Electricity co-operatives, many of which were originally established in rural areas to facilitate electrification, have particular reason to look favourably on distributed generation technologies, writes Stamatis Diolettas.
by Stamatis Diolettas
Many communities, in both developed and developing countries are seriously concerned with the problems stemming from energy production and use. Increasing demand and costs, along with environmental and social impacts are the most serious of them.
For the most part, developed countries have created vast and complex networks for supplying their communities with electricity. However, this centralized system is unable to handle all the problems effectively.
Electricity co-operatives such as the one in Crevillent, Spain, can galvanize community interest in distributed energy (San Francisco de Asis)
For this reason, communities should begin to rethink their energy systems. Developed regions can move towards a flexible, efficient decentralized energy system that is sensitive to social concerns. As for communities in developing countries; instead of investing in costly large power plants and transmission and distribution (T&D) infrastructures, they can create, from the outset, local energy power systems. In this case there will be two essential ingredients to the success of a project:
- selecting the appropriate technology for sustaining their energy needs
- choosing the right institutional ‘vehicle’ for performing the assigned tasks.
It seems that by combining the concept of distributed generation (DG) with the co-operative movement, communities could have in their hands the solution to their energy problems.
Decentralized energy can work with ordinary or innovative, conventional or renewable technologies, and can provide energy in the form of electricity, heat or cooling. The use of small-scale and modular technologies can properly match supply and demand on-site.
Co-operatives could be uniquely positioned to show leadership in the use of those efficient and environmentally friendly technologies. At the same time, they can democratize the energy system by securing social participation, exploiting local energy sources, using a community’s human potential and distributing the benefits equally back to the community.
What is an electricity co-operative?
The European Union (EU) defines co-operatives as: ‘groups of persons or legal entities with particular operating principles that are different from those of other economic agents. These include the principles of democratic structure and control and the distribution of the net profit for the financial year on an equitable basis’. The EU explains that the fundamental principle of co-operatives is ‘the primacy of the individual which is reflected in the specific rules … where the “one man, one vote” rule is laid down and the right to vote is vested in the individual.’1
US electricity co-operatives operate many types of power plants, such as coal, hydro, natural gas and oil-fired generators (NRECA)
This principle characterizes co-operatives all over the world, no matter what their category may be or what differences there may be between the various national legislations. The co-operative is a democratic organization serving the community that founded it.
The electricity or power co-operative appeared in the first decades of the 20th century, nearly one century after the dawn of modern co-operative movement. It is a kind of consumer co-operative that offers the services of a public utility to its members. In general, electricity co-operatives belong to the people they serve. Electricity co-operatives, therefore, should be seen as the organizations that bring the benefits of a new technology to unprivileged communities.
Most of the electricity co-operatives were, and remain, electricity distribution organizations. There are, however, co-operatives with power production facilities resembling the vertically integrated utilities. Over time, the evolution of the electric power system towards an enormous power network challenged the existence of the electricity co-operatives. Today, the liberalization of the electric system has overturned its long-lasted monopolistic regime. Small, smart companies can compete against large utilities in the field of energy production and supply. The integration of technological and managerial innovations will define the future of electricity co-operatives in the new competitive environment.
Benefits of an electricity co-operative
Many rural communities owe their initial electrification to electricity co-operatives. However, historical and new electricity co-operatives can continue to bring benefits to the local societies. Electricity co-operatives have local or regional characters, so they can easily employ local DG technologies. This will add extra value to and multiply the services offered. The benefits could be divided into several categories.
Democratic decision-making, social integration and education are crucial benefits that co-operatives can offer to local societies.
As a rule social participation is not part of the decision-making process of the centralized energy system. On the other side, co-operatives permit the local communities to participate in the decision-making process as far as technological, economic and other important aspects of energy production and use are concerned. Therefore communities can satisfy their energy needs according to their social values and priorities. Technologies employed could be influenced by broad social acceptance, reducing social conflicts and eliminating ‘NIMBY’ effects. The boundaries between producer and consumer become blurred.
Electricity co-operatives participate in all local social activities, so they are recognized by local society as a welcoming home-grown entity. For example, an electricity co-operative in Spain organizes sports trophies, conferences and seminars, concerts and other cultural events. These are important social elements that contribute to the quality of social life.
Finally, electricity co-operatives can educate communities and increase their awareness about energy problems, so that problems are converted into a local social issue.
Since electricity co-operatives are not profit-pursuers, they provide electricity without the need to make large profit margins a priority. They could be the cheapest electricity suppliers. Any profits made are reinvested in the co-operative’s infrastructure or are returned to its members either as dividends or as a social contribution, such as for cultural and community welfare purposes.
Additionally, the creation of a decentralized power system can significantly improve the power quality, especially in the developing countries. This could be translated to certain economic benefits for the electricity end-users. Furthermore, the modularity and short lead-time of distributed generation reduces the upfront capital expenditures.
Additionally, electricity co-operatives provide a valuable contribution to their regions and communities. Electricity co-operatives usually employ personnel from local population, and, given that their customers belong to the founding local community, money is recycled within the community or its region so that the community itself may decide where and how the money should be reinvested or spent.
