The Battle Over True Energy Independence Heats Up
Recent news reports revealed global investment in renewable energy slowed over the last two years. Yet beneath these gloomy headlines, the cost of renewable technologies continued to plummet and capacity saw exponential growth over that same period. As a consequence, more and more Americans are relying on distributed, or decentralized, energy such as solar or wind to power their homes and businesses and have happily watched their electricity bills dwindle.
But the utility monopolies, backed by powerful corporate and conservative interests, aren’t about to relinquish their market share without a fight. The battle lines are being drawn, even as the further expansion of distributed energy appears to move inexorably forward.
John Farrell, a senior researcher at the Institute for Local Self-Reliance, is a national expert on distributed renewable energy generation. Farrell recently spoke with AlterNet from his home state of Minnesota (which boasts an impressive use of solar for such a chilly region).
In the phone interview, Farrell lays out the benefits of distributed energy expansion, the ongoing battle to free individuals and businesses from the 100-year grip of fossil-fuel driven utility monopolies, and why he remains optimistic in the face of mounting attacks on so-called “freeriders” from the likes of the Koch brothers and their minions.
Brad Jacobson: We’ve been hearing a lot lately about the slowdown in renewable energy investment worldwide. But what is happening now in the U.S. with the growth of smaller distributed energy generation such as solar or wind?
John Farrell: The economics of renewable energy has been changing considerably and all of a sudden we’re at this time where, in particular places in the country because of their renewable resource like sun or wind, and different places where energy is particularly expensive like the West Coast and the Northeast, it’s competitive with grid electricity, especially if you’re putting it on your own property and off-setting your energy use.
So we have this obvious moment where all these people who are starting new businesses and individuals are saying, “Gee, I never really liked my utility company that much and paying an energy bill, and all of a sudden I might have a cheaper alternative.” And maybe it’s because someone can get it to me or maybe I can buy it myself. So I have this opportunity and if there’s incentives involved too then it may be even more economically attractive, and so it’s really starting to take off.
And I think utilities are looking at it and saying it’s only going to get worse [for us] because we keep raising our rates. More and more places in the country and to greater and greater extent it’s going to be more economical for people to go for the alternative. So our whole business model is blowing up in our faces and we better do something about it.
BJ: What do you think will be the impact of the expansion of smaller distributed energy on the fossil fuel and utility industries? I’ve heard a lot recently about how if utilities don’t get into the distributed energy game or at least change their game, then they could eventually become obsolete. Is it the utilities or is it the actual energy companies themselves who might be threatened?
JF: Well, it’s a little bit of both. The fossil fuel companies really don’t have another business model. That model, should everything go the way that it should in terms of fighting climate change and not emitting carbon, we won’t be buying their product anymore. So those guys are basically needing to find a new business.
The utility companies still have a business—traditionally it’s been selling energy per units, per kilowatt hour. And what they need to do to be successful, if more and more people will be generating their own energy, is pivot and instead of being an energy selling company become an energy services company, facilitating the transaction of energy on a grid system and continuing to balance supply and demand and do all those type of technical things they have done for many, many years. But simply no longer be in the business of buying electrons or generating electrons from power plants and selling them to customers, and have that transaction happen in different ways.
A good illustration is the interstate highway network—there’s no one company that owns that network. But the United States built it and it’s a facilitator of all the commerce that takes place on it, like UPS and FedEx and the [U.S.] Postal Service and everybody else. It’s not delivering the content and the material but they built the infrastructure and they maintain it to make sure it works for everybody. And that would be the idea behind utilities—instead of selling energy on to people and their homes and businesses, they are maintainers of this grid network that allows everybody to transact and keeps everything running smoothly.
BJ: And that grid network, who owns that?
It’s sort of a pseudo public thing. It is a public resource and it’s only this because the public gave companies and monopolies the power to raise capital and build it. It wouldn’t be there if it wasn’t for that policy choice. So the notion that it’s somehow privately owned is a little bit of a misnomer because it’s only there because of public regulation giving these companies a monopoly on that service territory.
So that’s kind of the issue we’re in, where, you know, the interstate highway we built as a public resource. We never had this sort of transition period, everything was always just available to everybody. And this is the issue that’s going on with electric utilities. It’s also going on with broadband networks. Communities are frustrated with the level of service they get but the Internet provider actually owns the wires, and so they don’t have an option to get better competitive service.
