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John Farrell's Posts


Net metering a cost to utilities, or a benefit?

A version of this article originally appeared on ILSR’s Energy Self-Reliant States blog.

Utilities often claim that allowing customers to run their meter backward (by generating electricity on-site, e.g. from rooftop solar) can affect their bottom line because these customers don’t pay enough to cover the cost of maintaining the grid.  In at least one case, however, a utility’s cost-benefit analysis of net metering was turned on its head in an independent review.

Presenting as part of Vote Solar’s Data Not Drama webinar on net metering last month, Interstate Renewable Energy Council’s (IREC) Joe Wiedman showed the Public Service Company of New Mexico (PNM) erred in proposed standby charge of 5.3 cents per kWh for net metering customers. The utility asserted that this charge -- ostensibly to backup these on-site generators -- would allow the utility to recover its costs from these customers busily spinning back their meters. IREC’s review of their analysis, however, showed that net metering was actually a net benefit to the utility.

The differences were substantial. While PNM had given almost no value to net metering systems, IREC’s review found that the on-site generation helped the utility avoid energy costs, line losses, capacity upgrades, and transmission costs worth over 15 cents per kWh. Even when balance against the transmission and distribution costs, and power generation costs to the utility of supporting net metering, the policy had a net benefit of 7.8 cents per kWh, a 13-cent difference!

The following chart illustrates, with the perceived costs shown in red (positive) and perceived benefits in green (negative).

The lesson for advocates of distributed generation is clear: challenge utility valuation of net metering and of distributed renewable energy.  You can never be sure what they overlook.

Read more: Uncategorized


Lots of solar power may reduce, not increase, electricity prices

A version of this post originally appeared on Energy Self-Reliant States, a resource of the Institute for Local Self-Reliance.

Whether German feed-in tariffs or U.S. tax incentives, opponents of solar rail at its perceived high cost. But a story making rounds this week, "why power generators are terrified of solar," presents a powerful image that may flip this conventional wisdom on its head. Building lots of solar power can actually reduce electricity prices, to the dismay of utilities.

The story comes from Germany, where a decade of consistent policy has resulted in thousands of megawatts of distributed solar installed on urban rooftops and rural barns. This year, it was noted that the surge of "solar PV was cutting peak electricity prices by up to 40 percent." The following graphic of prices on the German electricity exchange -- which Craig Morris calls "the afternoon dip" -- illustrates the effect. The left view is 2008, showing steady, high prices in the market throughout the afternoon. The chart on the right shows the same time period in 2012, where an abundance of solar has sharply cut afternoon power costs.

Read more: Renewable Energy


Ontario feed-in tariff prices drop, Germans pay much less

A version of this post originally appeared on Energy Self-Reliant States, a resource of the Institute for Local Self-Reliance.

Ontario just completed a revision of their landmark feed-in tariff program and rates for renewable electricity generation and prices fell sharply: 30 percent for solar and 15 percent for wind power. This continues a trend of falling costs for renewable energy around the world.

As a bit of background, Ontario’s feed-in tariff gives wind and solar producers (and many other technologies) long-term contracts at premium prices to support deployment of new renewable energy. In a unique marriage of environmental and economic goals, the province also provides price bonuses to community-based projects and requires wind and solar projects to source much of their labor and materials within Ontario (for more on this, see our 2011 report).

Modeled after Germany’s landmark program, Ontario is starting to see the price declines as their renewable energy market matures. Here’s a quick look at how the new prices stack up against world-leader Germany, as well as against two of the prominent feed-in tariff programs in the United States, Vermont and Gainesville. The prices for all programs have been changed to U.S. dollars, adjusted to the same contract length of 20 years, and to an equivalent solar insolation (for Gainesville, Fla.). Prices for U.S. programs were also increased by 30 percent to account for the federal tax credit, which is usually taken in addition to the feed-in tariff contract price. More on the methodology can be found in this post.

Read more: Uncategorized


Solar policy can advance (or delay) grid parity by a decade

A version of this post originally appeared on the Institute for Local Self-Reliance.

