Podcast #027: Sunnova CEO John Berger – Will a rapidly evolving residential solar + battery story reshape energy markets?

 

John Berger CEO of Sunnova

Host Bill Nussey catches up with John Berger, CEO of Sunnova Energy (NOVA), a leader in the residential Solar + Battery service provider market in the United States.  John shares insights about how dramatic changes in distributed local energy are rapidly reshaping energy markets and why the shift is so important. Listen too as John shares how the Sunnova model and focus positions the company to capitalize on that change.

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Sunnova CEO John Berger: Will a rapidly evolving residential solar + battery story reshape energy markets?

Host Bill Nussey catches up with John Berger, CEO of Sunnova Energy (NOVA), a leader in the residential Solar + Battery service provider market in the United States.  John shares insights about how dramatic changes in distributed local energy are rapidly re- shaping energy markets and why the shift is so important.

Transcript

Bill:
Well, welcome, Freeing Energy Podcast listeners. We’ve had the opportunity to interview some pretty amazing people over the last year, but I can’t think of anyone we’ve talked to who is living more of our mission, who is making it more of a reality than John Berger, the CEO of Sunnova. This is one of the top companies doing residential and battery installations in the country, and I’m really excited to have him share his story and his insights and what they’re doing to change the world. So welcome, John.

John Berger:
Thank you for having me, Bill.

Bill:
So let’s start at the beginning because we always like to get a personal angle on all of these things. So tell me about where you grew up a little bit, and how your career ended up being in clean energy.

John Berger:
Sure. So I grew up in a city near Houston; Bryan, Texas, which is city together with College Station, home of Texas A&M University. And then I went to Texas A&M University. I grew up in the construction business. My dad was in engineering, a materials engineer. Then I got a civil engineering degree from A&M. As soon as I got a degree from A&M, I went straight to work and was put on the power desk right away in 1996. This is when power was just initially deregulated and consumers were given choice, and so got a taste of it. Didn’t see that one coming, but it was a great job, and I thought I was going to oil and gas and ended up in the power industry, and been there ever since.

Bill:
Well, you’ve had an amazing career for somebody pretty young. I saw in your background, you’ve actually done advisory work for the Federal Energy Regulatory Committee, FERC, as we call them. You’ve obviously been in oil and gas, as you mentioned. You’ve done renewables previously. So tell me how it is you took all that experience and decided to start a company doing residential battery and solar?

John Berger:
Well, it does go back to being on the power trade desk. And yes, I was at Enron. I was on the east power trade desk [inaudible 00:02:45]. And we had a lot of success there. It was a good opportunity for training and got to really understand the physical side of the power systems in the United States, all the constraints, the fact that it’s not a national grid, which surprises most people. And so it really was a good training ground. And what I realized there was the idea that there was a national grid, there was a superhighway, we were going to trade power all over the country and all this was really not possible. And the fact is, is that storing centralized power was really almost impossible, although I did operate a hydro pump storage unit in Georgia from the control room.

John Berger:
So that was a great experience. But what it taught me was, is that I felt like the internet boom is happening right now. This was the late ’90s, and I felt like, you know, “This is really, frankly, archaic, what we do in the energy business. And if the telecommunications and the internet’s changing that business and entertainment and everything else that was going on, why would we have to still have the same energy business that we had at the turn of the last century?”

John Berger:
And so I felt like there was going to be some new technologies, didn’t know what they were, but felt like there was going to be some new technology. So I started working on that the tail end of my career there, and applied to business school, got into business school and then left of August ’01. Yes, Enron filed for bankruptcy 90 days after I left. At 26 years old, I had no idea what was really happening. I was along for the ride.

John Berger:
But that was what drove me to, in-between years at business school to call up the Federal Energy Regulatory Commission and asked to be placed there if they’d give me a job, which they did. And I stayed there even through my second year of business school and flew back and forth. And it was a really exciting time. It was obviously an implosion of a lot of the independent power producers and so forth. It was a really chaotic time period for the power industry.

Bill:
So after you worked at FERC and some time at Enron you learned the basics of the industry. What’d you do next?

John Berger:
Well after graduating from business school, I spent some time in the venture capital industry. And that was really more about looking to see what that new technology or fuel was really going to be that I was looking for. And during that time period, I started to get an understanding that it was possibly solar, but I still didn’t know too much. I’d been involved, invested in fuel cells and some biofuels and some other things.

