Money and the Growth of the Smart Grid

The great American musical, Hello Dolly, has catchy songs and a most memorable quote.  As the main character, Dolly Levi points out, “Money, pardon the expression, is like manure. It’s not worth a thing unless it’s spread around encouraging young things to grow.” Here in California, two different cities are embracing this concept, and encouraging the growth of the Smart Grid in their urban areas.

Two cities in California – Sacramento and Lancaster – are taking steps to increase renewables generation within city limits.  One of them is taking it a step further with negawatt production through energy efficiency to reduce energy consumption.  In both cities, they are leveraging innovative financial programs to help fund adoption of both energy efficiency and renewables generation technologies, spurring technology markets and local economic development.  Their actions will also accelerate upgrades of distribution grids to accommodate the proliferation of small generators who will want more options to sell excess electricity back to the grid.

Sacramento launched a Clean Energy Sacramento commercial and residential PACE (Property Assessed Clean Energy) program at the beginning of 2013 that can be used to fund investments in renewable energy or energy efficiency measures.  By eliminating the upfront costs of these projects and allowing up to 20 years for paybacks through property tax bills, building owners have a better timeline to factor in the total costs of ownership or TCO.  According to the Building Owners and Managers Association (BOMA), utility costs are usually the largest itemized expense for office buildings, and can be up to one third of the total operating costs in urban settings.  The program benefits go beyond the building itself.  This study projects that for every $100 million spent via a PACE program, 1,500 jobs are created, economic activity is boosted by $250 million, and localities enjoy $25 million in tax revenue.

Lancaster has a different approach in the form of a requirement that all new residential housing developments must incorporate solar in rooftops.   The proposed legislation gives developers the leeway to put solar on all new rooftops or on some of them – as long as minimum percentages are met.  Beyond this proposal, the city has also created a public/private investment model for funding solar projects by combining city tax-exempt bond proceeds with private capital.  This financing mechanism is intended to reduce the costs of capital and create more incentives for developers to go solar in a big way in Lancaster.

But as more and more new home developers are noting, why not put solar on every new roof?  More homebuyers get the value proposition that rooftop solar can reduce electricity costs by 20-80%.  That’s a significant TCO advantage for new homes.

The city also anticipates that these actions will help the local economy through reduced unemployment and reduced money spent on utility bills, which can then be spent with local businesses.

In both cases, the increase in renewable energy production raises the possibility of returning excess electricity to the grid.  It’s one of the distributed energy resource (DER) scenarios that will become commonplace as more towns and cities adopt similar measures for reasons that range from reducing carbon footprints to improving economic and energy security.  The distribution grids in these localities must be upgraded to support such changes, and that in turn accelerates more Smart Grid investments.

These examples raise some interesting questions for leaders of municipalities, and particularly those that have locally-owned utilities here in the USA.  Could you create similar programs for your constituents?  Would your local sources of capital – regional banks and motivated investors – recognize the potential paybacks in both economic and energy security through their commitments of funding? The innovators in Sacramento and Lancaster will prove soon enough if their innovative policy and financial programs are fertilizers for local economic growth.