BJ: That’s certainly the situation here in Brooklyn with Time-Warner, which controls most of the cable and Internet services. They’re a nightmare, but there’s not really an alternative.
JF: Exactly. In some ways we’re better off in the electric utilities sector because we have these alternatives. You can’t really generate your own Internet service, you have to be connected through somebody and you would really need someone to step in and make public the infrastructure. Whereas in the utility system, we’ve got a situation where with microgrids and solar panels and all these other options, people really can generate their own energy and it becomes more an issue of policy. And that’s where the debate is going.
BJ: Most distributed energy projects we hear about are these giant new solar plants and wind farms, but those are owned by large companies. What does the battle look like now for the survival and the growth of these smaller distributed energy systems?
JF: There are two pressures going on with that notion of distribution. One is distribution of the actual generation of [renewable] energy and that’s going to happen no matter what, simply because renewable energy technology lends itself to that kind of development. You’re going to get some large scale and some small scale but it’s going to be built all over the place, in different places where it was before and probably not always at the scale of big fossil fuel power plants where, you know, a gigawatt of generation. It will probably be going on the ten to hundreds of megawatts from now on, and maybe even smaller than that. So that technological change is happening regardless.
But the other notion of this distributed or decentralized energy is around this concept of ownership. Because what’s happening right now is there’s a lot of interest either in individual businesses—non-utilities essentially—owning a piece of a different energy system, or at least having somebody else own it and lease it from them. But basically non-utility ownership. And that is the thing that is really the threat to the utilities, because they can continue to play ball shifting to renewables and owning it themselves like they’ve always have been. But the problem for them is that when somebody else owns it, they can’t get their return on investment they are getting in a regulated market at 9 percent or 10 percent or 11 percent. Or in the case of a residential customer with a solar panel, they’re simply not selling energy anymore. So that is the real economic threat and the real core of the whole issue going on.
And the people looking at this so-called utilities 2.0 business model—how can utilities of the 21st century stay in business and still participate and allow people to generate their own energy? And frankly, I’m a skeptic. I don’t know that there is a business model that really works for utilities, other than that sort of complete pivot to non-energy selling and being more of a facilitator. It may be possible for utilities to start investing in renewable energy and distributed renewable energy under a new business model.
But what is really evident is that there is a lot of interest in them not continuing to provide that same service anymore, to keep building and owning the power generation. That people want to do that themselves—at a community level or at a microgrid level or what have you. And I don’t think utility business model people are necessarily appreciating that that’s what folks want, and I don’t think they’re addressing the issue of ownership. They’re saying how do we get the utilities essentially to play along so we can solve climate change by getting to renewables. Well, that’s one issue.
BJ: Wouldn’t the expansion of distributed energy, with fewer Americans drawing as much energy from centralized transmission lines, also be beneficial to the stability of the overall national grid?
JF: Yes. The issue of course is the utility can get those benefits and still own those systems. Right now we’re at a point where they’ve been generally resistant to doing distributed renewables simply because it’s not part of how they do their business plan. They raise lots of capital, they build new power plants, they get their rate return—they’re not interested in small-scale stuff. But going forward, they may be more interested in looking at that. The tension ends up being that there are other ways for a utility to get the same benefits for the grid. And the utility has often sought those because they’re ones that are worth more money to their shareholders, such as building new transmission lines.
Solar isn’t actually costing a utility, it’s a net benefit. And it’s a benefit that can outweigh investments in traditional infrastructure that the utility often argues for. And thus, we need to force them to make these calculations so that we can argue successfully that instead of building $100 million of new transmission lines, they should give a small incentive to build solar or other distributed renewables because it will actually give you the same grid benefit at a lower cost.
BJ: So what’s the battle going forward in the fight to expand smaller distributed energy?
JF: Well, the battle really is who will benefit from this new utility system. The Edison Electric Institute, which is the association for all investor-owned utilities in the U.S., put out a report early in 2013 essentially saying that the utility business model is dying and we’re in a death spiral if we can’t stop this stuff. So I think we’re going to have two things happening at the same time.
One is you’re going to have this pressure from the ground up that says we want to own this new renewable energy system and we want policies to change to enable that. And states that have progressive majorities—to the extent that this becomes a partisan issue—they are going to ram through policies that make utilities continue to offer that kind of thing whether or not it works for [the utility’s] business model. So you see that in California, or in Minnesota where we passed the solar energy standard, that advocates for this stuff can win at the legislature and make utilities do what’s right.
