People like the idea of decentralized power. They also like the idea of using renewables. So what is stopping the greater development of distributed renewable energy? Ed Ritchie finds out that may be changing.

Solar PV roof panels delivers almost all of Freeze’s electricity requirements Credit: Solis Partners

The on-site power industry continues to grow on the world stage of energy production, but that growth would better serve the need for sustainable power if renewable energy was the dominant resource.

With so many benefits, it is a paradox that it should have a history of so many barriers. Moreover, with natural gas from shale fields in North America flooding the market with historically low gas pricing, we have a new actor that could rewrite renewable energy’s role. But it is far from the final curtain, and as sustainability policies grow, so do the opportunities for clean, on-site power.

Before we examine the opportunities and challenges ahead for renewables, let us turn to an expert organization for perspective on the impact of North America’s natural gas production. According to the 2012 World Energy Outlook (WEO), by the International Energy Agency (IEA), North America is at the forefront of a sweeping transformation in oil and gas production that will affect all regions of the world.

The WEO finds that the extraordinary growth in oil and natural gas output in the US will mean a sea-change in global energy flows, and predicts that America will become a net exporter of natural gas by 2020 and be almost self-sufficient in energy, in net terms, by 2035.

Even under the shadow of cheap gas, the IEA predicts that renewables could become the world’s second-largest source of power generation by 2015 – if subsidies can meet a goal of US$4.8 trillion from now to 2035.

According to the IEA research, subsidies in 2011 amounted to $88 billion. In many other countries, subsidies and the policies that they reflect have proven to be successful for the renewable energy industry, and Germany and Denmark are often cited as prime examples.

But renewables on-site or in distributed energy applications are lagging behind the huge multi-megawatt projects dominated by wind and solar that rely on transmission lines and utility grids.

Given that distributed energy resolves issues of transmission inefficiencies and renewables solve sustainability issues, the industry should be in a much better position. However, the lag of renewable energy is painfully obvious in the birthplace of the photovoltaic (PV) panel, the US. But that could change.

Although renewable distributed energy is far from an industry heavyweight in the US, there are still plenty of companies making money from it. Utility-scale wind farms can be very profitable, but not on-site wind installations, where projects do not compare with the levels of on-site PV.

Biogas in agricultural and municipal installations is viewed by many as a mature market in Europe, but is still struggling in North America. However, cheap natural gas prices are causing developers to reassess the viability of biogas projects.

Solar energy

So that leads to solar PV and another paradox. Although it is an industry plagued by barriers in the US, according to the Solar Energy Industry Association (SEIA) at its Solar Energy Focus conference in Washington DC, 2012 was a historic year for the US solar industry. There were 3313 MW of PV capacity installed, earning a growth rate of 76% over 2011’s record deployment totals. For 2013, SEIA forecasts more than 4200 MW of PV and 940 MW of concentrating solar power.

A project at the distribution centre of Freeze, a T-shirt manufacturer in Dayton, New Jersey, will be contributing 1.82 MW of those 4200 MW. Solis Partners, of Manasquan, New Jersey, designed, engineered and constructed the system on the roof of Freeze’s 29,729 m2 (320,000 ft2) facility, and it supplies about 80% of the company’s annual electricity needs.

According to Jamie Hahn, co-founder and managing director of Solis Partners, for a successful distributed renewables project such as Freeze’s, it is all about overcoming barriers and delivering the customer a ready-made ‘turnkey’ package, to avoid the complications of financing, permitting and operations.

‘Business owners have their core businesses to take care of so they don’t want to manage a power plant on their roof or property,’ says Hahn. ‘To start, this project could not have been done without a power purchase agreement because the tax equity needed to monetize 52% of the incentive structure makes it difficult for many businesses.

‘So this power purchase agreement has no cost and the owners don’t have to build, maintain or operate the system. Instead they get reduced electricity costs.’

