The existing grid configuration places centralized generation of megawatts (MW – a million watts) or gigawatts (GW – a billion watts) of electricity at locations that are usually far removed from the customers that use them.  A grid configuration that incorporates distributed generation (DG) puts electricity production on a smaller scale close to consumers.  Solar panels on business and residential rooftops are examples of DG, and offer interesting new business models that modify the electricity value chain.                                                                                                                   

An individual homeowner today may sell back excess generation capacity to the local utility at rates set by the local regulatory authority through Feed-in Tariffs (FiTs) or just run the meter backwards through net metering.  But what if a business aggregated the output of many homeowners’ rooftops to represent large kilowatts (KW) or even MW of electricity for sale back to that local utility?  That could result in better prices and greater revenues shared by all participating homeowners, and might also mean reduced costs for the utility since it was dealing with one entity rather than multiples of homeowners.  We already see some evolving forms of this business model at work.  Companies like Sun Edison focus on large expanses of rooftops found in commercial and institutional sectors, and do everything from purchase the solar equipment to monitoring its performance and dealing with utilities.  Solar City uses a similar business model for residential homes as well as commercial facilities.  Their residential model includes leasing solar equipment to homeowners and assuming responsibility for its upkeep.  These companies literally “lease” the rooftop to create electricity that is consumed on premises, and reducing the amount drawn from the grid. 

The driver for these business models is to reduce the costs of electricity for the participating businesses or homeowners.  However, there are untapped markets for the owners of rooftops that don’t have expensive electricity bills to justify solar investments, but do have prime real estate to generate electricity from the sun.  The disruptive thought here is to look at another industry – the minerals extraction industry – for leasing models that operate on a royalty basis.  The natural gas well on a property doesn’t necessarily supply nearby buildings with natural gas.  The property owner collects a royalty check from one company, and building occupants continue to pay the utility. 

As solar materials improve in performance, as new software applications appear that can monitor and predict solar energy production, and as more states encourage utility purchases of solar-generated electricity, perhaps we’ll see new business models that harvest the solar energy landing on our rooftops and deliver monthly royalty payments on an infinite and clean energy source.   It’s a paradigm shift to be sure, but the prospect of earning money from a rooftop would be a welcome technological and financial disruption for many homeowners and commercial property investors.

Smart Grid technologies can make our electrical grid more efficient and reliable.  We can add more programs to improve energy efficiency and reduce peak electricity requirements.  But we can encourage much greater consumer participation in being part of the solution through policies that promote distributed generation.  Distributed generation (DG) gives consumers the opportunity to reduce their electricity bills and use “home-grown” electricity.

Distributed generation simply means that electricity is produced close to its point of use.  DG doesn’t need new transmission lines (which can face long and expensive legal challenges) and puts an emphasis on locally produced electricity.  DG can be deployed in urban to rural settings and relies on clean, renewable sources of electricity such as solar and wind.  DG turns consumers into prosumers – Alvin Toffler’s term for a producing consumer.  The practice applies to residential and commercial buildings and microgrids. (For more information on microgrids, read here).

DG is a great strategy to address growing electricity consumption and put money in the pockets of consumers.  All states have the authority to encourage and support DG initiatives within their borders, enabled through net metering and interconnection policies.   Net metering lets commercial, industrial, and residential consumers create electricity and sell it back to their local utilities – basically running their meters backwards.  It differs from Feed-in-tariffs (a subject in last week’s blog) in the pricing arrangement for a utility purchase of this DG supply.  FiTs usually deliver improved returns on investments for consumers than net metering, but net metering is better than no policy at all.  Interconnection refers to the technical and legal procedures required to connect your generation source to the utility distribution network. 