John Berger:
But in my first business, after I decided that I would stop torturing the entrepreneurs and become one; that was much more my suit, was to establish, effectively, a solar contractor. I didn’t know it at the time, I thought it was in energy efficiency. This is 2006, out of Houston. And founding a solar originator and installer was not something necessarily any Houstonian thought about doing. And so I started the business up. We would go in for commercial and government and residential customers and we’d do energy audits and put energy efficiency home insulation, attic fans, LEDs were just coming in there, so we’d go in there and change out LEDs.

John Berger:
And then we started doing autonomous solar. And when I sold the business in 2009, 85% of our revenues were in solar. And so I learned a lot through that business. One is that labor’s not scalable and that you need to have local entrepreneurs in their respective cities or regions or states or whatever be there, own it and run their own show, effectively, with being supported by a massive platform service company.

John Berger:
The other one is, is that there are differences in people and differences in the labor types, and so forth, and skillsets. And so all of that kind of really informed me about what business model needs to happen in the solar industry. But it also said to me that … I said, “You know what? The price of solar is going to go down a lot, and there’s a possibility that storage could come into play here,” as well as Tesla started to become known at that point in time, as you recall.

John Berger:
So then I founded another company called SunCap. and it was effectively Sunnova, and it was a residential solar service provider. And that business was operated from 2011 to 2012 when I sold it. And it worked out so well, sold the business very quickly, obviously, in a year. And then said, “You know what? Let’s do that again.” So I was able to take a lot of the folks that I had over at SunCap and started operations in January of ’13.

John Berger:
Our business model is very simple. It’s, “Hey, let’s focus. Let’s own the customer, the contract and the system. Let’s be the service provider. Yes, let’s provide financing options to customers, but let’s make sure they get the service post the installation.”

Bill:
That’s a heck of a story. I look forward to diving in a bit more. But one of the things that I was really thrilled about as I explored and researched your company is that you guys … Or you, particularly, have a strong sense of mission. I mean you’re not just doing this because it’s a business that you can make money on, but hopefully, you’ll do a great job with that, but you’re doing that for bigger purposes. You’ve got a real mission behind this. Talk a little bit about the vision that gets you excited about this business and the impact you can make.

John Berger:
I’m very excited about, and big believer, as everybody I think knows in the industry, in capitalism. We should have the right to choose who our power provider is. And too often, in the way the power industry has worked, you don’t have a choice. And that needs to change. And because I think most people do want to make a difference; they want change in how they get energy, there’s technology that’s rapidly improving as we can see out there. And that change, not only can it allow you to have a greater reliability at a better price, but also goes to the mission of, we have to do something different globally with our energy business. For so many reasons, it’s unsustainable. And we need to change.

John Berger:
Obviously at the top of that list of need to change is addressing the climate change. It’s something that I feel very strong about, that we need to address. We have the technology. Candidly, the technology is either at the prices needed without subsidies or is heading there very quickly. We need to make sure that we have the right policies to get the other entrenched incumbents out of the way.

John Berger:
For instance, coal is uneconomic. Coal is uneconomic to gas, coal is uneconomic to solar, coal is uneconomic to wind without subsidies. For gosh sakes, don’t subsidize coal. We don’t need it. Climate change and environmental destruction is a market failure. It is a negative externality. The government needs to step in and price that negative externality. But once it does that, then it needs to turn it over to the people to choose what technologies, what companies win or lose and how they go about getting their energy. Let the people choose.

Bill:
Beautifully said. And I actually am such a strong believer in the business element of this solution that I think it’s going to be irresistible. As the price of solar and batteries comes down, regardless of your political stripes, regardless of where you grew up in the United States or in the world, you’re going to basically be banging on the door of your politicians saying, “Listen, I want some choices. There’s better options out there. I want to access them.”

Bill:
So this is interesting to me. You guys are based in Houston, and you have a background in traditional energy. So when you’re hanging out and it’s your energy pals in Houston, what do they think about the business you’re in?

