Navigant Research Blog

Distributed Energy and Community Choice Making Big Gains with Small Utilities

Alex Eller — May 2, 2017

The falling costs and improving economics of solar, wind, energy storage, and other distributed energy resources (DER) are driving a growing movement toward community-based energy systems around the world. The concept of community power has been around for centuries and is characterized by local ownership, local decision-making, and the local distribution of economic and social benefits. Over the past decade, island nations have emerged as pioneers of new community power models given their high electricity prices and natural requirement for local energy systems. The falling costs for DER, along with regulatory changes, are now laying the foundation for growing community power movements in larger and more traditional power markets. The first World Community Power Conference was held in Fukushima, Japan last November. The location of this event was no coincidence, with the city’s recent history highlighting the disadvantages and potential dangers of traditional, centralized energy systems.

Community energy movements could be a driving force in the reshaping of America’s energy systems and the growing DER industries. North America already has a strong tradition of community-based energy with thousands of cooperative and municipal utilities, in addition to the growing number of community choice aggregation programs around the country. However, many of these organizations have been locked into long-term contracts to buy nearly all their energy from a single provider. This dynamic has limited local renewable energy development, as power providers can charge these customers a fee for any lost revenue through the self-generation caps in contracts. A major breakthrough for these small utilities came when the Federal Energy Regulatory Commission (FERC) prohibited these self-generation fees in a ruling last year. This ruling freed cooperatives to begin local solar and other DER developments in their own communities, now a viable alternative to conventional sources. Cooperatives in the United States now own nearly 1.3 GW of renewable capacity and plan to add 2 GW more over the next 5 years.

Falling Costs Generate Increase in New DER Projects

Community power organizations are increasingly interested in renewables and local energy sources due to their falling costs and the potential to stimulate significant local economic development. DER also allow organizations to add generation capacity on a much more incremental and flexible basis, as opposed to contracting energy for a decade or longer. Since the FERC’s ruling last year, the number of cooperatives with new DER projects has grown significantly.

In early 2017, Texas Electrical Cooperatives Inc. (TEC) announced a partnership with energy solutions provider Advanced Microgrid Solutions (AMS) to develop distributed energy storage systems and provide DER management software for its members. The cooperatives will receive discounts on AMS’ products and services that help maximize the use of local generation resources and lower costs. One of TEC’s most ambitious members, the Pedernales Electric Cooperative, recently announced that it is developing 15 MW of local solar generation capacity at numerous sites in its territory. Elsewhere in the American Southwest, the Kit Carson Electric Cooperative in Northern New Mexico recently announced a solar and energy storage development plan to achieve summer solar independence by 2022. This plan includes the development of over 30 MW of solar generation along with energy storage that is expected to save ratepayers more than $50 million over the next 10 years alone.

With so much of the industry’s focus on large projects and the activities of major utilities, the numerous opportunities with cooperatives are often overlooked. In many ways, the community power movement and the efforts of these cooperatives are the epitome of the global energy transition and the shift to a grid centered around renewables and DER.

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