Net metering needed

In March 2013, the state of New Jersey reached 1 GW of installed solar capacity, putting it in an exclusive club of just two other states: California and Arizona. ‘The incentives are critical, and a perfect example is Germany,’ says Hahn. ‘They have over 50% of the world’s solar, yet their sun resources are equivalent to what we see north of Seattle, Washington [which averages 226 cloudy days per year].’ Germany’s PV installations exceed 7634 MW.

The Freeze project sells power to the local utility through a net metering programme, and Hahn notes that spinning the meter backwards is critical for distributed renewables.

The elimination of net metering benefits has become an issue in California, where an organization of solar companies formed CAUSE (Californians Against Utilities Stopping Solar Energy) in response to efforts by the state’s investor-owned utilities to end net metering.

At present, 43 states and Washington D.C. have net metering policies, but the electric utility industry in the US has long been a major barrier to net metering. ‘The electrical grid cannot tolerate large and sudden power swings or fluctuations,’ says Hahn. ‘And as solar and wind approach 20% of the amount of power in any given grid, the need for energy storage systems becomes critical to smooth out the peaks and valleys of renewable power.’

A battery storage system, supporting small wind at the Santa Rita prison in California Credit: Chevron Energy Solutions

The utility industry has a history of publicising solar and wind intermittency as a barrier to renewable technology, but there are dissenting voices.

In 2007, Citizens for Pennsylvania’s Future spoke to Karl Pfirrmann, interim president and CEO of PJM Interconnection, the world’s largest grid operator, on the subject of wind intermittency. Pfirrmann noted that wind did not pose significant costs as a result of its variable nature because the transmission system can readily accommodate changes in power flows. As to the impact on spinning reserves (standby generators) to mitigate intermittency, Pfirrmann said that there were minimal effects on efficiency, with modest costs deducted from payments to wind generators.

Confirmation of Pfirrmanns’s observations were recently published by the US National Renewable Energy Laboratory in a two-phase project, The Western Wind and Solar Integration Study – one of the largest regional wind and solar integration studies ever carried out. Phase 1 analysed the impacts of high penetrations of wind and solar power. It found no technical barriers for high penetrations of wind and solar power (up to 35%), if increased balancing authority co-ordination and sub hourly scheduling were adopted.’

Phase 2 examined new data to address concerns expressed by utility companies about damage to fossil-fuelled generators during cycling, due to heat and emissions while handling intermittency from renewables.

Researchers and industry partners analysed data from cost studies on 400 fossil-fuelled plants, and found that ‘the impacts of wind-induced cycling are minimal’, and capped wear-and-tear costs at 2% of the value of wind, and emissions impacts at ±3%. So there is strong evidence of weak consequences.

Old grid infrastructure

However, according to Ken Skylar, manager of Renewable Services at PJM, there is another barrier to distributed renewables relating to the design and age of the infrastructure of the grid. ‘Upgrades are needed to the distribution system because it was not designed to accommodate large amounts of variable frequency resources on these individual feeders,’

Ultimately those upgrades will occur as utilities adopt Smart Grid technology, as this technology offers a good return on investment to utilities, and access to government funding programmes.

For example, a recent study by the US Department of Energy, entitled Economic Impact of Recovery Act Investment in the Smart Grid, found that Smart Grid projects funded through the American Recovery and Reinvestment Act (ARRA) resulted in roughly a $7 billion total economic output, 50,000 jobs and a return of $1 billion in government tax revenue.

The state of Florida recently completed its Smart Grid with the help of $200 million in ARRA funding. Florida Power & Light reports that in its first week, the system’s 4.5 million smart meters and 10,000 grid sensors identified 400 malfunctioning transformers, as well as many other problems. Smart Grid technology also helps utilities take advantage of demand response programmes, and could enable distributed renewables to participate.

Demand response

Reducing a location’s electrical load in response to pricing signals from grid operators – known as demand response – is now a billion-dollar industry. One of the world’s leading curtailment services providers, EnerNOC, connects more than 100 utilities and grid operators worldwide to commercial, institutional and industrial customers that participate in demand-response programmes. The potential energy reductions from EnerNOC’s $10 million contract with the Massachusetts Department of Energy Resources will reduce electricity consumption in 480 state buildings.