John Berger:
Look, you can’t wear your heart on your sleeve if you’re the only solar company to be headquartered in Houston. And you got to laugh at yourself quite a bit. Has it been a bit of a rough time over the years? I mean, sure. But I think what is most important is one, that attitude and thoughts are changing. They changed a lot this year. Second is what makes Houston my home and why we built the company here is the people. I think that this is a place that has a great standard of living and great people that know the energy business. We’re literally at the center of the action of the old industry, changing it. And so what we’re very proud of is we’re not demonizing oil and gas in any way, but we’re simply saying, “Hey, the growth here is in decentralized solar storage, and let’s figure out how do we have a combination and integration of decentralized technologies, which could be gas fired in some cases, with centralized technologies?” So the power system looks a lot more like the internet, which centralized data centers and so forth and decentralized cell phones, et cetera. That combination provides the best service to customers.

John Berger:
And so I think that integration of new technologies and old technologies is the best solution for consumers. And so I think there is a very strong chance that Houston will lead that change, because it certainly has firm and very good roots in the old, and I think is now establishing great roots in the new.

Bill:
You mentioned a lot about decentralized and centralized energy. And people that have run the grid for a century have done it, and done a great job, by the way. It’s inexpensive, it works well. but they’ve done it from a top-down way, and they’re very comfortable with that. All their models and their management techniques work that way. And I imagine them feeling a little bit like the folks at Encyclopedia Britannica, once upon a time. And they’re like, “Listen. There’s a better way. There might be a better way to create more information. It’s called Wikipedia.” And I can imagine the Britannica people saying, “Are you kidding? It’d be an absolute disaster. If you just let everyone make their own decisions and contribute the way they want, it’s going to fail totally.”

Bill:
And I imagine that the folks making decisions about the utilities feel the same way. But Wikipedia not only has surpassed Britannica, but scholars say it’s actually more accurate than Britannica ever was, which is fascinating. Nod to the crowdsourcing.

Bill:
Let’s talk a little bit about Sunnova. You guys are largely focused on residential. There’s obviously … Companies are also focusing on commercial and these giant utility scale projects that a lot of folks see on the highways when they drive. But you guys have focused on residential. What’s your strategy there and, why that market over others?

John Berger:
The reason for focusing on residential is to provide focus itself. No matter what regulatory structure, no matter where you are in the world, the residential customer basically gets the shaft. I mean, they pay the most for power. They get the least amount of reliability. So the technology of solar and batteries is actually very scalable. By putting a lot of panels in a single area like a solar farm, there’s not a whole lot of efficiency increase. In fact, you’ll lose it by getting connected in the grid and dropping the … with the line losses back to the homes and back to the businesses. So this is really a distributed technology, inherently.

John Berger:
For the first time since Edison did invent electricity and started the US power industry, we have a decentralized fuel source, the sun; and we have a decentralized conversion technology from fuel source to the megawatt or kilowatt hour power.

John Berger:
And so those combinations of those decentralized distributed technologies is going to have a fundamental change in the energy business. So that’s how we chose the market segment. That’s how we chose which side of the meter, if you will, how to go to market. So that success has led us to think about, “All right, how do we continue to have this kind of success? How do we go out and then adopt new technologies like batteries and bring those to our customers? How do we do that in the most efficient way?” Our job is never done. You know? I see a lot of new technologies coming on the forefront, and I think that what’s most important is the change in the energy business is moving at a blistering pace. If you told me even 10 years ago that coal, which had been at 52% of the nation’s electricity for my entire career in the power industry, would now be going less than half, rejected this year, of that number. Stunning. Stunning.

John Berger:
It’s supposed to take 50 to 100 years, right? Coal very well could be under 5% of the nation’s electricity by the end of next decade. I don’t think that’s a radical statement to make anymore. What else are we going to see and change that quickly? I’m seeing electric vehicles take off far faster than a lot of people thought even at the turn of this year. I heard Ford is planning by 2025 for instance, to have 50% of its sales come from electric vehicles. That is stunning.

John Berger:
And so all these changes are happening at a much greater pace than a lot of people realize. That kind of change is exciting. And frankly, we need it to address the climate change issue.

Bill:
So tell me about what Sunnova does to help make it easy for customers to afford and pay for these really cool solar and battery systems?

