Can Communities Generate Their Own Power?


With the price of gasoline well over $4 per gallon in the United States, the cost of energy is finally a topic of everyday conversation. But the energy challenges we face extend well beyond the gas pump. The era of cheap fossil-fueled energy is over, and thanks to decades of inaction we now face a series of critical choices. And one of those choices is not just what kind of energy to use (such as wind vs. solar) but how we receive that energy via the national electrical grid.

Most people simply take the grid for granted -- flip light switch on, light bulb goes on. The average person may not understand the extremely complex system that supports that simple act or why it may be important to change it in order to move to more locally supported energy projects.

While the details of how the grid actually works can get very complicated, in simple terms, here is how the present system works:

Electricity is usually generated at a large, centrally located power plant normally fueled by coal, natural gas, nuclear energy, hydroelectricity or a number of other sources. The voltage of the electricity produced is then increased at a "step up" substation for transmission over long-distance transmission lines to locations where the power is needed. This part of the transmission system is characterized by tall towers and thick wires. Then, the voltage is decreased, or "stepped down," at another substation. A so-called "distribution" power line then caries the electricity to your home, where the voltage is usually stepped down one more time to normal household voltage. This part of the system is characterized by thinner wires on smaller (mostly treated wood) poles that can be seen on virtually every street in communities across the nation. The entire system is often referred to as "the grid."

In its present form, however, the grid is like a dinosaur: big, slow to adapt, and in some ways rather stupid. Much of the switching for the grid, for example, is right out of the 1950s. People in pickup trucks still have to go out and manually turn parts of distribution lines off (or on) with long, insulated poles. In addition, when the deregulation of the electric power market began in the early 1990s, electricity went from being viewed as an essential public service to a commodity. This encouraged the dramatic growth in the long-distance trading (and gaming by some -- think Enron) of electricity, creating stresses on the system that it was not designed to handle. This has led to dramatic price increases in some parts of the nation (the exact opposite of what promoters of this strategy had promised) and a number of dramatic -- and very expensive -- major grid power failures in recent years.

The annualized cost of grid failures (and even momentary interruptions) of the electric grid is estimated to be around $100 million. For the most part, the grid is aging 20th century technology that, in its present form, is simply not up to the challenges of the 21st century. There unquestionably is a need for major changes to the grid. However, just what those changes should entail is the main question.

A Need for Change

Electricity demand is at an all-time high in the United States. In 2007, total U.S. electricity generation was 4,159,514 gigawatt-hours (GWh) -- a 2.3 percent increase over the previous year, according to the Edison Electric Institute. But consumption of electricity is projected to increase a whopping 45 percent by the year 2030, according to the U.S. Department of Energy's Energy Information Administration. Whether this projection will actually be reached or not can be debated, but this probable increase in demand poses a real challenge to a grid that can barely keep up with present demand. To meet this new demand, the utility industry estimates that the cost of improvements to grid infrastructure could be at least $900 billion between now and 2020.

There are two main alternatives to meet this demand. The first is to build new transmission capability (or to increase the capacity of existing transmission) and to build large new central generation facilities. This has been the most common approach for many years and is the strategy generally favored by Wall Street and most major utilities.

The second strategy is to build new distributed generation (DG) where, or near where, it is needed, avoiding the need for new transmission. These DG facilities are normally smaller and scattered throughout a region to meet the needs of local customers. This strategy is supported by a growing number of local community activists and other local business interests who tend to view electricity as a basic public necessity rather than a commodity. Considering the huge cost of the first strategy, much of which would probably be borne by ratepayers, the second approach would seem to make a lot of sense, especially since transmission expansion is already severely limited in most urban areas in the United States.

Distributed generation reduces the need for "importing" electricity from other regions and reduces transmission losses. And if the distributed generation is well positioned, it can actually provide "voltage support" for the existing transmission system and improve system reliability. This type of model can include small-scale individual or community solar, wind, hydro, geothermal or biomass DG systems that would enhance and provide greater stability to the portions of the grid where they are located. But not all DG projects fit this model. Large-scale commercial wind farms, for example, are normally located where the wind resource is best, but not necessarily where the electricity is needed. In this scenario, additional expensive transmission and distribution lines are often required.