In their interactive graphic, Bloomberg Energy Finance calls solar grid parity (when electricity from solar costs less than grid power) the "golden goal."  It's an excellent illustration of how the right energy policy can help a nation go gold on solar or wallow in metallurgical obscurity. In the case of the U.S., it may mean delaying grid parity by eight years.

In the screenshot below, countries in purple have reached the golden goal in 2012 based on the quality of their solar resource and the cost of grid electricity, as well as a 6 percent expected return on investment for solar developers. (Note to Bloomberg graphic designers -- countries meeting the golden goal could be colored gold.)

Read more: Energy Policy


Why ‘passive activities’ may be clean energy’s biggest hurdle

Cross-posted from Energy Self-Reliant States, a resource of the Institute for Local Self-Reliance.

If you care about the future of the American renewable energy industry, you need to learn what the Internal Revenue Service (IRS) calls “passive activities.”  Because these important rules mean that as long as the U.S. relies on the tax code to provide renewable energy incentives, renewable energy can only grow as fast as Wall Street tax equity and it will remain difficult to have locally-owned renewable energy projects.

The “passive activities” issue has to do with an important IRS determination to prevent wealthy people from creating more tax shelters.  The basic idea is that if you earn tax credits from investments that you don’t “materially participate in” (e.g. investing in a wind farm) then you can only use those to offset taxes that you pay on the same kind of income (e.g. renting property).  Both activities are considered “passive,” because the rich person isn’t the wind farm mechanic, nor are they typically the rental property superintendent.

In renewable energy, it means that the two major federal incentives – the Production Tax Credit and the Investment Tax Credit – can only be used to offset passive income tax liability.  And since few Americans own rental property or have other passive income liability, it means few Americans can effectively invest in renewable energy projects.

The rules on passive income taxes and credits can’t be effectively changed because, as tax attorney Greg Jenner puts it, “it would be like pulling on the thread in a sweater.  The passive loss rules are the primary defense in the tax code against tax shelters and once you start to unravel them, there will be no turning back.”

Thus, using the tax code to boost renewable energy creates two major problems: artificially capping the renewable energy market and curtailing local ownership.

I outlined the first issue in December, in Federal Tax Credits Handcuff Clean Energy Development:

Since clean energy projects must rely on a limited set of tax equity partners and a limited-size tax equity market, when tax equity dries up, so do wind and solar projects.  The economic crisis of 2008 made the problem particularly evident, as the tax equity market shrank by 80 percent from 2007 to 2009.  Only the cash grant program saved the wind and solar industries from total collapse in the intervening years (2009-11), and the cash grant will likely expire at the end of 2011.  The following chart from a SEIA presentation illustrates [pdf] the problem, even though it was devised before the 1-year extension of the cash grant in 2010.

The problem of limited tax equity isn’t just short term.  Marshal Salant, managing director of Citigroup Global Markets Inc., said in a recent interview: “There’s more demand for tax equity to finance renewable energy projects than we will ever have in the way of supply.”

Local ownership of renewable energy also suffers when incentives come through the tax code.

The logical entities like cooperatives, schools, or cities are ruled out because federal wind and solar incentives are for taxable entities, not these rooted community organizations. Instead, communities seeking local ownership have to either perform complex legal acrobatics to set up private corporations or sacrifice as much as half of the value of the tax incentives by forming a partnership with a tax equity partner.  When community wind projects succeed, like the South Dakota Wind Partners, organizers admit that repeated the success is unlikely in light of the legal and financial complexities.

It’s understandable in today’s political climate that renewable energy boosters spend more time on keeping existing incentives alive, but if Americans hope to (someday) achieve a 100% clean energy future, they will need energy policy that’s no longer handcuffed to the tax code.

Read more: Uncategorized


Building codes: Small rules that help homeowners save big on energy

Building houses according to updated energy conservation codes saves homeowners money. (Photo by 401k.)

Cross-posted from Energy Self-Reliant States, a resource of the Institute for Local Self-Reliance.

In energy policy, lawmakers often prefer carrots to sticks, because this strategy minimizes the opposition. But mandatory rules, like building energy codes, can save energy and pay back several times over during the useful life of buildings.