According to Greg Dixon, senior vice president of marketing at EnerNOC, programmes on demand response are growing, but distributed energy has not been a key player.

‘New York and New England are hotspots, but few developers and owners of CHP systems are aware of this,’ says Dixon. If a business is in a demand response programme, it would be possible to design a PV system for its needs.

In the demand response market, savings from local utilities and payments from grid operators such as PJM are substantial. At DONSCO Inc, a foundry in Wrightsville, Pennsylvania, savings from utility charges amount to $64,200 per year. The savings through the PJM’s interruptible programme also equal an annual $30,000, and $66,000 per year comes from a synchronous reserves programme.

Energy storage systems are equally capable of handling utility demand-response requirements, and mitigating renewable intermittency issues.

For instance, In Kaua’i, Hawaii, the utility uses a 1.5 MW battery from Xtreme Power, Austin, Texas, to act as a source of spinning reserves, while providing frequency and voltage ancillary services for a 3 MW PV system. PJM also has a Smart Grid demonstration project using batteries at residential homes with PV and wind resources.

Recent events in Germany could boost the progress of battery technology and pricing. On 1 May, the country launched a support programme for PV battery storage, with €25 million for the first year, then another €25 million for the second year. Better batteries and high-performance PV systems could help avoid a technical barrier to distributed renewables that is happening now, and a financial barrier that is coming in 2017.

Xtreme Power and many other manufacturers have utility-scale energy storage systems. And with numerous technologies such as compressed air, pumped storage and a range of battery types, competition is fierce.

The future of wind power is in jeopardy in the US due to the threat of losing the Production Tax Credit (PTC), an incentive that provides a 2.2 cent per kWh benefit for wind, during the first 10 years of operations. On 2 anuary, 2013, a shutdown was avoided with a temporary one-year extension of the PTC as part of the fiscal cliff bill.

The immediate future in the US, however, looks better for the PV industry. Rather than a PTC, the US tax code allows for an investment tax credit (ITC) of 30%. But the PV industry cannot rely on such incentives for ever. ‘January 2017 is when the 30% federal investment tax credit incentive reduces significantly to 10%,’ explains Hahn.

Subsidies and incentives for renewables are also losing ground in Europe, with Germany, Spain, Italy Switzerland and the UK also making cuts. But according to Maria van der Hoeven of the IEA, it’s a sign that renewable energy is coming of age and needs less public support. But she notes that worldwide incentives for renewables amounted to $66 billion in 2010, in contrast to fossil fuel subsidies of $409 billion.

According to the Institute for Local Self-Reliance (ILSR) in Washington D.C., incentives in the US have resulted in commercial solar achieving 5.5 GW of generation, operating at grid parity in 2012. But grid parity has been limited to states with strong sun and high utility rates, such as Hawaii.

However, ILSR predicts that in Southern California and New York, parity is just around the corner, and unsubsidised rooftop commercial output could rise nationally to 122 GW by 2022. However, policy makers need to address significant non-cost barriers, including, archaic utility rules, net metering caps and so on.

One possibility to overcome awkward financing would be to tap into the strategies of investor-owned utilities. Hahn says: ‘We’re waiting on some modifications to the tax code. They would allow limited partnership structures found in fossil fuel plant financing.’ Barriers such as funding, poor infrastructure, and utility opposition, however, do not trouble multinational corporations. Walmart has announced a programme to power 100% of its operations with renewable energy – a six-fold increase in renewables projects, which is expected to save more than $1 billion annually on energy.

Companies that sell to Walmart are required to show their sustainability efforts. And as Walmart has demonstrated, using distributed renewable energy is obvious choice for the cleanest, most efficient source of power.

Ed Ritchie is a US-based freelance journalist, who writes on the decentralized energy sector.

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