For the last six weeks I have outlined the big picture on energy, and advocated for transitions in energy and infrastructure that must really be addressed at the federal level. But if federal leadership on these big objectives fails to materialize (as it has, so far), what do we do?
If you’re a resident of Denmark, Colorado Springs, Boulder, Tucson, Orlando, Sacramento, and dozens of other communities, the answer is right in your town. You don’t even need to have an unshaded, south-facing roof and $20,000 to $30,000 to invest in a solar PV system on your house. All you need is an energy co-op.
Today I’ll survey how those strategies work. But first, I want to tell you about a dream I had about a year ago.
I had been trying to imagine how communities might develop energy self-sufficiency as the national grid infrastructure began to crumble and fail, because that is the path we’re on. Without about half a trillion dollars in upgrades between now and 2030, our existing grid is destined for decrepitude.
The technology exists to allow individual towns or regions to become largely, if not completely, self-sufficient in energy. It’s mostly off-the-shelf stuff, and much of it has been around for decades. The only missing elements are the leadership to do it, and the capital. But how do we get from here to there?
The conceptual model is straightforward.
First, the town deploys as much local generation from renewables as possible. In the Southwest, it’s solar; in the Midwest, wind; for the coastal cities, offshore wind and marine energy (comprising a whole suite of different technologies); in mountainous regions, solar and micro-hydro; and geothermal (another suite of various technologies) almost everywhere.
Second, the town develops local storage. Again, a whole range of technologies are available here, including residential- and commercial-sized battery arrays, pumped water systems, distributed flywheels, compressed air in underground caverns, molten salts, ammonia synthesis, and many others.
The final step is to deploy switches that would allow the town to disconnect from the main grid when it goes down, and fall back on their own capacity. This technology is routinely used today, to prevent one power plant failure from taking down the entire grid. But it can also be used to create a “microgrid,” allowing a region to isolate itself from the main grid. Think of a town-sized version of the switch that lets a home equipped with solar PV and battery backup disconnect from the grid when it goes down, and fall back on its battery array.
The hard part would be rounding up the capital and the leadership, and that’s what my dream was about.
A dream of self-sufficiency
It happened in Mill Valley, CA, a fairly well-heeled community of about 14,000 people where I used to live, just north of San Francisco. Frustrated with frequent grid outages, a small group of local, wealthy residents decided to take matters into their own hands. They created a small fund and set a modest target for the first year, like $1 million to buy PV and install it on the larger rooftops in town — for example, the grocery store, the rec center, the sewage treatment plant. At the same time, they added some battery arrays equivalent to the generation of each array. Because they were the town’s elites, they were able to persuade the town council to give them regulatory support for the project, clearing permitting hurdles for new solar systems, and requiring the utility to install the microgrid switches. The managers of the commercial buildings were eager to host the arrays because they were tired of the grid going down and wanted stability, and they readily agreed to buy the power the arrays generated.
When the first year proved a success, the fund was doubled, and more generation capacity was added. Each year, it doubled again. A sense of local pride began to develop around the idea, and by the fifth year, everyone wanted to be a part of it. Grandmothers dipped into their savings and contributed in $5,000 and $10,000 amounts. Schoolchildren held fundraisers and contributed $200 at a time. By the tenth year, the largest roofs and available ground space were covered in solar PV modules, and by the twentieth, nearly every spot with good solar exposure had it.
In time, the microgrid switching was installed, and larger storage projects were undertaken. A multi-million dollar system to store power for the whole town was installed, which pumped water up nearby Mt. Tamalpais and used the existing reservoirs. Old Fort Cronkhite, which is situated on the edge of the Pacific Ocean and was converted to national park in the mid-1970s, was repurposed as a tidal barrage generator like Rance Tidal Power station in France. A small wind farm was tucked back along the ocean-facing side of the mountain. Vehicle-to-grid technology allowed thousands of electric vehicles to contribute more battery backup capacity. (The Prius is ubiquitous in Mill Valley.) A free electric shuttle bus system was created that eliminated three-quarters of the local vehicle traffic, and an electric light-rail track to San Francisco was installed, all powered by town’s own generation.
Twenty years after the project began, failures of the three national grids had become commonplace, along with a great deal of social unrest. But not in Mill Valley. It had developed enough generation and storage capacity to support its essential services (like lights, heat, refrigeration, communications and emergency services) during major outages, and those occasions became celebrations of community spirit, with impromptu parties and potlucks. A culture of conservation had grown up along with the project, and everyone shared a sense of pride and ownership in what they had accomplished. Solar panels and wind turbines, once derided as scenic blights, were now considered beautiful. Hundreds of millions of dollars had been retained in the community, and it had prospered in difficult times thanks to its ability to keep the lights on.
It didn’t take more than a few multi-day outages before other communities in the Bay Area began to sit up and take notice. The town’s success made national news, and the model caught on quickly. Within a few years, every town in America wanted to be self-sufficient in times of need, and found the spine and the local capital to follow suit, using whatever local renewable resources they had.
That was my dream, but as it turns out, it isn’t just a dream. The first stage of it is already happening.
Community supported power in Denmark
Denmark has used the cooperative model very effectively to build three offshore wind parks. The first such project, a $64 million installation built in 2000 near the entrance to Copenhagen Harbor, is operated and half-owned by Denmark’s largest utility. The other half is owned by Middelgrunden Vindmøllelaug, a cooperative that sells shares in the project to the public. Nearly 9,000 shareholders, who can freely trade their shares, have received a 14 to 15 percent annual return on their $777-a-share investment over the first 10 years, 100 percent return on their capital, and residual income of seven percent per year on their remaining investments. With nearly zero risk: Those turbines, and the demand for their power, aren’t going anywhere.
Compare that to a 12 percent total return on the S&P 500 over the last decade (as of this writing – it could be flat or negative in a week or two, as the Eurozone meltdown proceeds), or a two percent yield on a 10-year Treasury bond (which is actually a negative yield, once inflation is factored in).
The economics of the Danish co-op model, as I explained last week, are supported by their aggressive feed-in tariffs (FiTs). Coincidentally, after that piece was published I learned that the Intergovernmental Panel on Climate Change (IPCC) recently issued a report with the same conclusions I had: that when properly constructed and implemented, FiTs are more effective, efficient, equitable, and low-cost than any other incentive mechanisms we use here in the U.S.
Community solar programs in the U.S.
Even without a FiT, however, communities here in the States are finding ways to make distributed solar PV work, even for residents who don’t have a suitable site or adequate funding to install solar on their own properties. By aggregating demand into a single project, the total cost can be reduced by around 30 percent.
Community solar co-ops install a central solar PV system in their local areas, using voluntary investment programs that anyone in the community can join. Some give investors proportional ownership in the project, while others sell shares in it. The solar project is connected to the local grid, where the local utility agrees to buy the power it generates while continuing to handle its customary billing and transmission duties.
The newest such program in the U.S. is in Colorado Springs, CO. A startup called SunShare is sponsoring the project and selling participation to residents with a minimum investment of $1,100, which pays for two panels. The utility will credit customers on their regular bills for the energy their panels produce, and if their share of the system generates more power than they use in a year, they’ll get a credit on future bills. The company claims investors will receive about an 8.9 percent annual return on investment, and earn back the purchase price in 10 to 12 years. The system will be installed on the nonprofit Venetucci Farm, owned by the Pikes Peak Community Foundation, and the lease will be paid for with power generated by the project. SunShare will maintain, insure and monitor the project, and maintains 14 percent of the capital in an escrow account to cover those expenses over the life of the 20-year lease customers sign. The project will be fully subscribed when it reaches 500 kilowatts, and is reportedly nearly there already, just two months after its announcement. When the Venetucci project is sold out, SunShare intends to move on and build more such “solar gardens” on local properties.
A slightly different angle, strictly focused on community investment, is taking shape in Oakland, CA. A startup called Solar Mosaic, founded by angel investors, is raising capital from the community in $100 shares, then offering it in zero-interest loans for local solar PV projects. The buildings where the systems are installed lease the equipment and enter into a power purchase agreement (PPA) to buy the power it generates at a fixed rate over 20 years or so. Solar Mosaic takes a five percent vig on funded projects, and hopes to eventually offer securities sporting a six percent annual return.
Offering securities comes with its own complex set of issues however, and falls under the jurisdiction of the SEC. Its requirements have proved too onerous and forbidding for most securitized community solar schemes to meet, because most of the programs are simply too small to spend the requisite $1 million or more in legal and filing expenses. But a new crowdfunding bill that just passed the U.S. House of Representatives could clear the way for securitized community-funded programs. It would permit social networks and crowdfunding sites like Kickstarter to raise $1 to $2 million in small amounts, under modest and reasonable reporting requirements, which would be enough to fund commercial solar PV projects in the 250 to 500 kW range (500 kW is about the size of a typical solar system on the roof of a Wal-Mart).
To avoid the headaches of securities, Sacramento, CA has taken a slightly different approach with its SolarShares program. Launched in 2008, the program allows customers to buy portions of a 1 MW PV installation in 0.5 kW increments, up to 4 kW (enough to completely power an average-sized home). The utility district SMUD buys the output of the system, which is owned by a third party, then sells the power to SolarShares customers for a fixed monthly fee. The cost to participants is an extra $4 to $50 a month, who receive a credit on their utility bills for power produced by their shares under a scheme called virtual net metering. The first 1 MW installation was fully subscribed in the first six months.
The nation’s first community solar project in Ellensburg, WA also took the virtual net metering approach, only with a central solar garden owned directly by the city. Launched in 2006, it has grown to 111 kW in size, adding new capacity with various types of modules in several phases as participation increased. Customers can join the program for a minimum $250, and buy additional shares up to the point where they offset their entire annual consumption. A Department of Energy grant matches local contributions.
Dozens of other community-based programs exist. For more information, see the Department of Energy’s solar communities guide for local governments and the National Renewable Energy Laboratory’s annual assessment of utility green power programs.
As a final example, a far more radical approach has been taken by Boulder, CO: leaving its utility completely. After years of frustration in trying to get coal-oriented utility giant Xcel Energy to deploy more renewable capacity, citizens voted two weeks ago to explore creating a municipal utility. “Boulder citizens sent a clear message that they want more renewable energy and they’re tired of waiting for it, so they took matters into their own hands,” said the executive director for the Colorado Solar Energy Industries Association. The process make take several years and is full of challenges, but if successful it would be the first city in the nation to leave its utility as an energy transition strategy. Citizens who backed the initiative hope to meet 50 percent of their needs with renewables eventually, and expect the move will add $350 million a year to the local economy instead of the current $100 million a year it pays to Xcel, based in Minneapolis, MN.
In all of these community-based strategies, the economics are about the same: Customers pay more up front, and in exchange get a fixed rate for about 20 years for locally-generated, renewable power. In 20 years, after the decline of all fossil fuels has kicked in, they will be sitting pretty, paying grid power prices far below the going rate. And shareholders in the projects will be yelling “Hallelujah!” with their 6 to 10 percent yields, while the bond and equity markets decline.
We don’t need to wait for the government to kick its fossil-fuel partners out of bed, and we don’t have to wait for a national FiT to execute energy transition. We don’t need any new technology, incentives, or laws. We don’t need to wait years for environmental reviews of huge solar parks, or for a national HVDC transmission grid to be built. We can simply assume responsibility for ourselves, voluntarily and as individuals, and take matters into our own hands. Everything we need is off-the-shelf and ready to deploy now. And it’s not a dream — it’s already happening in dozens of communities across the nation. As cyberpunk author William Gibson famously said, “The future is here. It’s just not evenly distributed yet.”
Photo: Solar Panel Barn Raising, artwork sketch by Katherine Ball