California power outages hit small businesses—but bolster generator companies

Standby generators that come online when the power goes out are either powered by diesel or natural gas, which fuels a combustion engine not unlike the one in a car. Their fuel is expensive and burning it contributes to climate change—the very thing behind the unstable weather that’s made California so dangerous these past few years. Companies from Generac to Tesla are engaged in a race to cost-effectively develop microgrids that can store power generated by solar panels or other renewable sources of energy and act as backup power when there’s an outage. The batteries these microgrids need are currently prohibitively expensive to produce, so for the moment, small businesses looking to stay electrified through a blackout need to invest in a generator.  

Small business clients make up about 20% of his company’s overall business, said Aaron Jagdfeld, CEO of Generac, a generator company that has benefited from increased demand in California. Another 50% of the business is serving homeowners.

“For the homeowner, [buying a generator] is an easier decision,” Jagdfeld said. A modest home of 1,500 square feet could be looking at less than $10,000 for the purchase and installation of a standby generator, which is hardwired into the building and comes on to keep the essentials electrified when the power grid goes out.

For small businesses, however, the cost of purchasing and installing a standby generator ranges from $27,000 for something that could support a small convenience store or gas station to $81,000 for a generator capable of powering a supermarket. 

“Most businesses aren’t flush like that,” said Miriam Hope Karell, director of the Marin County Small Business Development Center. “There are probably a small percentage that could figure out how to do it, but it really would be a small percentage.” 

Marin County is just across the Golden Gate Bridge from San Francisco. It’s one of the wealthiest counties in the state with a median household income of $104,703, which places it among the 20 wealthiest counties nationwide. But even there, small businesses are struggling with the news from PG&E that they may be facing a decade of power instability and the financial losses that come with closing their doors or losses of inventory.

“Typically a good day for us would be about $4,000 per store. We lost out on all those purchases,” said Cat Spaccia, a store manager at ArchRival Sports, a sporting goods store with two locations in Marin. Both stores had to close when power went out this past weekend—one for two days, the other for three days.

Some stores are staying open thanks to generators, like 6,000-square-foot Santa Venetia Market, a grocery store in San Rafael whose owner, Scott Day, drove several hours to buy a used generator for $19,000. When he brought the generator back to his store, the costs of hooking it up set him back an additional $6,000, he said, and the diesel to keep it running cost more than $1,500. But his product losses would have been over $40,000 without the generator, Day said, making the $26,500-plus investment worth it. It also allowed him to keep serving the community. 

Day’s generator isn’t hardwired in; his market has a small parking lot and needs the space. When his generator isn’t in use, he stores it at his home. 

“We’re paying a real high price for what’s happening here,” he said. 

ArchRival’s Mill Valley location has a small generator that could provide limited backup power in an emergency, but it wasn’t big enough to run the store, Spaccia said. She and most of the store’s other employees, as well as the store owner, were also dealing with power outages at home, she said, so they decided to not open the store.

“Not being able to open your doors for revenue generation is really critical for small businesses,” said Isabel Guzman, director of the Office of the Small Business Advocate at the Governor’s Office of Business and Economic Development. The 2019 blackouts in both northern and southern California, whether they were prompted by wind or fire, have had a huge impact on the state’s small businesses, she said. Although Guzman’s office is still figuring out the financial impact, they do know how many small businesses were impacted by the late October shutoffs: 95,172 were part of the October 28 PG&E outage in the northern part of the state, and another 16,545 were hit by the Southern California Edison outage that started on October 30.  

“There’s a lot of shock,” Guzman said. 

ArchRival doesn’t carry anything perishable, so having to close for a few days represented a loss of revenue but not a loss of product. Heidi Krahling, owner of Insalata’s, a popular Mediterranean restaurant in San Anselmo, estimates she lost $3,000 in product and $40-45,000 in revenue during the blackout, even though she didn’t fully close.

Krahling said the bulk of the food she had to throw out was protein. Insalata’s menu boasts a wide array of seafood and other animal proteins like lamb, duck, steak and chicken, as well non-meat proteins like lentils and chickpeas. She also had to get rid of “trays and trays” of prepared appetizers and other things they’d stocked ahead of the weekend rush, she said.

For Insalata’s, the blackout started on Saturday evening in the middle of dinner service. Through the dark, Krahling and a few of her staff kept the restaurant open. They worked using headlamps and “iced, iced, iced” the stuff in the coolers, she said.

On Monday, there was still no word from PG&E, and many of the cell phone towers in her area were out, which meant Krahling had to drive 20 minutes each way every time she wanted to check in with staff members or family. Power finally came back on around 11:30 p.m. on Tuesday.  