The state of Illinois is poised to become a regional leader by adopting the 2012 International Energy Conservation Code (IECC), an example of small-seeming rules with big impact. For example, 40 percent of primary energy consumption in the U.S. is in buildings, along with about 40 percent of greenhouse gas emissions. Thus, adopting the 2012 IECC, with energy efficiency standards 28 percent stronger than the 2006 code, can make a big dent in carbon emissions.

The financial savings can add up, as well. The federal Energy Information Administration estimated in 2005 that homeowners in the Midwest spent an average of $1,800 per year on household energy use. Assuming states had already adopted the 2006 IECC for the previous expenditure figure, the implementation of the 2012 code could save families $500 per year.

Read more: Energy Policy


Trade in the 20th century electric grid. Don’t trade off local energy

It's sundown for the 20th century electric grid. (Photo by Nayu Kim.)

This post originally appeared on Energy Self-Reliant States, a resource of the Institute for Local Self-Reliance.

In a New York Times SundayReview piece, "Drawing the Line at Power Lines," Elisabeth Rosenthal suggested that our desire for clean energy will require significant trade-offs:

There are pipelines, trains, trucks and high-voltage transmission lines. None of them are pretty, and all have environmental drawbacks. But if you want to drive your cars, heat your homes and watch TV, you will have to choose among these unpalatable options ...

Perhaps the answer is simply that in an increasingly crowded powered-on world, we’re all going to have to accept that Governor Cuomo’s so-called energy highway is likely to traverse our backyard.

I disagree.

The future of American electricity policy is not about trade-offs, but rather a chance to trade in an obsolete, centralized paradigm for a local, clean energy future. Utilities would have us believe that new high-voltage transmission lines are necessary to get more wind and solar power. But the truth is that the American electricity industry refuses to embrace the fundamentally different nature of renewable energy: Its ubiquity means that Americans can produce energy near where they use it, in an economically competitive manner, and at a community scale.

Read more: Energy Policy


More evidence of a distributed solar sweet spot

This post originally appeared on Energy Self-Reliant States, a resource of the Institute for Local Self-Reliance.

If the cost of electricity were the only factor in energy discussions, we’d probably have a lot more coal and a lot less renewable energy. But the truth is that renewable energy can compete on cost and distributed renewable energy has a lot more value beyond just electricity, as illustrated in this one facet in this brief examination by the Clean Coalition.

Distributed solar finds a cost sweet spot.

Read more: Uncategorized


How EPA helps big corporations greenwash

Walmart may have hybrid trucks, but its efforts at going green are a drop in the bucket considering the company's size. (Photo by Walmart Stores.)

This post originally appeared on Energy Self-Reliant States, a resource of the Institute for Local Self-Reliance's New Rules Project.

While I generally have nothing but praise for the Environmental Protection Agency (EPA), its Green Power Partnership program falls short of the agency’s usual standard. In particular, the program, by providing media recognition for participating companies who procure renewable energy, inflates the activities of large companies at the expense of businesses whose clean energy transformation is much more meaningful.

Take Walmart, who appears at No. 3 in the EPA’s Green Power Partner rankings with an annual procurement of 872 million kilowatt-hours (enough to power approximately 87,000 homes per year). The EPA inaccurately credits the super-retailer with getting 28 percent of its electricity from green power, because the partnership program allows Walmart to cherry-pick its only two regional divisions that have made any strides on green energy (California and Texas).

Nationwide, Walmart gets less than 2 percent of its electricity from renewable energy sources.


How distributed solar can reduce electricity prices

This post originally appeared on Energy Self-Reliant States, a resource of the Institute for Local Self-Reliance’s New Rules Project.

What if installing more solar could reduce electricity prices? It's already happening in Germany, world leader in solar power, and it's likely to happen in the U.S., too.

Right now the idea of solar reducing electricity prices seems silly.  After all, when subsidies aren't factored in, the cost of residential solar will be higher than residential retail electricity prices in all but three states until after 2016. But solar has two key factors in its favor:

Read more: Solar Power