Could utilities’ future be selling light instead of electrons?

(Photo by David Pacey via Creative Commons)

(Photo by David Pacey via Creative Commons)

What if instead of offering electricity by the kilowatt hour, utilities sold light, cooling and screen time?

That’s the idea behind a new utility business model being discussed by a civic leadership group in Minnesota that’s looking for ways to better promote energy efficiency in the state.

The Energy Services Utility model is one of several concepts being studied and debated as part of an electricity policy project organized by the Citizens League, a St. Paul nonprofit. The goal is to build consensus around ideas that could become policy or legislative proposals later.

The energy-as-a-service model has been promoted most recently by author and energy consultant Peter Fox-Penner, who is scheduled to speak today at the Minnesota Rural Electric Association’s annual Energy Issues Summit in St. Cloud.

“The mission of the Energy Services Utility is to provide lowest-cost energy services to its customers — light, heat, cooling, computer-hours, and the dozens of other things we get from power each day,” Fox-Penner writes in his 2010 book “Smart Power: Climate Change, the Smart Grid, and the Future of Electric Utilities.

Today, electric utilities make money by building power plants and other equipment and selling kilowatt hours of electricity to customers. The model not only discourages conservation but it also leaves utilities at serious risk for disruption from new energy-efficient and solar technologies.

A model for efficiency

Fox-Penner proposes that customers pay utilities in part based on how many lumens of light, degrees of cooling, or minutes of screen time they provide — regardless of how much electricity it takes to offer those services.

The model would in theory give utilities an incentive to upgrade their customers’ light bulbs, appliances or even televisions whenever the energy savings would pay off.

Say a light fixture costs $3 per million lumens of light. If the utility finds a fixture that could produce the same light for $2.80 per million lumens, it would change out the lights, with the customer’s permission, and split the savings with the customers, Fox-Penner writes.

It’s “a radical concept that puts electric utilities into two diametrically opposed businesses, one selling their traditional product and one helping customers buy less of it,” he writes.

It’s not a new idea, though. The earliest electricity companies, including Edison, started out selling light, not power. In the 1980s, Amory Lovins among others tried revive the model, which was seen as too impractical then, he writes.

What’s changed is the flurry of new sensors and measurement tools that, along with other smart grid technologies, make metering light, cooling and other energy services suddenly technologically possible.

An “enormous number of practical issues and barriers” remain before utilities could transition to an energy services model, Fox-Penner says. One of the big ones is convincing customers to give up some of their ability to choose whichever products they want in their home.

“While this works for services for which features are not that visible or important, such as heating or lighting, imagine ceding your choice of television sets to your power company,” Fox-Penner writes.

Utility challenges ahead

There’s a growing recognition within and outside the electric industry that the existing utility business model is unfit both for meeting society’s climate goals and for competing with new disruptive technologies such as distributed solar power.

“It’s something that worked really well in the last century, when we needed to electrify the country and expand the grid to use more electricity for more things,” says Annie Levenson-Falk, the Citizen League’s senior policy manager. “Now that the goal is conserving, we have the wrong setup for that. I think folks are starting to recognize that.”

The Citizens League started its electricity policy project in 2011, bringing together about 100 people, including utility officials, state lawmakers, environmentalists, business leaders and citizens, to talk about what Minnesota’s electricity system should look like in 2040.

The project is currently in its second phase, which is focused on identifying long-term, system-level policy changes that would promote more efficient use of electricity in the state. Fox-Penner’s Energy Service Utility model is one of several ideas that have been discussed.

“Right now we’re throwing a lot of ideas out there. They’ve run the gamut from decoupling to deregulation,” says Levenson-Falk. The group’s next workshop is this evening at MISO’s St. Paul facility.

Joel Johnson, director of government affairs for the Minnesota Rural Electric Association, said similar conversations about the future of utilities are starting to take place in the boardrooms of its members.

“Part of our purpose as an association is to make sure that our members are looking ahead and seeing the challenges that are coming along,” says Johnson. “They’re really coming from all different directions right now.”

Utilities are being asked to make major upgrades to power plants and the electric grid at a time when sales are mostly flat and at risk of going lower if energy efficiency and solar power trends continue, he said.

“The conversation that needs to be had more publicly is: What are we going to do with all the stranded capital we have invested in these central power plants, particularly coal plants?” Johnson said. “There’s still billions of dollars invested in those plants — money that needs to be paid out.”

The answer may involve adopting new business models to help utilities make the transition, which is why the association invited Fox-Penner to speak at its summit Wednesday.

“These are all discussions we need to have,” Johnson said.

For information about participating in the Citizen League’s electricity project, contact Annie Levenson-Falk at or 651-289-1072. For information about the Minnesota Rural Electric Association’s annual Energy Issues Summit, visit its website.

