Monday, October 14, 2013

Barriers To Scaling Distributed Renewable Energy Resources

There are several barriers to scaling Distributed RE resources.  The first and most significant in my experience as a developer, is an over-reliance on Tax Equity Financing to attract capital to projects.  The cost and availability of this capital is unsuited to funding the sub-megawatt projects which will ultimately be the core of a distributed generation platform.  The limited number of tax equity providers control access to this market and they believe that large scale grid connected projects make the best use of the capital while ignoring the tremendous economies of both scale and scope that can be found with an equivalent pipeline of distributed projects.  As the virtual explosion of Solar DG during the time the 1603 program was converted to a cash grant proved, their judgments are incorrect.

Also stymieing market development, is a general MISCONCEPTION by utilities, regulators and customers that RPS’s and distributed energy resources are a net burden to non-participating electric utility customers.  This is a notion that the recently released paper, A REVIEW OF SOLAR PV BENEFIT & COST STUDIES, by the Rocky Mountain Institute (RMI) should dispel.  As a former electric utility executive, I have long been a proponent of generation resources widely distributed within the distribution and sub-transmission system as a cost-effective solution to the problems facing utilities and their customers.  We have now seen objective proof that high penetrations of renewable resources can be adequately managed so long as the resources are in fact widely distributed and in previous writings and testimony I have given examples suggesting that all customers are in fact benefited by RE DG.  This fact is supported by the RMI report as well as the recent NREL report Renewable Electricity Futures Study. 

Coupled with this general lack of understanding of the value of distributed resources is a seriously balkanized policy regime across the country.  Vertically dis-aggregated utilities in 16 States plus DC and participation in organized wholesale markets in only 34 states has created a disincentive for utilities and IPP’s to make investments in these resources.  And not coincidentally, these same players are unwilling or unable to replace the normal 5-8 GW of generation that retire each year in our country.  This artifact of “Deregulation” has removed access to an important source of securitization for these long-lived utility-like assets since most RE developers are unable to access a more reasonably priced bond market.

It was the ability to access that bond market which led to the creation of the large scale interconnected grid and large central station power sources in the first place.  Unless and until we find a way over or around these barriers, we will struggle to get the kind of scale necessary to establish the grid for the next century-one that has renewable distributed generation, widely dispersed energy storage technologies, and a semi-autonomous “smart” self-healing grid!

Unlike those who suggest the elimination of a rate-of-return model for utilities going forward, I advocate we ought to fix the dysfunctionalities so that these long lived projects can be funded more cheaply over the life of the assets. Using that model over the last 50 years we were able to index electric energy prices to GDP growth making the grid the prime mover of our economy.  That the system is broken is unquestioned, that it has no value should be treated with much skepticism.

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