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Utilities facing a distributed generation future?
- Posted on April 12, 2012
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Yesterday, I suggested that you meet John Farrell, who directs the Energy Self-Reliant States and Communities program at the Institute for Local Self-Reliance. He focuses on energy policies that expand the benefits of local ownership of distributed generation, particularly renewable energy.
That column, "Power Utilities' Morphing Future," got plenty of thoughtful response, from advocates of the ideas Farrell presented to skeptics. (Thank goodness for authentic skepticism and open enquiry, which keeps us all honest, as opposed to mere naysaying noise that serves only to obfuscate and derail a fruitful debate or exchange of ideas.)
Back to Farrell and his efforts—again, offered here to stimulate fresh thinking among our utility readership. He mentioned Wilmer, Minnesota, as a good example of moving to greater local control and ownership of its energy future.
"I like the Wilmer Municipal Utility in west-central Minnesota," Farrell said. "Under their long-term power purchase contract they're allowed to do a certain percentage of self-generation. They decided to build two wind turbines because they provided long-term, low-cost electricity and a hedge against fuel price fluctuations. With a neighboring rural, electric co-op, they're working on a community solar project, where the utilities would finance and construct a solar project on a common parcel of property. Then citizens of the muni and members of the co-op could potentially be investors.
"There are other examples of co-ops that have done this, where there are commonalities of interest," Farrell added, "but unfortunately, we've got a lot of inertia going in the wrong direction."
In Illinois, Farrell pointed out, there's been increased interest in "community choice aggregation," where cities can negotiate on behalf of their citizens for their electricity source.
"That brings in the notion of local control over electricity choices," Farrell said. "Most communities are not looking at becoming self generators, which would marry their energy policy and their economic policy. Rather, they're simply signing short-term supply contracts with, in many cases, subsidiaries of the same investor-owned utilities that used to provide them with monopoly electricity service. They're getting attractive contracts now because natural gas prices are low, but because they're only getting a two to three year deal instead of a 20-year deal, in a few years they may not be getting such a good deal anymore."
Thus, community choice aggregation is not always being used to construct an alternative energy paradigm, just a band-aid approach to high prices, Farrell concluded.
Farrell touched upon the use of community energy aggregation by the Marin Energy Authority, which fought for that right with Pacific Gas & Electric; the benefits of feed-in tariffs for renewables at the Gainesville, Regional Utilities in Gainesville, Florida, the state feed-in tariff in Vermont and the municipalization efforts in Boulder, Colo.
"Only time will tell if Boulder ultimately is successful in increasing its self-reliance without raising rates or compromising reliability," Farrell said. "I'm fairly confident on those two metrics because municipal utilities aren't rocket science. But there are wrinkles to be ironed out. If anyone can do it, it will be Boulder. Those folks are very, very smart."
Meanwhile, the prospect for small-scale distributed generation will be improved by removing legal and policy hurdles, Farrell said.
"When we're talking about the potential for swarming the electricity system with thousands if not millions of small-scale distributed wind and solar generators, very few of whom keep a lawyer on staff, that process has to be simpler and less expensive," Farrell continued. "Essentially, it's difficult and expensive—in terms of the legal process—to do interconnection when you want to do wholesale generation of renewable energy in most states, at least anytime you're over your net metering limit. So anything you can do, from a feed-in tariff on down to simply fast-tracking projects of a certain size, can really open the door to more distributed energy and greater local ownership of it."
Where are we on the arc of this effort? Where will traction take place?
"It'll be an incremental process," Farrell said. "We just put out a report on solar-grid parity called 'Rooftop Revolution: Changing Everything with Cost-Effective Local Solar.' Solar has always been cost-effective, it just depended on what you wanted to use it for. As costs drop, potential applications expand. We're at this critical juncture in the coming decade when solar becomes a resource that can serve almost all of our electricity needs. Of course, I'm aware of the limits posed by variability and nighttime. Technically and economically, however, solar will begin to serve nearly any electricity need. With wind, we're already at the point where utility-scale projects work. The issue there is whether to keep building giant projects and major transmission lines or to build projects at a smaller scale, more economically.
"What I see playing out right now is that there's a lot of pressure on the old paradigm, the last century's electricity system," Farrell said. "It's designed to deliver power in a way that makes no sense given the way we're likely to generate it going forward. The momentum of that paradigm was towards high-voltage interconnectedness and large bulk transfers of electricity. That's because the utilities and transmission companies make their rate of return by spending capital and putting iron in the ground.
"The way this is going to play out is a series of policy and legal battles over market share. Ultimately, given the economics of renewable energy and the recognition by people that this is an opportunity, the pressure will move towards a system that is more distributed and democratic. Americans have always embraced self-reliance and self-sufficiency and that will play out in energy."
Once again, dear reader, I offer these views not so much to endorse a world view built on distributed energy resources - although I think that scenario is inevitable - but to jolt our existing audience and its industry to think differently before it is overtaken by events. Many utilities exhibit just such future-oriented thinking. They'll probably survive. And the others? Your guess is as good as mine.
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