Originally published July 31, 2013 at 06:00AM at Midwest Energy News

Co-op’s planning process doesn’t fly with Minnesota regulators

Great River Energy's Coal Creek Station in North Dakota (Photo via Great River Energy)

Great River Energy’s Coal Creek Station in North Dakota (Photo via Great River Energy)

Minnesota’s second largest electricity provider received a vote of disapproval from state regulators Wednesday for its long-term planning efforts.

The Minnesota Public Utilities Commission voted 3-2 to reject Great River Energy’s biennial 15-year plan for how it intends to meet its customers’ energy needs in the future.

The decision doesn’t carry any legal or regulatory consequences, but the wrist slap could lend ammunition to customers who were already upset over recent rate increases.

“It’s sending a message to this company: this is not what we expect in Minnesota for resource planning,” said Beth Goodpaster, an attorney for environmental groups that intervened in the case (including Fresh Energy, where Midwest Energy News is based.)

Commissioners complained that Great River Energy’s plan contained deficient analysis and was missing significant information, particularly relating to the cost of continuing to operate older coal-fired power plants in its fleet.

Great River Energy, a nonprofit wholesaler that supplies 28 cooperative utilities in Minnesota and Wisconsin, has been grappling with an overcapacity of generation, including a brand new $437 million coal plant in Spiritwood, North Dakota, that’s been mothballed due to low demand.

The operators of two ethanol plants in Great River Energy’s service area have blamed that overcapacity on poor planning and wasteful spending by the utility’s management. The company’s rates have increased 58 percent in seven years.

“We do not believe that GRE has come anywhere near to achieving the goals set forth in Minnesota law and its obligations to its members of cost-effectiveness and providing electric service at least cost,” said David Aafedt, an attorney for Al-Corn Clean Fuel.

Aafedt and Goodpaster argued that Great River Energy’s demand growth forecasts were unreliable and overly optimistic, and that customers are at risk for more rate hikes to cover continued overcapacity.

Unlike investor-owned utilities, Great River Energy isn’t required to win approval from regulators for its long-range plans. The Public Utilities Commission has only an “advisory” role for cooperatives.

Commissioner Dennis O’Brien said the case shows why a lack of oversight for large electric cooperatives could be a problem worth addressing at the legislature.

“My hope, and it’s only a hope — I don’t think we can enforce our aspirations on them — is that they will look to alternative sources, including more wind and natural gas,” O’Brien said. “I also hope that … the legislature will take a new hard look at the wisdom of lightly regulating co-ops. Are they really answerable to their members, or have they become so big and complex that the managers are ineffective controllers with very little oversight?”

Commissioner Nancy Lange said the document didn’t meet the bar for being a useful planning tool, and that she’s concerned the company didn’t include any information about the cost of environmental compliance for its coal plants.

“I think we do have to pay attention to the economic impact on customers,” Lange said.

PUC Chair Beverly Jones Heydinger said she wants to see a “fuller analysis” that includes alternatives to existing generation, such as more aggressive use of efficiency and demand-side management.

“I didn’t hear that in the conversation,” she said.

Commissioners David Boyd and Betsy Wergin voted to accept the utility’s resource plan.

An attorney for the company, Michael Bradley, told commissioners during the hearing that Great River Energy’s next resource plan, due in November 2014, would include information about environmental compliance for coal plants.

“We are disappointed with the decision,” said Laureen Ross McCalib, Great River Energy’s manager of resource planning, in an interview after the hearing. “We do take it seriously”

Originally published July 18, 2013 at 06:00AM at Midwest Energy News

Wisconsin city testing legal waters on solar power

Monona, Wisconsin plans to install solar panels on its city hall and other municipal buildings. (Photo by Channel3000 Communities via Creative Commons)

Monona, Wisconsin plans to install solar panels on its city hall and other municipal buildings. (Photo by Channel3000 Communities via Creative Commons)

Can a Wisconsin city buy solar power from someone other than its electric utility? A Madison suburb may soon find out the answer.

The Monona City Council discussed Monday what could be a first-of-its-kind solar project in Wisconsin.

A private company would install solar arrays on four municipal buildings at no upfront cost to the city. The installer would then own and maintain the systems over the life of a contract and sell the renewable energy credits they earn to the city of Monona.

“The city has committed to being an energy-independent community and increasing our use of renewables,” Monona project manager Janine Glaeser said, “and this looks like a good way to do that without the upfront capital costs.”

One possible hitch: Wisconsin law is unclear about whether so called “third-party-owned” solar systems, in which neither the customer nor their utility owns the panels, are legal in the state.

It’s a high-stakes question for the state’s solar industry — and its regulated utilities, which could see a flood of new competition if the model is accepted and price trends continue.

Why third-party?

Third-party-owned solar accounted for more than half of new residential installations in the U.S. last year, and GTM Research forecasts that third-party-owned residential solar will be a $5.7 billion market by 2016.