John Berger:
What we do is the same as, say, an AT&T cellular would do for its customers. Effectively, we finance those pieces of equipment. In this case, solar panels and batteries and so forth on balance sheet. And then access the financing market of what they call the securitization market. We do make a fee on that, just as, frankly, an AT&T or somebody else does, as well, as a service provider in the telecommunications industry. We’re a service provider, obviously, in the energy business.

John Berger:
In terms of financing, we really are indifferent; whether you want to do a lease or what they call a power purchase agreement, pay by the kilowatt hour like you do with your monopoly. We’re here to provide the different financing options for you as a customer, and you choose what you want to do, and then we’ll take care of the rest. This is a very standard, well-known model. And falling in love with one particular financing over another is not something I think has been very helpful for the industry, and I think it’s really more about let the consumer choose what they want.

John Berger:
Let’s say that you don’t want to finance at all, for instance. Every once in a while somebody will come into the Apple store, buy the Apple iPhone, and they’ll do it in cash, and they’ll just sign up for AT&T. Right? Some people do that in our industry, too. We have a service contract that’s service only. So you don’t have to finance with us. So if you don’t want to finance, that’s fine, too. We’re building the company around the customer and letting the customer choose what they want.

Bill:
Let’s switch gears a little bit and talk about, well, the gears, the metaphorical gears that make these systems usable, affordable. It has been absolutely stunning to watch the decline in price of solar and batteries. What allows these components, solar and batteries, to become so inexpensive and do you think it’s going to continue?

John Berger:
I do think it’s going to continue. I think at this point in time, the price of solar itself, in terms of needing price declines, we no longer need those. What we need is a continued increase in energy efficiency, the ability to generate more and more power per square foot of roof space. That trend is continuing. I still see that. Basically, a rule of thumb is you get another 10 watts about every 9 to 12 months. And then the real big one that’s left is the battery. Right? And we see price declines, we see a lot of batteries coming to market with very credible parties, we see a lot of new innovation and new supply coming to market in the next few months. And I think, coupled with those product launches from very reputable companies and the growing demand, the blistering demand of the global automotive industry is going to drop the cost of lithium ion down much faster and much further than people think.

John Berger:
I understand some of the scientist’s views that it can’t be lithium ion, it’s got to be something else. And the thing about the energy business which you’ll learn is, once you get a technology entrenched into the marketplace, because of the sheer quantity of money that you need to build out the capacity, in most specifically the manufacturing capacity and other capacity that you need out there, is so large that even countries that you typically don’t have a new technology come about that can really attract that kind of capital away from the entrenched incumbent. And that the incremental improvements while they seem small on a per year basis, as you look back 5, 10, 15 years, you’d go back as you just did and said, “Oh my gosh, look at what we’ve been able to accomplish.” I think we’re going to continue to see that in batteries, and it would not surprise me in the least bit if we’re attaching batteries to every customer’s home in the next several years.

Sam Easterby:
Here’s one of the big questions we’ve been thinking about at the Freeing Energy Project. Will solar plus batteries unlock the electric monopolies and spur a clean energy revolution? Most experts agree the transition to clean energy is inevitable. Question is, how fast?

Sam Easterby:
Big changes in the electricity business have taken as long as 50 years to make in the past. Previous energy systems were built on massive economies of scale, building larger and larger infrastructure to drive down those costs. But the clean energy transition is fundamentally different. It will be built on economies of volume instead of scale. Rather than relying exclusively on enormous centralized power plants, the generation of electricity will include millions of smaller independently owned power plants like Rooftop Solar or Community Solar and Micro Grids.

Sam Easterby:
Just like the computer industry, mainframes faded away when computing became cheaper and more flexible by aggregating a large number of smaller personal computers. The consumerization of clean local energy is beginning. As electricity systems get smaller, so will the capital required. The risks of failure will be isolated. The pace of the clean energy transition will shift gears from the 20+ year planning cycles of the electric monopolies to the sub-year decisions typical of, say, home renovations and building upgrades.

Sam Easterby:
Like the transition from mainframes to laptops and landline telephony to mobile phones, the original exclusively centralized model will be disrupted by countless smaller, cheaper, easier solutions. Some have even suggested that the biggest competitor to the utility monopolies may even be Lowe’s and Home Depot. What do you think? Are we about to unlock the electric monopolies and spur a clean energy revolution? To learn more about this transition, visit freeingenergy.com and search for unlock.

