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.
“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.
Green claims Georgia Power wouldn’t lose out, because the grid access fees Georgia Solar would pay would make up for the loss of ratepayers. He anticipates Georgia Power will take legal action if the State Legislature amends the law and PSC okays its bid to become a utility.
The Georgia Power spokesperson wouldn’t speculate on what action it might take.
If Georgia Solar can proceed, the new utility would target 2,000 megawatts of solar power by 2016, nearly 10 times the amount of solar electricity Georgia Power plans to purchase over the next few years.
Green believes he and other solar entrepreneurs will eventually get their day in the sun. Solar is the fastest-growing power generation source in the United States, and in sunny Georgia it’s still only less than one-tenth of one percent of the energy mix.
“How do you beat down a technology when it’s being used all over the world except in your little fiefdom?” Green said.
Colo., Calif. Firms Blaze New Paths
In Colorado, a similar push is already making progress.
This summer, one-year-old PanTerra Energy became the first company in Colorado—and one of just a few nationwide—to be registered as a geothermal utility.
Now it’s working to present the state’s public utilities commission with a plan to sell geothermal heating and cooling directly to commercial and public building owners.
Geothermal heat pump systems take advantage of Earth’s stable ground temperatures, which range from 45 to 75 degrees Fahrenheit. The pumps use long metal pipes filled with a water-based liquid. In the winter, the fluid absorbs underground heat and transfers it through pipes to a pump in the basement, which circulates warm air throughout the building. In the summer, it works in reverse: The liquid absorbs heat in the building and pipes it underground so the Earth can cool it. The cooled liquid is then circulated back into the structure.
The pumps use up to 70 percent less electricity than conventional boilers and air conditioners. Customers typically cover the upfront costs of the system within five to 10 years from savings on utility bills. Still, many potential customers like school districts, municipalities and prison systems don’t have the cash to buy and install the equipment.
For such customers, PanTerra is proposing to own, install and operate the pumps and charge them for the heating and cooling and to lease the equipment. To do so it had to become a utility.
The big utilities have shown little interest in small-scale geothermal, according to John Kelly, operations manager for the Geothermal Exchange Organization, the industry’s main trade association.
“That gives PanTerra an advantage” and “a very large market” to target.
California-based Gen110 is also trying to break the traditional utility business model, but by convincing more homeowners and businesses to generate their own solar electricity using distributed generation, or DG.
DG is any small-scale system that generates electricity on-site usually via rooftop solar panels. Unlike a centralized power plant model—which emits electricity in one direction from power plants through transmission lines to local distribution lines—solar panels work in two directions. When the sun shines the panels send power to the grid; at night or on cloudy days they take in electricity. If connected to battery back-ups, the systems can store excess power and keep the lights on when the grid goes down.
Last year, the United States installed more than 60,000 residential and commercial solar systems, almost all on rooftops.
California-based Gen110 wants to increase that amount by trying to appeal to people’s pocketbooks, according to Jason Brown, the 34-year-old CEO and co-founder of Gen110. He said homes and businesses can save up to thousands of dollars each year by generating electricity locally, because it eliminates most of the transmission and distribution fees utilities charge to deliver power from power plants.
Gen110 mines voluminous amounts of data on energy usage so it can spot the people who could gain the most financially from putting solar panels on their roofs—typically those who consume lots of energy or pay exceptionally high utility rates. Brown declined to say what type of data the Gen110 team uses or where they get it.
So far, the startup has partnered primarily with SunRun, a leading San Francisco solar leaser and installer. Armed with data, Gen110’s 70-person team meets face-to-face with potential customers to explain how SunRun’s financing plan works. People who sign up pay two bills: one to their utility and one to SunRun. Brown says the sum of the two bills is always less than their previous utility bill.
Gen110 so far has helped distribute solar electricity to 2,400 households across California.
Its goal? “One day, every home in America will have onsite power,” Brown said.
Can Small Players Ever Compete?
All these efforts are still small potatoes compared to what U.S. utilities handle—more than 1 million megawatts in electrical capacity, mostly from about 1,400 coal plants and 5,500 natural gas plants.
Will smaller renewable companies ever be able to compete?
Experts told InsideClimate News the answer is yes because of falling costs of clean energy and growing interest in renewables from investors, businesses and homeowners.
But a major shift in the power sector is still a few decades away, they agreed. “This is a very big and very powerful industry. It’s not easy to change,” said Marchant Wentworth, the deputy legislative director for the climate and energy program at the Union of Concerned Scientists.
Distributed solar is expected to be one of the biggest drivers of change in utility business models because of increasingly favorable economics for solar installations. Today, less than one-half of 1 percent of the nation’s total electricity comes from distributed renewable power that’s produced on people’s homes and buildings.
In Germany, which broke the mold of big utilities and fossil fuels by democratizing its energy system, about 70 percent of the record 7,500 megawatts of solar it installed last year was distributed generation owned mainly by individuals, cooperatives and communities.
Solar power system costs are declining rapidly, thanks to falling panel prices, which have dropped by nearly 80 percent since 2008. New financing tools such as leases and Property Assessed Clean Energy (PACE) finance programs—which let homeowners pay back solar loans on their property tax bills—are enabling more Americans to afford the installations, spurring demand.
“If solar costs keep coming down—and we have every reason to believe that they will—then [rooftop] solar will eat away at the revenue of big utilities, because it’s not under their ownership,” said Ted Hesser, a clean energy analyst at Bloomberg New Energy Finance.
That could lead utilities in the next few decades to find new ways to make up for lost revenues, he said, including investing aggressively in large-scale solar plants to compete with smaller rooftop systems, or to become financial partners with the solar developers themselves.
“The entire business model for utilities might change, and what it changes into is a question mark,” he said. “It’s going to take a long time to be clear.”
InsideClimate News reporter Elizabeth Douglass contributed to this report.
Clarification: An earlier version of this article said geothermal pump systems are not connected to the electrical grid. While heat and cooling generated by the geothermal system are not distributed on the power grid, the systems do draw electricity from the grid to run the pumps.