Community-Supported Energy

While there is a wide range of possible local DG projects, one of them stands out as a particularly attractive model: Community Supported Energy (CSE). These projects are somewhat similar to Community Supported Agriculture (CSA), except that instead of investing in potatoes, carrots or cucumbers, with Community Supported Energy local residents invest in energy projects that provide greater energy security, a cleaner environment and a variety of other benefits.

A cooperative or community-owned energy project offers many advantages. It stimulates the local economy by creating new jobs and new business opportunities for the community while simultaneously expanding the tax base and generating new income for local residents. A locally owned energy project also generates support from the community by getting people directly involved as owners. Another advantage of community energy projects is that they can be owned cooperatively or collectively through a variety of legal mechanisms. Ownership strategies can include limited liability corporations, cooperatives, school districts, municipal utilities or other municipal entities, or combinations of these models. Sometimes a partnership with an existing utility can be mutually beneficial.

An excellent example of this latter approach is the prominent, commercial-scale wind turbine located on Toronto's harbor. It is 50 percent owned by WindShare, a 427-member cooperative of local residents, while the other half is owned by Toronto Hydro Energy Services. The co-op brought strong local support and enthusiasm to the project, while the utility offered technical and regulatory expertise. It proved to be a winning combination.

While the appropriate model will differ from project to project and from state to state (or province), depending on a wide range of variables, what these strategies all have in common is some form of community ownership and group benefit. The main point is to identify the project as belonging to the community, which may prevent (or at least minimize) the usual conflicts between local residents and developers, whose large-scale commercial proposals are often viewed as primarily benefiting absentee owners. Local ownership is the key ingredient that transforms what would otherwise be just another corporate energy project into an engine for greater energy security that directly benefits its owners -- the members of the community.

Community Supported Energy projects offer yet another advantage: They retain a greater amount of income in the local area and increase the economic benefits substantially over projects owned by out-of-area developers, according to a number of studies.

Distributed generation projects admittedly have some disadvantages. Energy conversion efficiencies for DG projects are generally not as high as for large central power stations. In addition, economies of scale tend to favor larger projects, and trying to develop transmission and/or power purchase agreements that fairly credit DG resources can be a challenge. What's more, transmission expansion, pricing and interconnection policies have significant effects on distributed generation. Nevertheless, there are literally thousands of examples of successful DG projects -- especially in Europe, where government policy has encouraged this strategy for many years.

Successful Models

Some of the best early examples of DG can be found in Denmark. Most people associate Denmark with a highly successful wind power industry. What most Americans don't know, however, is that the vast majority of Danish wind installations are composed of small groups of mid-size turbines, not huge wind farms. And most of these Danish wind turbines are operated by farmers, homeowners and small businesses, either independently, or more frequently, as cooperative ventures.

Here is how the strategy worked in Denmark:

Around 1980, the Danish parliament provided incentives for wind cooperatives. This program enabled virtually any household to help generate electricity with wind without needing a wind turbine in their own backyard. There were three key components to the Danish wind initiative:

  1. The right of wind power developers to connect to the electrical grid
  2. The legal requirement that utilities purchase the wind-powered electricity, and
  3. A guaranteed fair price

These requirements removed some of the biggest hurdles to developing the wind industry in Denmark. As a result, the entire wind power initiative was spectacularly successful, and the idea caught on in other counties where the same general regulatory model has been adopted. Similar cooperative strategies can also be found in wind turbine installations in other northern European countries, especially Germany, the Netherlands, Sweden and, increasingly, the U.K.

Successful local projects in these countries have clearly demonstrated that wind turbines can be used to power farms, homes and businesses at a scale somewhere between the small individual homeowner installation and the large-scale commercial wind farms of today. Some of these successful local projects actually are commercial-scale, demonstrating that the model can work at almost any size if it is carefully planned and supported by the community.

Unfortunately, in the absence of a coherent national energy policy in the United States, the rules and regulations governing CSE projects vary considerably from state to state, making it extremely difficult to offer a simple, one-size-fits-all approach for success. Nevertheless, there is a growing number of small, local DG projects that offer good models for other communities around the nation. The Westridge Windfarm in Pipestone, Minn., the Bingham Lake Wind Farm, also in Minnesota, and Hull Wind I and II in Hull, Mass., are excellent examples of community-owned wind power. The Minnesota projects are owned by farmers and other local residents, while the Hull projects are owned by a municipal utility. Regardless of the ownership model, in each of these cases the community receives the benefits of local ownership.