Finally, the establishment of a global emissions trading system will help the electricity co-operatives using efficient cogeneration and renewable energy technologies to increase their income. Thus, communities – especially those in developing countries – can enjoy additional economic benefits by selling their ‘green certificates’ to the industrialized regions.
The environmental benefits are related to the power technology used rather than to the type of the entity employing it. The efficient use of fuel (satisfying more energy needs from a given quantity of fuel) reduces the emission of greenhouse gases and delays depletion of fossil fuels. Furthermore, the implementation of decentralized technologies eliminates the T&D losses, which can reach 10% of the electricity transferred.
If they choose to, electricity co-operatives can have strong political and social influence. Subsequently, they can demand rigorous environmental and energy policies at the regional or national level.
All in all, the environmental benefits could be twofold: local and global. Electricity co-operatives can reduce the impacts of their activities to the local environment as well as help humanity to meet its environmental targets.
Old and new challenges
In the past, electricity co-operatives came to provide electricity to rural communities because urban utilities considered the electrification of those areas to be economically unfeasible. For example, the establishment in 1935 of the Rural Electrification Administration gave rise to hundreds of co-operatives in the United States, while there are man similar examples from Argentina and Spain as well.
But what challenges communities to set up electricity co-operatives today?
Social, economic and environmental reasons may lead communities to co-operate again. Rural communities in developing countries can adopt the developed countries’ co-operative ‘paradigm’ for carrying out their electrification. In the developed countries, on the other hand, social groups sharing common values can use the co-operative as the ‘vehicle’ for promoting renewable energy technology. For example, 26% of the installed wind capacity in Denmark is owned by co-operatives. Thus, ‘energy [has] emerged as a significant business opportunity for the co-operative movement’.2 The importance of electricity co-operatives for the promotion of the distributed energy technologies (DET) is also of particular interest. DET are rapidly becoming an alternative energy solution3 to the chronic problems of the traditional large-scale electricity system. Long-standing electricity distribution co-operatives as well as new ones may take advantage of DET to expand their activities to power generation. Besides, the innovative concept of distributed generation claims that any co-operative could employ power technologies for self-consumption or for feeding the grid. Doing so will allow electricity co-operatives to compete with incumbent utilities. However, due to their democratic nature, co-operatives may be slow in the decision-making process. Furthermore, the focus on the co-operative’s priorities may be lost if the management board is involved in local politics. All the above may toughen financial institutions’ reluctance in lending money to co-operatives. In order to be competitive, they should adopt professional and effective management.
The following case studies illustrate the ideas expressed in this feature. They include an electric distribution co-operative that has gradually entered into power production using DG, two electricity co-operatives that promote technological and social change, and agricultural co-operatives in India that could become power producers. These are all small but illustrative examples from which other communities can be inspired to follow. The last case study is left to the DG sceptics.
‘San Francisco de Asis’ electricity co-operative (Crevillent, Alicante, Spain)
Crevillent, a town of 25,100 people, has the biggest electricity distribution co-operative amongst the 16 Valencia regions.4 The co-operative was founded in 1925 to provide the energy for the mechanization of the traditional textile industry. In 1993, after many years of juridical dispute with the incumbent utility, its territory and capacity was defined. Seven years later, its grid consisted of 65 km of medium-voltage and 175 km of low-voltage lines and 85 transformer centres while the electricity sold reached more than 51 TWh. The co-operative understood that diversification was vital for its future. Thus, distribution businesses were expanded and subsidized technologies were used for power generation. Soon, mini-hydro capacity reached 3.6 MW and in 1998, a 10 MW cogeneration plant was installed in collaboration with the local textile-dyeing co-operative industry Lanatin. The Lanatin plant consumes between 100% and 80% of the heat and 10% of the electricity produced, and the rest is sold to the neighbouring utility.
Crevillent’s electricity co-operative has been driving fuel and technology diversification and the adoption of cogeneration at various industrial sites (San Francisco de Asis)
Since then, the co-operative has felt confident enough to promote CHP installations since CHP is an economically and technically viable technology. Meanwhile, it examines the use of alternative fuels coming from car tyres and agriculture waste. For a while the co-operative’s board faced a dilemma of whether to build a big power plant (collaborating with other co-operatives and investors) or to continue with DG technologies. Today it seems that DG has prevailed, and the co-operative is planning a 6 MW photovoltaic plant and is participating in a cogeneration project fuelled by the residues of the furniture industry. As its director Ildefonso Serrano said: ‘Innovation is one of the co-operative’s weapons in the fight against big utilities’.
Co-operatives in India’s sugar sector
As mentioned previously, distributed energy technology can be used by non-electricity co-operatives for developing energy production as a secondary activity. The energy produced can either be self-consumed or sold to the local grid. A place in the world where co-operatives can massively exploit this opportunity is India.
India produced 13.9 million tonnes of sugar in 2004-2005, making it the world’s second largest sugar producer after Brazil.5 Over 50% of the 570 mills in India are in the co-operative sector. Indeed, approximately half of the sugar co-operatives are installed in the state of Maharashtra. India’s sugar industry has an estimated power potential of 5000 MW. One-fourth of this lies in Maharashtra, of which 99% is in the co-operative sector.