Sam Easterby:
Now, back to Bill and John.

Bill:
So I recently spent some time in Puerto Rico and interviewed some pretty amazing people. And I think Puerto Rico, in many ways is the beginning of this solar micro grid revolution. You’ve got people who were reeling from three, six, nine months of having no electricity when the grid failed after Hurricane Maria. And there’s been a rush to build more resilient systems, both at a community level and at a personal level. And out in front of that entire effort, the largest provider of those systems on the Island is you guys. And I was really excited you introduced me to Carla, who runs your operations down there and we had a great conversation. I was really amazed.

Bill:
So tell me a little bit about what you guys see going on in Puerto Rico; why you’re excited about it, and why you guys have put so much, well, energy into Puerto Rico?

John Berger:
Puerto Rico has been very important to Sunnova for a number of years. We believe that everybody should have access to the new solar technology and storage technology. We viewed Puerto Ricans and Puerto Rico itself as a place where people deserve the right to have that access, and they really needed it. And mostly, that was around having cleaner, cheaper power than what the monopoly could provide.

John Berger:
After Maria, it became more about reliability on top of that. Again, better service at a better price. That disaster really catalyzed … And we said it, this was probably going to be one, a huge disaster; and second, this was quite possibly going to be the epicenter of changing the global power industry.

John Berger:
So I believe Puerto Rico fundamentally shifted everybody’s emphasis onto storage in the United States. In Asia, I would happen to have been there, in multiple countries; China, Korea and other countries right prior to Maria hitting Puerto Rico. And nobody was looking at developing products for the US residential market until Maria hit Puerto Rico. And then we started shifting a lot of our storage as fast as we could there. I want to call out Tesla as a real leader in being able to provide batteries as fast as they could over to Puerto Rico and continue to do so, meet their commitments, and they’re a valued partner of ours. That really fundamentally shifted our company over to storage and really gave us a spark where we now are selling storage in multiple service territories. All the islands in the Pacific that we serve; Hawaii, Guam and Saipan … Saipan was leveled with a big typhoon back in 2018, just a year ago. And they have been a big benefactor of having storage now become readily available. And so we’re rebuilding that system, home by home, customer by customer, as well.

John Berger:
Puerto Rico really will go down as the leader in what I would call the new energy industry of the United States.

Bill:
Definitely lines up with what I observed with the fantastic people I met there. Your business, your customers are dealing with a regulatory environment that’s 100 years old. It was designed and almost entirely for centralized, top-down management, and and yet you guys are, and others like you are helping give people choice for the first time in that century.

Bill:
What do you see can be done on the regulatory side to make it easier for customers to have that choice to be able to put solar and batteries in their houses? What examples do you point to so that others can follow, other regulatory environments can follow? What works, and what doesn’t?

John Berger:
Well, I think the first is, is that we need to have a restructuring of the entire US regulatory system for power. I think that there is a couple paths here. One would be a more free market, consumer choice driven, which looks a lot like the midstream oil and gas business where you allow companies to come in, yes to consolidate. We’ve got 5,000 utilities in the United States. Nearest country to us is Japan, with seven, and they have multiple islands.

John Berger:
And we can allow those investors that put up the capital and ring out those inefficiencies to have return on their capital, which is what we do not allow today in the power industry, but we have allowed in the oil and gas industry. And I would say, for all those that want a climate change driven success story, don’t let the oil and gas guys have all the fun and be able to have a good functioning way of going to market and driving inefficiencies out of the industry; allow that to happen in the power industry.

John Berger:
The second way of doing it is effectively stripping off the generation, centralized is mainly when I’m referring to in the customers, and keeping that separate from the poles and wires. This is very similar to what we’ve seen done in other areas of the country, namely Houston. I think it has been a very good recipe for success. I know there can be some folks that would disagree with that. But largely, I think it’s tough to argue that if you’ve seen the success in those areas, in terms of retail power prices, they have gone down.

John Berger:
I think more importantly, having the poles and wires, whether that’s a part of something of a regional operator, like a regional transmission operator, and I’m including the distribution in this, run this or a Cal ISO, which has been discussed, or something that becomes more statelized, if you will, or regionalized or even federalized and keep the generation both centralized, decentralized, and the customers, residential, commercial, government, et cetera; they get to choose their power provider. I think that combination is the best way to go about a regulatory restructuring in the United States.