In states where third-party solar is specifically allowed, such as Arizona and Colorado, the arrangements have accounted for up to 90 percent of new installations, according to the Solar Energy Industries Association.

At least 22 states specifically allow third-party-owned solar arrangements, according to the Database of State Incentives for Renewables and Efficiency (DSIRE). Another half-dozen states prohibit third-party-owned solar, and the law is unclear in the rest of the country.

In Iowa, for example, Alliant Energy sued to stop the city of Dubuque from buying solar power directly from a company that would own and manage panels on city buildings. Alliant has appealed a district court’s decision to the Iowa Supreme Court.

The argument by Alliant is third-party solar firms that sell electricity to customers should be regulated as utilities, and that the Dubuque project would encroach on Alliant’s exclusive right to provide electricity to the city.

The risk of protracted, expensive legal challenges from utilities has deterred third-party solar companies from setting up shop in Wisconsin, but the investor-owned utility that serves Monona has said it doesn’t intend to challenge the project.

“That’s an agreement that the city of Monona has with that vendor, and that has nothing to do with us,” said Steve Kraus, a spokesman for Madison Gas & Electric. “It isn’t anything special or different.”

Wisconsin solar energy advocates, however, are closely following the Monona discussion and believe it could produce a model for advancing third-party-owned solar in the state.

“This could be a breakthrough,” said Michael Vickerman, program and policy director for RENEW Wisconsin, a nonprofit that promotes renewable energy. “If the vote proceeds as we think — all indications are that the council will approve it — then we’ll have a template for how [others] can do this sort of thing.”

RENEW Wisconsin is a member of RE-AMP, which publishes Midwest Energy News.

‘We are not selling electricity’

The Monona proposal calls for installing solar arrays on four city-owned buildings: city hall, the library, a public works garage, and the water utility building. The systems would produce up to 156 kilowatts, which would help offset the city’s electric bill.

The solar panels would be paid for, installed by and owned by a Colorado company called Falcon Energy, which as a for-profit business would qualify for federal tax benefits that are unavailable to nonprofits and government entities.

Under the terms being discussed, which are not final, Falcon Energy would lease the rooftop space for 10 cents per square foot. The city would pay Falcon Energy $130 per megawatt-hour for the renewable electricity credits, or RECs, associated with the project.

Nowhere in the contract is the sale of electricity mentioned, and that’s apparently by design.

Solar developer Kurt Reinhold, who has been working on the Monona project for the past two years, didn’t want to discuss specifics until it was a done deal, but he said in an e-mail that his company, Solar Connections, designs “REC service agreements.”

“Since we are not selling electricity, we should not be regulated as a public utility,” Reinhold wrote.

Monona City Attorney Bill Cole couldn’t be reached for comment Tuesday. The City Council is expected to vote on the contract at its Aug. 5 meeting, unless it decides to schedule a special meeting before then.

Seeking legislative assurance

While the project may provide a template, it won’t set a precedent. Other utilities could still challenge similar projects in their territories, which is why RENEW Wisconsin is working to get a bill introduced in the fall to clarify that third-party solar leases are legal in the state.

“Our belief is that [if] we have enough politically powerful constituencies supporting this initiative, our sponsors will be encouraged by this broad base of support and will introduce a bill for a public hearing,” Vickerman said.

The Clean Energy Choice coalition backing the third-party solar bill so far includes several cities, counties, companies, environmental groups and solar installers.

“We believe the Wisconsin renewable energy business community will enjoy substantial and sustained growth if allowed to use the same tools that are available in over 20 states,” the group’s petition says.

The petition also notes that states where third-party-owned systems are allowed have the most active markets in the country for small-scale renewables — something analysts at the National Renewable Energy Laboratory (NREL) confirm.

“If you look at the states with the most activity and the states that allow third-party ownership, there is a very strong overlap there,” said Michael Mendelsohn, a senior financial analyst with NREL’s Market and Policy Impact Analysis Group.

The upfront cost of buying and installing systems is one of solar power’s biggest barriers, Mendelsohn said. Third-party arrangements offer an alternative: a monthly payment that typically also covers repair and maintenance.

The arrangements also help homeowners, nonprofits and government entities benefit from federal tax incentives, such as accelerated depreciation, that are otherwise only available to for-profit businesses, he said.

In Wisconsin, a number of third-party-owned solar hot water systems already exist, including several on state-owned buildings, Vickerman said, but the Monona project would be the first third-party-owned solar electric system he knows of in the state.

While clarifying a third-party solar bill will be a priority, it won’t be the only one, he said. They plan to take Monona’s model to other municipalities, nonprofits and companies to try to advance third-party solar under the current law.

“We will encourage other companies and nonprofits to follow the city of Monona’s lead. Use the template of the contract and start sourcing electricity for yourself,” Vickerman said. “We’re not going to wait for legislation for the second of these arrangements.”

Originally published July 17, 2013 at 06:00AM at Midwest Energy News