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About John Farrell
John Farrell directs the Energy Self-Reliant States and Communities program at the Institute for Local Self-Reliance and he focuses on energy policy developments that best expand the benefits of local ownership and dispersed generation of renewable energy. More
While seeming counterintuitive, a focus on smaller-scale distributed generation enables more and faster development of cost-effective renewable energy.
Last week I wrote about the illusion that we can “move forward on all fronts” in renewable energy development; rather, a bias toward centralized electricity generation in U.S. policy reduces the potential and resources for distributed generation.
In contrast, distributed generation provides unique value to the grid and society, and its development can also smooth the path for more centralized renewable energy generation.
First, distributed generation is cost-effective. Economies of scale for the two fastest-growing renewable energy technologies (wind and solar) level off well within the definition of distributed generation (under 80 megawatts and connected to the distribution grid). Solar PV economies of scale are mostly captured at 10 kilowatts, as shown in this chart of tens of thousands of solar PV projects in California. Wind projects in the U.S. are most economical at 5-20 megawatts, illustrated in a chart taken from the 2009 Wind Technologies Market Report.
Besides providing economical power relative to large-scale renewable energy projects, distributed renewable energy generation also has unique value to the electric grid. Distributed solar PV provides an average of 22 cents per kWh of value in addition to the electricity produced because of various benefits to the grid and society. The adjacent chart illustrates with data coming from this analysis of the New York electric grid. Grid benefits include peak load shaving, reduce transmission losses, and deferred infrastructure upgrades as well as providing a hedge against volatile fossil fuel prices. Social benefits include prevented blackouts, reduced pollution, and job creation.
Distributed wind and solar also largely eliminate the largest issue of renewable power generation – variability. Variability of solar power is significantly reduced by dispersing solar power plants. Variability of wind is similarly reduced when wind farms are dispersed over larger geographic areas.
Not only are integration costs reduced, but periods of zero to low production are virtually eliminated by dispersing wind and solar projects over a wide area.
As mentioned at the start, distributed generation also scales rapidly to meet aggressive renewable energy targets. Despite the conventional wisdom that getting big numbers requires big project sizes, the countries with the largest renewable energy capacities have achieved by building distributed generation, not centralized generation. Germany, for example, has over 16,000 megawatts of solar PV, over 80 percent installed on rooftops. Its wind power has also scaled up in small blocks, with over half of Germany’s 27,000 megawatts built in 20 megawatt or smaller wind projects. In Denmark, wind provides 15-20 percent of the country’s electricity, and 80 percent of wind projects are owned by local cooperatives.
With all these benefits, distributed generation can also smooth the way for centralized renewable energy, in spite of energy policies that favor centralized power. When distributed generation reduces grid stress and transmission losses by provided power and voltage response near load, it can defer upgrades to existing infrastructure and open up capacity on existing transmission lines for new centralized renewable energy projects. A focus on distributed generation means more opportunity for all types of renewable energy development.
It may seem counterintuitive, but distributed renewable energy should be the priority for reaching clean energy goals in the United States.
“Most of the action has still been in small, distributed stuff,” [Ryne Raffaelle, director of the National Renewable Energy Laboratory’s National Center for Photovoltaics.] said. “That in itself poses a lot of challenges because our power system existed under large centralized power station models since its inception.”
From the ability to reduce peak demand on the transmission and distribution system, hedge against fuel price increases, or enhance grid and environmental security, solar power has a monetary value as much as ten times higher than its energy value. The cost of residential-scale distributed solar PV is around 23 cents per kilowatt-hour (kWh) in… Continue reading
A recent Colorado news story captures the spirit of my last post on the tension between centralized and decentralized renewable energy generation, with a quote that describes the conventional (environmentalist) wisdom:
“It’s not an either or choice, that we only put solar on rooftops or on people’s homes or do utility scale, large projects,” said Pete Maysmith, executive director of the Colorado Conservation Voters.
“As we move forward toward energy independence, reducing our dependence on foreign oil, on dirty, polluting sources of energy like coal, we need to move forward on all fronts with renewable [energy], and that includes rooftop solar and community solar gardens, local power. It also includes utility-scale solar that is properly sited, and that’s really important.” [emphasis added]
As I illustrated with the example of FERC’s lavish incentives for new high-voltage transmission lines, the principled stand of “moving forward on all fronts” collapses in the face of incentives strongly skewed toward centralized power generation. From rich federal incentives for centralizing infrastructure to the basic structure of federal tax incentives, distributed generation operates at a disadvantage.
In the clean energy community, collaborative meetings often reveal a unity around goals (maximizing clean energy production and use) but a disagreement over the means. It’s not that people oppose distributed generation, but rather they see it as a secondary approach to meeting long-term clean energy goals. The following conversation is typical: Advocate 1: Cheap… Continue reading
Update 4/6/11: Adam responds on a listserv; his comment is added below.
Adam Browning of Vote Solar writes about a recent study of the peer pressure effect of solar PV adoption. The linked study notes that for every 1 percent increase in the number of installations in a single ZIP code, there’s a commensurate 1 percent decrease in the amount of time until the next solar installation. As he writes, “solar is contagious!”
I’m a data lover, so I thought it would be interesting to see what this looks like over time. If you start with a neighborhood with 25 solar installations, where it was 100 days between the 24th and 25th installation, this peer pressure effect will reduce the time between installations to just 10 days by the 250th PV project. (see chart)
Of course, this process takes a while to unfold. In fact, if solar PV was being installed only once every 100 days at the outset, the peer pressure effect will take over 15 years to reduce the time between neighborhood installs to 10 days.
