition costs.
“Spruce allows the channel partner to capture lifetime value by selling solar first and efficiency later,” Kreamer said.
Each additional buy saves the consumer more and adds to returns for Spruce and its channel partners. “And a great customer experience is not ‘I don’t sell that, so you don’t want it.’ A great customer experience is ‘I can solve your total problem and I can make it easy for you.’ That is what we are doing at Spruce.”
It may be what more utilities will soon be doing as well.