Local Energy Markets
Sep 29, 2008 at 08:46PM 
This commentary aired October 1, 2008 on KUNM.
I'll post the audio as soon as it's available.
One of the greatest myths of our time is that renewable energy isn’t quite ready to compete with so-called “conventional” sources of energy. More research is needed, we are told, because renewables are still too expensive. So onward we march, powering our homes with coal and filling our gas tanks with imported go-juice, all the while shipping bagfuls of cash out of our communities to pay for it.
There is a lot of evidence that this myth about renewable energy is false. Many countries smaller than ours are installing renewables faster than we are, creating jobs and increasing their self-reliance while lessening their environmental footprint. So, why does the myth still play so well in the United States?
One reason is that the oil, gas, coal, and nuclear companies here are actively engaged in energy policymaking, and they repeatedly tell the myth to lawmakers at all levels of government. Using carefully crafted messages backed by well-funded research, they tell the same story again and again: We wish we could...we look forward to the day when we can...but right now, we just can’t.
The key to telling a lie is delivering it alongside the truth. And it is, in fact, true that we haven’t figured out how to turn bloated, investor-owned monopolies and their overpaid executives into agents of community sustainability. If that were the plan, renewable energy would never be ready.
There is, on the other hand, a way to roll out renewables right now that would stabilize energy prices, create good jobs, retain energy-dollars in the local community, and provide secure and sustainable energy for the long term. It isn’t being proposed by either of the major party candidates for president, who instead keep insisting that renewables aren’t enough, and that we need to develop nuclear power as well as some strange substance they are calling “clean coal”.
No, it turns out that renewables can serve all of our needs, and the transition can happen quickly if we would just provide one thing that’s missing: a market. If we set up a market whereby independent energy suppliers could trade with independent energy consumers, we’d be all done.
Now, there have already been many attempts to create local markets for energy, but nearly all of them have been shut down by incumbent energy suppliers. I know this one guy who was trying to sell high-efficiency cogeneration systems, until one day he discovered that the utility was offering cut-rate electricity to his prospective customers in exchange for an agreement that they don’t buy one of his systems. He sued the utility, but as soon as the utility realized they were going to lose the case, they settled out of court. Did the utility retreat in shame, and amend their practices? Hardly! Instead, they drafted a law making what they were doing legal, and persuaded their state legislature to enact the law. Now, whenever a customer even thinks about putting in a clean, efficient, on-site system to generate their own power, utilities can offer something called a “load-retention rate” to entice them not to do it. That’s just one of their tricks – the list is long.
If lawmakers and regulators are unwilling to keep incumbent energy suppliers from obstructing the market for local, independent renewable energy, we’ll need to create this new market ourselves. All we need to do is organize all the energy consumers who already want to buy clean, locally generated power and heat, and form alliances with the local, independent energy producers. The only hard part will be fighting against an enormous, entrenched opposition of dirty energy suppliers, but in reality, we have all the power we need to pull this off.
Because next year, as we set out to spend another two-trillion dollars meeting our energy needs, we can simply decide to give it to independent energy companies right here in our community.
Smart Grids: How Smart?
And there are reasons to be hopeful. Decentralizing our electric system by adding a lot of small generators would help achieve the Smart Grid project’s primary objectives of improving the reliability, security and efficiency of our electric power system. Renewables also create a lot of jobs per unit of energy, and with unemployment above 8 percent for the first time in 26 years, that could provide welcome relief. And job creation is a bipartisan issue – you'd be hard pressed to find a politician in Washington willing to argue against entrepreneurship.
But what exactly is the vision for a smart grid? The characteristics were officially spelled out in Title 13 of former President Bush's Energy Independence and Security Act of 2007, which envisions using digital communications and control technology to enable the variety of devices connected to the grid to talk with one another. The idea is that by communicating, loads and sources on the grid could alter their behavior in beneficial ways. For example, if you plug in your car when you get home from work but don’t need it fully charged until morning, the start of the charging cycle might automatically be delayed until other loads turn off, perhaps after you go to bed. Smart appliances like air conditioners and refrigerators could limit the amount of cooling they do when the grid is approaching overload, and smart cars might offer up some of the energy in their batteries to help power those loads.
But will the project dubbed “Smart Grid” be smart for consumers, or just for utilities? The name certainly implies a “no-brainer”, suggesting a win-win so obvious that we needn’t concern ourselves with the details. That’s usually a good clue that a closer look is warranted. Remember the Patriot Act?
The first hint of a problem, beyond all the dubious language about data mining and cyber-threats, is a curious passage requiring states to consider allowing utilities to bill consumers for the value of any equipment rendered obsolete by the program. Compensate utilities for their obsolete technology? Imagine typewriter makers agreeing to build computers but insisting that we have to keep paying for typewriters too. And what if the new grid is so smart that it renders the old one useless? Must we keep making payments on the dumb grid even as we begin paying for the smart one?
Another disturbing provision – this one in the stimulus bill – requires states seeking stimulus funding to provide assurances that they will work to implement rules ensuring that utilities won’t make less money as energy use declines. These rules, termed “revenue decoupling” rules because they decouple utility revenues from the volume of energy sold, are being touted as a way to encourage utilities to help their customers conserve. The obvious problem (although not so obvious that anyone is talking about it) is that under revenue decoupling, a single customer can still save money by cutting electricity use, but an entire community cannot. Once the revenue of a utility is guaranteed regardless of usage, it doesn’t matter how much energy the community conserves – all together they are still obligated to pay the same amount to the utility. Revenue decoupling rules are, in reality, little more than thinly veiled attempts to guarantee the revenues of an industry that is hurtling headlong towards obsolescence.
With rules that force consumers to continue paying for obsolete assets and for energy they no longer consume, we ensure that the lions share of benefits from modernizing our power grid will go to utilities, rather than consumers. But there is another way to go about it, and other countries are already well down the path.
Denmark had wind but didn’t have the economic power to develop it, so instead they created a policy that enabled inventors and entrepreneurs to access renewable energy markets even before their inventions were market-ready. Within a few years, companies in Denmark were designing and building some of the most advanced turbines in the wind industry, and the tiny country of just over 5 million citizens today controls 38 percent of the world market for wind turbines.
What was Denmark’s secret? They simply opened up their power grid to every renewable electricity producer seeking a market, guaranteeing their right to interconnect and promising to buy every renewable kilowatt-hour produced at a premium price called a “feed-in tariff”. The flood of renewables that followed eventually necessitated upgrades to their grid, but those upgrades were driven by a mandate to accommodate new players, rather than to protect incumbent ones. Forty-six countries now have a feed-in tariff law, validating its reputation as the world’s most successful tool for advancing renewable energy.
The Smart Grid project might succeed in modernizing the power grid, but unless we change its focus it will fail to provide consumers with cheaper, cleaner, and more reliable power. You can’t simply throw billions of dollars at the builders of the dumb grid and expect them to build a smart one. We tried that with investment banking, pouring trillions into the very companies that created our financial crisis rather than taking a hard look at fresh policy approaches.
With the power grid, there’s no room for mistakes. Modernizing our electric power infrastructure using policies that create entrepreneurial opportunities for small businesses is where the smart money will go.