John Berger:
So there’s two different paths. I would prefer the path of having the poles and wires be given in the hands of the private sector, but if you have to keep it in the public sector, just keep the poles and wires and let the others go ,and let the consumers really change the industry. And I’ll predict you allow people to choose, you’re going to see a huge change and a much more rapid change moving towards clean energy and a better, reliable system than trying to figure out how to do that through 5,000 government agencies effectively.

Bill:
Well, the last big question before our lightning round is about being an entrepreneur. I’ve had the great privilege in my career meeting many successful entrepreneurs, but there’s very few that have done what you have done, which is conceptualize a company, found it, grow it, scale it, and then take it public. I mean, that’s kind of the gold medal, the a 10 out of 10 on the Olympic measurement of success as an entrepreneur.

Bill:
Now, I know you have a long way to go. You’ve got a company that can be 10, 100 times larger, and I’m excited to watch you do it. But what have you learned about that process that you could share with the many listeners of the Freeing Energy Podcast who are entrepreneurs? What stories or advice would you share with them?

John Berger:
Well, what I would share with them is, first and foremost you got to go all in. 110%. You’re going to have some sleepless nights, you’ll work a lot of hours. You will not be your own boss. I’ll tell you that. Everybody has a boss, so don’t fool yourself. And it’s going to be hard.

John Berger:
The second is what I would say, is make sure that you are very focused. You will be presented with a lot of different opinions about what to do, and you need to make sure that you can bring it all back down and say, “Look, I’ve got to execute. I’ve got to stay focused on this. I got to say no to some really good ideas and maybe even good folks that want to come onboard and do some different things.”

John Berger:
The last one I would say is you need to be about recruiting the best people and putting yourself really further and further away from what you started out to do, whatever those tasks may be. And you really have to be a jack of all trades, but as you grow the business, you have to let go. You have to change, and that’s really difficult for people to do in terms of change, no matter where you are in life. And you have to. If you’re not willing to change, then at some point you need to hand the reigns off to somebody else and then go back and do it over again, which you do see quite a bit. But that change is really what I think at the end of the day, I see a lot of companies that can’t break out. It’s because they have founders that are unwilling to change.

Bill:
All right, well we’ve come down the home stretch. And we have had many esteemed guests on our podcast, and really excited to have you be a part of this today. And we’ve asked everyone the same four questions. So tell me something that you think that people who look in from the outside of your business would be most surprised to learn about.

John Berger:
I think most people would be surprised at how operationally complicated the business really is.

Bill:
If you could wave a magic wand and change a single thing that would accelerate our transition to clean local energy, what would that be?

John Berger:
That’s simple. I’d give the power to choose to the people.

Bill:
Man, you are nailing the lightening part of this round, my friend. What do you think’s going to be the single most important change in how we generate electricity in the next five years?

John Berger:
Batteries.

Bill:
That is the most common answer, and I couldn’t agree with you more. All right, and the last question. We all get asked this. What do you say when someone asks, “What can I do as an individual to help accelerate this change to clean local energy?”

John Berger:
Become a Sunnova customer.

Bill:
Bingo. All right, I love it. That is the most succinct lightning round answers we’ve ever had. Thank you so much. And those are great answers, by the way.

Bill:
So John, this has been a fantastic, fun conversation here today. I’ve learned a ton, and I really appreciate you taking some time to share your insights and your story with our listeners. So thank you very much, and wish you tremendous success as you guys 10X and 100X this great business of yours.

Sam Easterby:
Thank you for joining us today. You have been listening to the Freeing Energy Podcast, personal stories from the clean energy movement. Visit freeingenergy.com to learn more about clean local energy.

Sam Easterby:
I’m Sam Easterby. Bill Nussey is my cohost and the founder of the Freeing Energy Project. The Freeing Energy Podcast is made in partnership with Frequency Media. Peter LoPinto is our Associate Producer. Subscribe to the Freeing Energy Podcast on Apple Podcasts, Spotify, Google Podcasts, and anywhere podcasts are found. Make sure more people learn about clean local energy by rating and reviewing the show on Apple Podcasts.

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