The benefits of introducing cogeneration in the sugar mill co-operatives can be summarized as follows:
- diversification of energy sources and additional revenue
- reduction of carbon dioxide emissions, since bagasse is the fuel
- additional power capacity for satisfying the sharply increasing demand
- efficient use of the fuel and avoidance of T&D losses.
Despite the benefits mentioned, cogeneration in sugar co-operatives has not achieved its full potential. The following are the barriers to cogeneration in co-operative sugar mills:6
- their financial weakness prevents financial institutions (public and private) from further lending to them
- management’s competitiveness and risk-taking attitude
- procedural difficulties – i.e. co-operatives carry out transactions exclusively with certain businesses
- risk of unexpected policy change by new elected management.
Removal of the above barriers is absolutely necessary for the full implementation of cogeneration in India’s sugar sector.
ECO and Energy4All (US and UK respectively)
The two organizations could be characterized as the co-operatives of the electricity co-operatives. Electricity co-operatives need to keep in pace with technological change. Furthermore, organizations need to listen to communities’ environmental and energy problems and to help them to act accordingly. That is the case of the two organizations presented here.
Energy Co-Opportunity (ECO) was an energy service co-operative. It was established in 1998 with the task of providing distributed energy solutions to the electricity co-operatives of the United States. ECO promoted photovoltaics, fuel cells and gas turbines, among other distributed power technologies. Additionally, ECO provided electricity co-operatives with access to alternative fuels such as natural gas and propane. Since the introduction of new technologies into existing organizations creates a knowledge gap, ECO provided consulting, education and training to the electricity co-operatives trying to diversify their technologies.7 Today, ECO has been renamed into Energy Co-Opportunity Technological Solutions and it has been made into a privately owned enterprise. However, it continues to provide the same services to electricity co-operatives.
Energy4All is a co-operative that helps communities to develop renewable energy projects. It was established in 2002 and is owned by the co-operatives it assists. New co-operatives have the right to obtain a share in this organization. Energy4All provides consulting, administration and financial services to its members in return for an annual fee. It assists communities to obtain a share in major commercial projects or to develop their own small- to medium-sized wind energy projects. Its activities increase communities’ awareness of renewable energy technology, income and environmental concern.8
National Rural Electric Cooperative Association (NRECA, US)
NRECA is an organization dedicated to representing the interests of co-operative electric utilities and the consumers they serve. It is based in the United States where numerous electricity co-operatives are operating (NRECA’s 900 member co-operatives serve 39 million people in 47 states).9
NRECA appears to be more sceptical of the implementation of distributed generation than other co-operatives. While many co-operatives are taking steps to introduce DG into their systems, NRECA believes that DG is being oversold. Safety and reliability risks posed on the system by DG units are its main concerns. The allocation of the costs or economic benefits (i.e. to the consumer or the system) is another issue. Moreover, it reproduces the common arguments against wind and solar energy, such as noise, bird kills, and aesthetical and social impacts.
Finally, NRECA concludes: ‘Decision-makers should look carefully at different applications of different technologies. Separate rules can and should apply to each. The electrical grid is very complex and there are too many variations between the different applications of different DG technologies for any one rule to be universally applicable’.10
In the last century, electricity co-operatives played a very important role for the electrification of rural areas. While in developed countries, electrification is considered a ‘completed mission’, the dramatic changes in power systems over the last decades have set new challenges and created business opportunities for the co-operative movement. Fossil-fuel depletion and social and environmental problems define the new framework of the energy sector. The era of large-scale electric systems is coming to its end. Long-standing (and new) electricity co-operatives could continue their progressive role of serving their communities by employing small-scale innovative and environmentally sound technologies. Their proximity to the local communities can combine technical effectiveness with social and environmental sensitivity.
In developing countries, electricity co-operatives could lead the way to rural electrification. There are ample reliable, affordable and efficient technologies to be used. Distributed generation could be the co-operatives’ technological weapon in the energy struggle of the 21st century.
Dr Stamatis Diolettas is a freelance energy consultant with many years of experience in renewable energy and distributed energy systems. He is based in Greece.
- Council Regulation (EC) No 1435/2003 of the 22 July 2003 on the Statute for a European Cooperative Society (SCE), p. 2.
- DTI Global Watch, Renewing interest in co-operatives, Energy and the environment, March 2005.
- DTI Global Watch, Power to the people, Energy and the environment, July/August 2006.
- Diolettas S. Distributed Energy Resources: Prometheus of Renewable Energy, Ph.D. Thesis, Universidad Politécnica de Cataluña, 2005.
- FAO, Food Outlook, No.1 June 2006.
- Ranganathan et al, Sweet-Talking the Climate? Evaluating Mill Cogeneration and Climate Change Financing in India, Breslauer Symposium No.12 p. 13.
- Clifton, N.J, H Power Installs New Residential Co-Generation Units in Rural Electric Cooperatives, BUSINESS WIRE, May 1, 2002.
- Energy4All ‘A Co-operative future for Clean Energy’
- NRECA, White Paper on Distributed Generation, p. 1.