There’s an interesting and very readable report called Freeing the Grid that was produced by the Network for New Energy Choices.  This report examines the policies in the fifty states and assigns grades based on assessment of variables that range from ease of interconnection procedures to economic implications.  Residents in California, Colorado, Maryland, New Jersey, Oregon, Pennsylvania and Virginia are lucky – these states receive high marks.  My condolences are extended to residents of Georgia, Indiana, Iowa, and Wisconsin. Your states make it extremely difficult for consumers to become prosumers. 

DG is good for states – it promotes in-state jobs and economic growth.  It helps resolve the looming requirements for additional energy and the need for new centralized generation and transmission assets.  It reduces CO2 emissions through increased use of renewable energy sources.  It helps consumers reduce their electricity bills.  Why wouldn’t every state want to extend the benefits of DG to their citizens?  That’s a great question to pose to your state utility commissioners.  

Now we’ll look at distribution, and formulate a rule for when this portion of the grid is smart.  Distribution is the part of the network and associated equipment that deliver electricity to a meter.  Referring to the Smart Grid Dictionary definition for the Distribution Network, it includes power lines, transformers, meters, and wiring.  The wiring refers to wiring going to the meter, not wiring inside the building. 

The present-day distribution network is configured to handle electricity in one direction – from the substation to a meter.  But the Smart Grid will accommodate a bi-directional flow of electricity (as well as information) as distributed generation deployments grow in popularity.   There are two primary challenges to the electrical distribution network becoming a truly distributed generation network.  First, there needs to be some new equipment introduced into the grid to allow a flow of electricity back to the utility.  Then, regulations must be addressed to ensure that both utilities and the customers deploying distributed generation solutions have investment protection.

While some of the technologies to optimize the grid for distributed energy generation and storage were mentioned previously, it is important to note that utilities must add equipment to the distribution network to support any buy-back or reverse flow of electricity.  One important component is the utility-interactive inverter (or grid-tie system).   This equipment converts the DC power generated by your solar, wind, biomass or other renewable source into AC power so it is compatible with the distribution grid.  Self-supporting, off-grid sites have used similar equipment for years, but it is not as commonly found within the traditional electrical grid.

Net metering and Feed In Tariffs are two of the regulations enacted by state PUCs (public utility commissions) that encourage distributed generation.   According to the www.dsireusa.org website, 42 states and the District of Columbia have some form of net metering today.  Net metering basically calculates the “net difference” between the meter spins to determine if the customer with the renewable generation source has a positive or negative balance from the previous read.  In California, excess generation can be carried forward for up to 12 months, and then reverts back to the utility.  In some other states, you may receive a payment from the local utility if you supplied more energy than you used.  This structure has worked well for many situations in which motivated homeowners invest to supply energy for their own homes and only rely on their local utility when their renewable energy source is unavailable. 

Feed In Tariffs (FiTs) require utilities to purchase power generated via renewable energy sources.  The catch is the price at which the electricity must be purchased.  In the past, some utilities would purchase electricity at a wholesale rate instead of the retail rate that the utility charged its customers for electricity.  The California Public Utilities Commission (CPUC) recently proposed a  FiT for 1-10 MW of generation that would set the purchase price based on an auction mechanism that addresses approved cost recovery for utilities, cost certainty for ratepayers, and regulatory certainty for markets.  In the CPUC proposal, all electricity generated must be sold to the utility, and none of it can be used onsite.    Only a few states have taken the FiT plunge, but it appears to be gaining ground as a regulatory mechanism to encourage distributed generation using renewable energy sources.   FiTs may vary from state to state in terms of the MW capacities, the applications of renewable energy, the locations for its use, etc., but this type of regulation is critical to a power market evolution that opens the way for small-scale energy producers.

Over time, there may be other policies and regulations enacted to encourage distributed generation or meet renewable energy goals.  Especially in view of NIMBY, BANANA, and NOPE, distributed generation may be the only path forward to increasing renewable energy production and decreasing our GHG emissions. 

Smart Grid Rule #4:  You know you have a Smart Grid when your utility offers you a fair, market-based price for any electricity you agree to sell to them.