States Crack Open the Power Grid

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2008 was a big year for residential energy producers who are hoping to make their solar panels, wind turbines and other renewable energy investments pay off. Dozens of states, spurred by high fuel prices and power shortages, tore down barriers to distributed generation. They’re heading toward a goal of having millions of small producers feed excess energy into the power grid, which would increase the electricity supply and reduce the nation’s reliance on coal-fired power plants.

The country still has a long way to go for interconnection between energy-producing homes and the power grid to become common. A 2008 survey of 63 utilities nationwide found that only seven of them had interconnections with more than 500 residential solar-power systems.

Policy advances by states, however, are setting the stage for more aggressive progress on clean energy expected from the new Obama administration.

The rate of improvement in state policies related to distributed generation has been almost exponential, says policy analyst Laurel Varnado, who writes for the Interstate Renewable Energy Council. The IREC found that in 2008:

  • Nine states improved their policies on fees and size limits for small energy producers who want to interconnect with the power grid. Small producers have struggled with their utilities’ lengthy and expensive processes for arranging interconnection. Massachusetts, New York, and New Mexico led the way for interconnection last year by raising system size limits and creating fee tiers for customers.
  • Twenty-one states and the District of Columbia improved their policies for net metering for fairer billing. Net metering essential allows the electric meter on a renewable energy-powered home meter to spin both ways—forward when the home pulls power from the electric grid, and backward in the form of credits when the home pours excess electricity into the grid. Forty states now have statewide net metering programs. The stragglers are Alabama, Alaska, Kansas, Mississippi, Nebraska, South Carolina, South Dakota and Tennessee, and then Michigan and Idaho, which have voluntary programs, according to the New Energy Choices, which grades states’ distributed generation policies.

Net metering is vital for investments in renewable energy to realize their true cost effectiveness. Solar panels, for example, produce power during daylight hours when the home’s residents are less likely to use it. Much of the benefit the homeowner would have received from that solar power would be lost if owner wasn’t credited for energy shared with the grid. As Varnado explains:

A lot of people are scared of investing in photovoltaic for their house because there’s such a huge upfront cost. If you have net metering, you have the knowledge that the energy you produce now is going to offset your electricity cost. You want all the energy you produce to pay you back throughout the year.

The federal government started the conversation on distributed generation with the U.S. Energy Policy Act of 2005, then left it to the states to open up the power grid. The act required state public utility commissions only to "consider" standards for net metering and interconnection by 2008 and for utilities to offer net metering if a customer requested it. As the state utility comissions watched fuel prices skyrocket, they realized that interconnection and net metering benefited everyone.

Communities and the planet benefit because when large numbers of renewable-energy producers feed power into the grid, the grid becomes less reliant on burning fossil fuels. The more production points, the better protected the grid is from blackouts due caused by power plant equipment failures, too.

Utilities benefit because most renewable energy, particularly solar, is produced during peak electricity use periods. If small producers are feeding power into the grid at peak times, utilities will fire their furnaces less often and have less variation in the amount of energy they must produce. Opponents have suggested that people will install oversized systems and then require the utility to pay them, hurting the utility, but that argument doesn’t hold water because it wouldn’t be cost effective, Varnado says.

The ideal distributed generation policy will encourage small producers to interconnect with the grid, protect them from excess interconnection fees, allow net metering for all renewable energy producers, and let customers roll over their credits month to month for energy they produce and pour into the grid. New Jersey currently has some of the best practices for both interconnection and net metering. The state streamlined the interconnection process, set three levels of interconnection fees based on the size and complexity of the renewable energy system, prohibited utilities from layering on unnecessary and expensive equipment, allowed customers to bank their credits month to month, and set its size limit high enough to give businesses an incentive to install renewable energy equipment. New Jersey also has a law requiring more than 2 percent of its retail electricity to be solar power by 2021, and it offers a broader incentives package to encourage renewable energy production.

For 2009, the IREC expects more states to follow New Jersey’s lead on distributed generation. Energy customers will likely find home-based energy solutions more attractive as well as their electricity prices rise—as much as 10 percent in 2009 according to the U.S. Energy Information Administration’s estimates. Southern states, which have lagged most of the country in distributed generation policy, could begin taking greater advantage of their abundant solar power and biomass. Another trend is likely to be more community net metering and shared systems. Community net metering allows a neighborhood or a set of buildings to invest together in a renewable energy source, such as wind turbines, and share the benefits.

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