Another example of a small DG project is located in Crested Butte, Colo., where the local community school had a 1.55-kilowatt PV array installed on the roof as part of a Solar In the Schools Program run by Solar Energy International, headquartered in Carbondale, Colo.

The 2005 project included in-class instruction in renewable energy and hands-on participation by students from the fifth, eighth and tenth grades who put the rack and solar array together. Students from the older grades wired the panels together and put the finishing touches on the array. There are hundreds of similar projects sponsored by different organizations on schools, municipal buildings and other structures in many states around the nation, so this definitely is a growing trend.

Even some utilities have begun to realize benefits of small PV systems, which provide locally generated power during peak demand times, eliminating or at least reducing the amount of expensive imported power the utilities have to buy on the open market. Green Mountain Power Corp. in Vermont is a good example of this enlightened thinking. Company officials say solar energy could ease congestion on power lines, delay the need for new power line construction and reduce peak energy demand in hot summer months when demand is highest.

The company is proposing that a new rate to be paid to net-metered customers be set 6 cents above the present rate. If approved, this new rate would unquestionably encourage the installation of more solar PV systems on Vermont homes and businesses. It's a model that could easily be replicated elsewhere.

Barriers and Solutions

OK, if Community Supported Energy is such a good idea, why aren't there more examples in the United States? The main barriers to wide-scale implementation of CSE is a general lack of national standards and an inflexible regulatory environment. In most states there is an outdated regulatory and approval process that does virtually nothing to encourage these types of projects.

For the most part, CSE isn't even on the radar screen of most regulators, and the typical high cost of the approval process (often $100,000 to $500,000 or more, depending on the project) halts most community-based initiatives before they even get started. What's more, federal energy production tax credits (PTC) for wind farms, for example, favor large-scale corporate projects that are well beyond the means of local communities to take advantage of. This can make financing some local projects a real challenge.

But there is hope. One of the best new regulatory models in North America at the present time is the new Standard Offer Contract in Ontario, based on similar European electricity feed-in tariffs. Announced early in 2006, the new Standard Offer Contracts (also known as Advanced Renewable Tariffs) are a historic step toward a sustainable energy future.

Standard Offer Contracts allow homeowners, landowners, farmers, co-operatives, schools, municipalities and others to install renewable energy projects up to 10 megawatts in size and to sell the power to the grid for a fixed price for 20 years. The Ontario Standard Offer Contracts provide a powerful model that other provinces and states should consider when developing their own renewable energy laws and regulations. California, Michigan and Wisconsin are considering adopting similar European-style feed-in tariffs as well. New policies and incentives like those contained in the Standard Offer Contracts should help to break the current logjam in a regulatory environment that is blocking the system modernization that is so desperately needed.

A Smart Choice

Finally, on the technical side, to facilitate the shift to a greater reliance on DG, the existing grid will need to be updated with the latest information technology to improve control and monitoring to bring it into the 21st century. Efficiency of the existing system has not really increased much since the mid-1950s, and most older U.S. power plants waste a lot of energy.

In addition, the distribution grid is one of the last bastions of an old analog technology based on electromechanical relays and switches in today's modern digital world. To resolve this problem, a "Smart Electric Grid" initiative is under development that should provide a more efficient electrical delivery system that will be able to cope with an array of renewable energy sources from wind, solar and geothermal sources. This initiative is being supported by a number of public and private organizations such as the U.S. Department of Energy and the Electric Power Research Institute.

And the first examples of this strategy are appearing in the form of smart local "microgrids" that incorporate a range of modern improvements such as digital controls for the distribution system, integrated two-way communication, transformation of the electric meter into a two-way energy information portal, and the integration of a range of distributed electricity generation and storage capabilities.

One of the early prototype applications of this technology is located at the Illinois Institute of Technology Chicago campus, where the electrical system is being transformed into a modern microgrid. It's expected that the write-off period for the capital investment in the project will be less than three years. It's also anticipated that similar savings will be realized in microgrids for other buildings, neighborhoods and even entire communities. What's more, the efficiencies and peak demand reduction associated with smart grids should reduce the need for large and expensive central generation facilities.

We can continue to sink billions of dollars into an antiquated system that perpetuates an outmoded model, or we can shift those investment dollars into a revamped energy system that will meet our needs well into the 21st century. Which will it be?

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