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In Utah, real-estate mogul bets on virtual power plants

SNL Image

Ethan Schow, a solar installer with Auric Energy, shows off a rooftop solar array at the Wasatch Group's Soleil Lofts apartment
complex in Herriman, Utah.
Source: S&P Global Market Intelligence

As a young entrepreneur, Dell Loy Hansen launched his real-estate empire across the U.S. West in 1988, scooping up undervalued apartment complexes in the wake of the savings and loan crisis and turning them into profit centers for his company, Wasatch Property Management, Inc.

The Wasatch Group, which combines Hansen's residential and commercial real estate and related businesses, today has more than $4 billion in holdings, including more than 16,000 apartment units and over 3 million square feet of commercial property in Arizona, California, Colorado, Washington and Hansen's home state of Utah. Now in his 60s, the self-described "far-fetched socialist-capitalist" is combining his real-estate acumen with his clean-energy aspirations.

Hansen's latest and most ambitious residential real-estate project, a sleek 621-unit solar- and battery-powered apartment complex called Soleil Lofts, is under construction in the fast-growing Salt Lake City suburb of Herriman, amid a rising colony of retail stores, parks and the training center for Major League Soccer club Real Salt Lake, which Hansen owns.

On track for completion in December 2020, Soleil Lofts is a possible model for collaboration between power companies, renewable energy innovators and real-estate owners on an emerging electric grid asset. It will include one of the largest behind-the-meter solar projects in the United States, a network of rooftop and carport arrays totaling 5.2 MW. Electric vehicle chargers and energy-efficiency features will be distributed throughout the complex. Lithium-ion batteries disguised as heating units are being installed in each apartment, storing electricity from sunlight for consumption after dark, or whenever utility Rocky Mountain Power chooses to tap them.

SNL Image

Dell Loy Hansen, founder and CEO of the Wasatch Group.
Source: AP Photo

"We are looking at the batteries as a utility grid asset that helps us manage renewable energy," said Bill Comeau, managing director of customer innovations at Rocky Mountain Power, which is a division of PacifiCorp. "And that helps us keep our costs down for peak loads, not having to have gas plants, peaker plants, or whatever they may be."

Comeau prefers the phrase "distributed battery grid management system" to the catchier term "virtual power plant" used by other project participants. That is in part because Soleil Lofts is more sophisticated than other projects described as virtual power plants, he said.

The core team developing the system at Soleil Lofts also includes Auric Energy, a local solar installer, and Sonnen Inc., a U.S. battery subsidiary of Germany's sonnen GmbH, which oil major Royal Dutch Shell PLC acquired in 2019.

SNL Image

A lithium-ion battery system inside one of the Wasatch Group's Soleil Lofts apartment units in Herriman, Utah.
Source: S&P Global Market Intelligence

'This should be replicated'

Opportunities for similar systems exist at new Wasatch Group commercial buildings and aging residential properties in need of modernization. "My goal ultimately is, this should be replicated," Hansen said. "This is like the Lewis and Clark expedition: Now the trail is there."

A five-building business park planned in West Valley City, near Salt Lake City, could be the Wasatch Group's first foray into virtual power plants at commercial properties, which have already begun to emerge in Southern California. Given that the Wasatch Group's holdings largely overlap with the footprints of the California ISO and its expanding Western Energy Imbalance Market, other opportunities are under consideration. Members of the Soleil Lofts team mentioned potential residential rehabilitation projects in California, but declined to discuss them in detail as negotiations are ongoing.

"It's about taking the model and helping where there really is a problem," said Blake Richetta, chairman and CEO of Sonnen Inc. "There is a major problem in California. We have challenges in the wholesale market, challenges in overgeneration. We have a massive duck curve and [energy supply and demand trends] are going to exacerbate that problem to a whole new level."

SNL Image

The Wasatch Group's solar- and battery-powered Soleil Lofts apartment complex under construction
in Herriman, Utah.
Source: S&P Global Market Intelligence

Financial, technical risks

Despite concerns over a series of high-profile battery fires and explosions in recent years, officials with the Wasatch Group and Sonnen see little technology risk for Soleil Lofts or similar projects. "We are more than proud to put our battery in a living room because we know [fire risk] is negligent and there is no safety hazard," Richetta said, citing the company's unique safety design and up to 25-year warranties.

Still, Utah energy officials required Rocky Mountain Power to revise its contract with Wasatch indemnifying the utility and its ratepayers from any legal actions associated with Soleil Lofts' batteries.

Hansen is as confident in the project's safety as he is in its overall financial returns, which are bolstered by U.S. tax code provisions that allow for accelerated depreciation and federal tax credits on the project's solar and battery investments.

"My training in low-income housing made this easier for me than most because I knew how to build a standalone power plant using tax credits," Hansen said.

But the window is closing for the kind of deal that Soleil Lofts enjoys. Federal investment tax incentives for solar and solar-charged batteries drop to 26% of project cost in 2020, from 30% in 2019, and fall further to 10% in 2022 for business tax filers. Solar and energy storage trade groups are seeking legislation to keep higher tax incentives intact and private investment flowing. Hansen, meanwhile, remains focused on the bigger picture.

"Anything you do, if you are thinking of the money you will make, you already made a mistake," he said. "Money will follow great ideas."