During the blackout, “we fed evacuees, and we fed first responders,” she said. They also cooked and donated food through a local program that connects restaurants and residents in need.

The loss of revenue is substantial, but the business is in good financial shape, Krahling said. She’s more concerned about the financial wellbeing of her staff, many of whom are living paycheck to paycheck and can’t afford to miss shifts. That’s one reason she stayed open.

Insalata’s has weathered past outages with the help of headlamps, battery-powered lanterns and pillar candles for the tables, but Krahling said it usually has only lasted a few hours during a short storm. 

In this strange new normal, Krahling is considering a generator. She’s been quoted about $25,000 for one that would enable her to keep the lights on and continue serving customers during a prolonged outage. “It’s not as much about saving food,” she said, as it is about being a place where people can come during crisis. 

“It’s almost like I can’t not do it,” she said.

In California specifically, said William Blair analyst Brian Drab, “there’s a long runway for growth” for the generator industry. That’s because historically, the East Coast and the Midwest, areas with more extreme weather events like storms and freezes, had a much higher demand for generators. 

The household market for small-scale generators in California, both portable and hardwired, has just a 1% penetration rate, Drab said, compared to a 4.5% rate nationwide. The small-business market is likely to be similar, he noted.   

But the last few years’ fire seasons have changed that equation. “This is obviously a game-changing scenario where the grid is just being shut down,” Drab said. This time, the cause of power loss isn’t a hurricane or an ice storm, but the risk of high winds that might cause damage to infrastructure and accidentally start a fire.  

Generac poignantly forecast consequences from aging power grids in its 2010 IPO. “Given the large estimated cost to upgrade the U.S. power grid,” the document reads, “we believe it is unlikely that the core causes of power disturbances will be addressed in the near future.” 

CEO Jagdfeld reiterated this sentiment in May 2019 during their Q1 earnings call. He commented that while the Western part of the U.S. hadn’t traditionally been a strong market for their home standby generators, their business would likely benefit after the PG&E announcement that they planned to shut off power, potentially for days at a time. Generac’s shares started a steep rise shortly after.  

Generac’s business in California has gone up by 350%, Jagdfeld said, leading the company to have a historically profitable quarter.

But generators, which are powered by diesel or natural gas, can’t fix all of the issues for small businesses. Extended blackouts in California mean supply chain issues as well.

For California’s small manufacturers, who produce everything like hinges and bolts for airplanes to snack foods and medical devices, blackouts may mean they can’t meet their customers’ needs. These small manufacturers are at the bottom of the supply chain, said Jim Watson, president and CEO of California Manufacturing Technology Consulting. 

The larger businesses that depend on these manufacturers usually have some store of parts on hand that could support them through a brief shortage, Watson said, but if a power outage went on too long, those larger businesses would have to look elsewhere for suppliers. 

Generators might help small manufacturers, Guzman said, although manufacturing needs a lot of power, which means that even relying on generation for a short amount of time would be very expensive. And integrating generators into existing manufacturing processes wouldn’t be a simple matter, Watson said. 

It remains to be seen how the blackouts will impact California’s small manufacturers. Watson noted 70% of the state’s manufacturers have less than 20 employees. “This is so new for us,” he said. 

Guzman’s office is working to help small businesses recover from the blackouts and prepare for the future, but she hopes that this year’s disarray will prompt innovation. 

“We will come up with solutions out of this disaster that will hopefully resolve some of these power shutoffs,” she said.

For small businesses in communities trying to weather the storm, those solutions can’t come quick enough. Gas generators, whether powered by diesel or natural gas, are expensive to purchase and run, but they’re less reliable than a power grid. They also contribute to climate change.

That’s why Guzman and Jagdfeld both say the future of small-scale power generation is in renewable technologies like solar or wind power that generate energy that can be stored on-site in batteries. One big problem: these systems, which are called microgrids, aren’t on the market yet. Such a solution is technically possible at this point, said David Rosewater of Sandia National Laboratories. However, it’s cost-prohibitive to produce batteries capable of that kind of large-scale storage.

“It’s where we think the power generation space is going to go in the future,” Jagdfeld said. His company purchased Pika Energy Inc., a battery company, and Neurio Technology Inc., an energy-monitoring technology company, earlier this year, and Jagdfeld said Generac’s forward-looking focus is on the storage market. 

For the moment, however, small businesses in California are weighing their options—portable generator, hardwired standby generator, no generator—and, like everybody in the state, wondering what the future will hold. The most stable option for many small business customers is likely to be a natural gas generator, which can run off an existing natural gas supply. Fortunately for Generac, that’s the kind of generator the company specializes in producing.

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