The second line on the chart (red) looks at the change if you start with 25 solar installations but with a time between installs of just 30 days. By the 250th PV project, the time between installs has dropped to 3 days. And because the lag time between installations started so much lower, the 10-fold drop in lag time takes less than 5 years.
The basic formula – written another way – seems to be that a 10-fold increase in local solar installations will result in a 10-fold drop in the time between installations. This will hold true through the second iteration, as well. In the neighborhood with an initial 100-day lag between installations, it will take another 15 years for the lag to drop to 1 day from 10 days, reaching this level when there are 2,500 local PV projects installed.
Perhaps I can amend Adam’s statement: solar is contagious, but it’s not yet very virulent.
Update (Adam’s reply): I would note that the current strain (solar expensivus) is not a virulent as future strain (solar cheapus). Minnesotans are expected to have low resistance — we are talking major epidemic levels of contagion.
Note: If only the experience cost curve for solar PV worked at the neighborhood level, since it typically shows a halving of installed cost for every 10-fold increase in total installed solar capacity (worldwide)!
The large transmission authority serving the upper midwest – the Midwest Independent System Operator – has plans for new high-voltage transmission lines leading from windy states like the Dakotas to places like Michigan. The purpose is to bring renewable energy from big western wind farms to places East.
Some of these places – like Michigan – would rather do it themselves.
The initial list of projects in the MISO region has an estimated cost of $4.8 billion. But MISO has pointed to additional projects over the next several years that could total between $16 billion and $20 billion. Michigan’s share of $16 billion worth of projects would be about $640 million annually. And most of these funds would be sent out of the state.
…This would happen even though Michigan already has its own state law requiring that 10 percent of its power must be generated using alternative sources by 2015. And all of that renewable-source energy must be generated within Michigan — which means electricity consumers likely won’t be buying or using power generated in other states.
The article doesn’t even get into the meat of the issue: that renewable electricity imports may be marginally cheaper than wind and solar power in Michigan, but that the economic impact of locally developed projects doesn’t show up on electricity bills.
Michigan isn’t alone in their desire for self-reliance. Ten East Coast governors signed a letter to members of Congress to protest visions for a new nationwide network of transmission that would have them importing Midwest wind at the expense of domestically built renewable energy. And the Canadian province of Ontario developed a comprehensive clean energy program with a requirement that all renewable energy and a majority of the actual components of new renewable energy facilities come from inside Ontario.
It may seem counter-intuitive that citizens would prefer more expensive electricity, but when weighed against the economic opportunity of local ownership and development, perhaps it’s no surprise.
A delightful infographic from 1BOG, residential solar aggregators who are driving down the cost of solar PV across America.
They also note that the cleanup cost for the oil spill – $32 billion – would buy enough solar to power all of Los Angeles county for 30 years, for less than 15 percent of what Los Angeleos are expected to pay through 2040.
Using the tax code to support wind and solar power significantly increases their cost. I wrote about this problem last year because project developers were selling their federal tax credits to third parties at 50 to 70 cents on the dollar.
Along these lines, the Bipartisan Policy Center released a study [last week] showing that simply handing cash to clean energy developers is twice — yes, twice — as effective as supporting them through tax credits. [emphasis added]
The problem is that all but the largest renewable energy developers or buyers can’t capture the full value of the federal tax credits. So, prior to the economic collapse, a number of enterprising investment banks (and others) started buying up tax credits to reduce their tax bills.
This was great for big banks, but lousy for taxpayers and electric ratepayers. In fact, using tax credits instead of cash grants for wind and solar projects increased the cost per kilowatt-hour produced by 18 and 27 percent, respectively. (Wait, why not 50 percent? Because even though the tax credit is only half as good as cash, the cash payment only covers up to 30 percent of a wind or solar project’s costs. So cash in lieu of tax credits can only improve that portion of a project’s finances.)
Seen another way, if the $4 billion spent on renewable tax incentives in 2007 had been given as cash instead, it could have leveraged 3,400 MW of additional wind power and 52 MW of additional solar power. This would have increased incremental installed wind capacity in 2007 by 64%, and installed solar capacity by 25%.
The increased costs come from higher prices that utilities pay for wind and solar power (and pass on to consumers) as well as the the cost to taxpayers of passing half of the tax credit value to investment bank shareholders instead of wind and solar projects.
The problem isn’t solved, but has simply been postponed.
When the economy tanked, so did profits (and tax liability) for big banks. Wind and solar producers had no one to buy their tax credits and the entire industry was in danger of collapsing. The adjacent chart illustrates the idiocy of relying on the tax code for energy policy.
Congress stepped in with a temporary fix, allowing project developers to receive a cash grant in lieu of the tax credit. The temporary cash grant (currently extended through 2011) kept the wind and solar industry running during the recession and has saved taxpayers and ratepayers billions of dollars.
It’s also helped level the playing field, allowing for local ownership of wind and solar projects, rather than requiring complex tax equity partnerships. It’s meant more revenue from wind and solar staying in the local community. And this means a larger, stronger constituency for renewable energy.
The cash grant option will expire at the end of 2011, but hopefully the climate hawks and fiscal hawks in Congress will take note: we can support wind and solar at half the price with smarter policy.
Hat tip to David Roberts at Grist for the study link.