Then, on the other side of it, there’s ALEC [the American Legislative Exchange Council] and the Koch brothers and these conservative entities that are essentially trying to preserve a hundred years of monopoly profits in the utility industry by slapping on all the roadblocks they can possibly get to prevent people from doing this themselves. So that’s fees on doing general solar array, standby charges, by whatever means there are. They’re basically saying: how do we screw the economics of people owning this themselves so that the utility retains its monopoly?
BJ: Corporate and conservative forces, like the Koch-funded ALEC, the Heartland Institute, and their friends in Congress, tried to repeal renewable energy standards across the country in 2013. But it was a miserable failure because even some very partisan conservatives in red states, like Gov. Sam Brownback in Kansas, weren’t on board if the renewable standards were benefiting their economy and political constituents.
JF: No, they made no other progress in fact trying to roll that back. But they’re changing tactics on this. Rather than repeal the standards, what they’re trying to do is make it uneconomical for renewables by putting in all these fees and taxes and other things.
I’ve seen this notion of taking the utility conventional wisdom—not to say that it’s factual—which is: somebody who generates his own energy is not contributing significantly to the cost of maintaining the grid. And saying, well, we need to put these fees on folks who generate their own energy to make sure they’re paying their “fair share.” That’s their words: fair share. And that’s despite all the preponderance of evidence that suggests this is not an issue, that there’s not a sort of cross-subsidy happening, that people who generate their own solar are in fact most likely helping more than other folks in benefits they’re giving to the grid. So [they say] let’s slap some fees on these folks, whether it’s a monthly fee or a power generation fee, or what have you, to make it more costly for them to do solar so that fewer people will be attracted by the economics of it.
There was a big fight in Arizona recently. Both sides declared victory because they did end up slapping a fee on the homeowners. But it’s pretty small, it’s like a couple of bucks a month. But you know it slowly pushes back your payback period just a little bit. And the next time around they’re going to try to get a bigger amount.
The irony of course is that this kind of strategy will ultimately fail because solar is getting cheaper so much more quickly than these fees are going up and it’s probably not going to make much difference. It’s really just a play for time.
What utilities are really going to want to do is essentially buy out the ownership of this. So if you got a state like Minnesota, with a 20-25 percent renewable energy standard, what the utility has done, or has done historically, is often buy that power from somebody else. And they don’t get their rate of return on that, but they do meet their renewable energy standard and can kind of offload the risk onto third parties.
But now that these are mature technologies—they know how they work, they know what the costs are—they’ll simply just build the stuff themselves. To meet their renewable energy standard, they’ll get to rate-base it and get to charge everybody for it and get their rate of return that they get for it. And they’ll simply crowd out all the small investment. And when they have fulfilled the standard they’ll turn around and say we don’t need anymore of this stuff, and now we don’t have to buy it or we’ll only have to buy a very small amount relative to what it is that we own.
BJ: What makes you an optimist about the future of distributed energy?
JF: We have fundamentally a coalition that actually cuts across partisan lines for this decentralized ownership notion. And you see that for example in Georgia, where the Tea Party and the Sierra Club together with a bunch of other environmentalists are in what’s called the Green Tea Coalition. These folks are working together at the public utilities commission advocating for Georgia Power, the investor in the utility, to allow more of this decentralized distributed ownership of solar.
And the Tea Party folks are there because they’re basically saying we hate corporate monopolies—it’s hard to believe because they get co-opted a lot in the Republican Party, but they’re really of that same mindset as the sort of granola folks who are like we just want to do free energy and get away from the utility. They all are of the same belief that we want to just do this ourselves and I think that really is the one piece that can change this. In that, if they’re successful and the more people that are able to participate in throwing off their corporate utility overlords and generating their own power and seeing the economic benefits of that, it’s going to reinforce itself.
The folks who do that are never ever going to vote for the folks who are going to try to reinstate the corporate monopoly. And so the political power then builds as well.
So, I am optimistic that even though we are setting up what seems to be a very traditional fight between individual rights around energy and corporate power and money, there is this cross-cutting nature of this coalition around decentralizing energy that could give it some political power different than what we’ve seen before.