Economic Development through Distributed Generation
Questions and Answers
“Wouldn’t the plan this bill studies increase our electric rates?”
> Yes, a comprehensive ED/DG plan is ratepayer-funded and will raise ratepayers’ bills, initially. It will be a separate line item, no different than existing Electric Commodity Adjustments (ECA) fees we pay every time the cost of coal rises, or renewable energy fees that are collected by the utility on your bill to pay for the RPS, Net Metering, etc. Remember, utilities always just pass on any investments to the ratepayers, whether those investments are for solar or for a new coal plant.
> The average utility bill will initially increase by approximately 70 cents per month. Renewable energy generation virtually eliminates fossil fuel volatility at the development site, and entails only negligible inflation costs. The more renewable energy brought onto the system, the more the system is protected against the predicted energy price inflation rate (DOE = 2.8%/year, Xcel = 10%/year).
> The reasons that renewable energy is less prone to inflationary pressures compared to fossil fuels are that the investment in the technology is made today with typically a fixed interest rate on the investment, and that the feedstock is FREE! There are maintenance costs, say for wind, that is prone to inflation, but the operation and maintenance costs for wind are typically 25% less per megawatt than coal and nuclear generation.
> Therefore, a ratepayer’s bill will generally increase by a peak of about 70 cents, but it will actually trend down over a ten year period (See UCAL Berkeley Study by D. Kammen)
“How can my ratepayer increase be only be 70 more cents than before, if my electricity rate is currently 11 cents per kilowatt hour, and the utility’s offer for wind is 16 cents per kilowatt hour?”
> If the ED/DG program immediately shifted 100% of our electricity power to wind at 16 cents per kilowatt hour, the concern would be valid.
> But the reality is that an ED/DG program’s first year at that 16 cents per kilowatt hour level will be for <1% of the total generation … a 50% premium on a fraction of a percent is not a lot. The second year the tariff comes down to say 15 and a half cents per kilowatt hour, which makes up another fraction of a percent of total usage. The third year it comes down again, and so on and so on until pricing achieves grid parity with dirty, fossil fuels.
> So, even if the tariff were to stay the same — for example, 16 cents per kilowatt hour — (which it wouldn’t), it’s realistic that only up to about 20% of electrical generation in the next decade would consist of ED/DG-driven renewable.
> And remember, today’s relatively low 11 cent per kilowatt hour rate for coal-fired generation is going to increase by a 2.8%-10% COMPOUND rate over the next twenty years – no one argues otherwise. Very expensive compared to a renewable energy system that uses free fuel.
“ED/DG program with fixed standard offer rates isn’t really a Free Market, is it?”
> Yes, it is a free market. The utilities’ standard offer rates are set the same for all developers/participants. The intent of an ED/DG program is to drive demand (come one come all!) by removing barriers that slow the planning and investment process. If you have a project that meets zoning standards, etc., you can be in the renewable energy generating business. Other market models such as energy auctions create uncertainty, and require spending money at risk. Power Purchase Agreement negotiations create financing risk, and require lots of legal fees.
> The “Free Market” activity occurs with the suppliers.
> Since participants only get paid on what they generate, they must choose the best value proposition (highest quality for lowest price) in order to maximize their return (current grants and rebates do nothing to promote these kinds of market dynamics).
> If demand is accelerated by this come-one-come-all policy, then the pressure is on the manufacturers to continue to invest in research and development, to improve their value proposition to capture as much of that share as possible.
> An example is what’s happened in the wind market over the past decade (cost per kilowatt hour has dropped by half, primary due to such policy mechanisms internationally) and solar PV has dropped even more dramatically ($8.00 per watt to seventy cents per watt in 5 years — again primarily driven by policies similar to ED/DG all over the world.)
> Current utilities are hardly free market, since they are supported by government not to lose money, no matter how badly they run their ship.
“An ED/DG program sounds like Corporate Welfare for renewables.”
> Worldwide, the fossil fuel industry receives 10 times more subsidies than the renewable energy market (Bloomberg Energy Report, and many other studies).
> The CLEAN program is not a government subsidy, and it has a finite prescribed timeline to drive the cost of renewables to parity with what we currently pay for fossil fuel energy.
“It’s best to leave the energy-generating business up to the utilities, since they’re the experts”
> The utilities say themselves that they have no incentive to invest in renewables unless there’s a government mandate telling them to do so.
> If there were no EPA, utilities wouldn’t put a dime towards scrubbing their coal exhaust – it’s a mentality born out of a government regulated enterprise and just plain corporate greed.
“European-style feed-in tariffs can’t work in the US, since our electricity prices are so much lower”
> It is true that a program such as ED/DG is more difficult to employ in the US because of this fact, but is hardly impossible.
> Fort Collins Municipal Utility currently has some of the lowest energy procurement rates in the country, and they’re able to make a solar standard offer program pencil out.
> Today’s electricity rates, largely based on fossil fuels, are going to climb again by 2.8%-10% per year compounded, while renewable energy technology prices are steadily coming down.
> We need to begin phasing in renewable power to drive costs down by creating demand for renewable energy so that we can control ratepayer exposure to this inflation sooner rather than later.
“I’ve heard that a lot of distributed renewable generation on the grid would be too difficult to manage”
> Between 0% renewable energy and 20% renewable energy is quite manageable by utilities … there is no argument there.
> We are YEARS away from hitting 20%, even with an ambitious ED/DG program.
> The continuation in technical improvements in grid engineering, integrated weather prediction systems, smart metering, demand response, energy storage, etc. will help us grow from 20% and on up.
> The free market will drive these technologies (both performance and cost) as soon as the market need for them increases with the increasing percentage of renewable energy on the grid.
> For instance, it is predicted that the cost of energy storage will travel the same steeply declining cost curve that we’ve seen with solar PV panels.
> Incidentally, China spent more on battery storage research and development in 2009 alone than the US spent on buying all its batteries in 2009!
“Renewable energy can never be dependable, steady baseload power”
> While many renewable energy technologies (i.e. wind, solar) are intermittent and variable, so is Load at the usage sites.
> The incorporation of grid engineering, weather prediction systems, smart metering, demand response, energy storage, etc. can turn intermittent and variable wind and solar into “dispatchable” energy sources.
– Renewable energy sources such as biomass, biogas, geothermal, hydro etc. are already dispatchable, and are excellent candidates for baseload power.
The paradigm shift is that a configuration featuring many renewable energy technologies complementing each other can 100% replace our current, conventional fossil fuel based electricity supply, today. Replacing this conventional supply in a tapered approach (say 1% per year) can mitigate cost impacts and complications. What’s needed is a policy to drive this important shift; that’s how it works in this country. An ED/DG program policy has been proven to be the best policy mechanism to drive rapid but controlled installation of renewable energy generation.