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: