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Clean Power Startups Aim to Break Monopoly of U.S. Utility Giants

A small band of upstarts is quietly trying to innovate their way into a 100-year-old energy market dominated by utilities and fossil fuels. Can it work?

Dec 12, 2012
Solar installation

In Georgia, a tiny consultancy aims to break the conventional mold of electricity generation and become the nation's first all-solar utility.

In Colorado, a young startup seeks to do something similar with geothermal. And in California, a small firm wants to stoke a boom in distributed solar rooftop arrays that would cut dependence on polluting, faraway power plants and lessen impacts when severe storms like Hurricane Sandy knock out critical infrastructure.

This trio of upstarts is part of a small band of renewable companies attempting a daunting task—innovating their way into a century-old energy market dominated by big utilities and fossil fuels.

It's the "very first pitch of the first inning," said Jason Brown, CEO of Gen110, the California firm seeking to make distributed solar generation more mainstream.

In Germany, the world's clean energy leader, it took a federal law passed in 2000 to pave the way for the transformation of its power sector. The law decentralized power production and gave small producers incentives to compete with utilities.

Read the story of Germany's remarkable clean break with coal, oil and nuclear energy as a Kindle Single ebook on Amazon for 99 cents.

Experts say the road will be long for small U.S. renewable companies, because the barriers to entry into the power sector are so high.

For nearly a century, utility companies have channeled electricity around the United States through central power stations, thousand-mile-long transmission lines and switching stations. State electricity regulations almost always favor that status quo—and limit the number of small clean energy systems that can connect to the grid.

Utilities are often the only entities that can sell electricity to consumers. And while a 34-year-old federal law requires them to purchase power from smaller generators if the grid can accommodate them, the price they're paid for their electricity is usually too low to finance the renewable systems.

Complicating matters further, utilities are wary of adding intermittent wind and energy sources to the grid, fearing too much unreliable power could compromise their ability to deliver electricity and force them to drive up prices.

Some developers, like Robert Green, a Georgia consultant on solar projects, said they've played ball with utilities to get renewables on the grid—but have come away feeling thwarted by utilities' apparent resistance to develop larger amounts of renewable power.

After helping clients make deals with utility giant Georgia Power, Green, 62, opted to go it alone a half a year ago, co-founding Georgia Solar Utilities.

"I just decided to ... leave Georgia Power out of the equation."

If all goes to plan, Georgia Solar would become America's first utility to deliver electricity exclusively from the sun.

Genesis of the First Solar Utility

The impetus came after Georgia Power rejected Green's unusual proposal to buy his planned 90-megawatt, $320 million solar project in a town southeast of Atlanta through a 20-year financing agreement.

Typically, developers and investors own the plants, and utilities buy the electricity through long-term power-purchase contracts. Green claims his alternative model makes more financial sense for utilities in the long run. That's because it's cheaper to purchase, maintain and operate a solar farm than to sign new power contracts with developers every few decades.

Georgia Power didn't agree. It counter offered to buy just the electricity for around 8 cents per kilowatt-hour, a rate similar to what it pays for coal and natural gas. Green said the project would need at least 11 cents per kilowatt-hour to lure enough financing to get off the ground, and so he rejected it.

Now he's seeking approval from the state's Public Service Commission (PSC) to operate as a utility so he can transport power through the grid and sell it himself.

It won't be easy. Last month, the PSC said it doesn't have authority to make Georgia Solar a utility due to a 1973 state law that gives existing utilities exclusive right to provide and sell electricity. The PSC expressed support for solar utilities, but kicked the matter to the state's Republican-led Legislature.

Georgia Power, the state's largest utility and co-owner of much of the state's transmission lines, said the Georgia Solar proposal would require complex changes to the utility law, which it wants to keep as is.

The law has "helped ensure our good reliability and prices below the national average for our customers," said John Kraft, a spokesperson for Georgia Power. "We think it's worked well."

Under Green's solar utility vision, Georgia Solar would pay Georgia Power several million dollars a year to use its infrastructure. Ratepayers would be allowed to participate in a program that lets them buy Georgia Solar's clean electricity during the day and Georgia Power's mostly coal and natural gas power on cloudy days or at night. Those who sign up would get a cut of Georgia Solar's profits at the end of each year.

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