Energy Democracy: Customer Control over Renewable Energy (Episode 3)

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Welcome to the third episode of the Building Local Power podcast.

In this episode, Chris Mitchell, the director of our Community Broadband Networks initiative, interviews John Farrell, the director of our Energy Democracy initiative about the concept of energy democracy and about his latest report, Is Bigger Best in Renewable Energy? John specifically outlines some of the key concepts that make up the principles of energy democracy and how locally-owned renewable energy continues to shape our electric grid in new and exciting ways.

“We have traditionally had these large companies produce energy for us and our role is that we are simply customers,” says Farrell, “What’s really been happening in recent years is that we’re seeing a transition in the rules of the system…and that citizens want a bigger say over the [electric] system and their energy future.”

If you missed the first couple episodes of our podcast you can find those conversations with Olivia LaVecchia here and Neil Seldman here, also to see all of our episodes make sure to bookmark our Building Local Power Podcast Homepage.

Related Resources

For more information on John’s work, follow John Farrell on Twitter or get the Energy Democracy weekly update and read his latest report: Is Bigger Best in Renewable Energy? and see more fantastic charts like the one below.

Transcript

John Farrell:	People definitely resonate with that notion, that once they have an element of control they’re more interested in having more control over their energy future.
Chris Mitchell:	Hey, welcome back to the third episode of Building Local Power from the Institute For Local Self Reliance. Today we’re talking with John Farrell, the director of our Energy Democracy Program. Welcome to the shown John.
John Farrell:	Thanks for having me Chris.
Chris Mitchell:	I’m Chris Mitchell, the guy who heads the internet related program, the Community Broadband Networks Initiative, or program. Depending on how I feel like describing it in a given day. Today we’re going to talk about energy democracy. John, you’ve just released a new report talking about economies of scale. We’re going to get into that, but let’s first start with a general question. For people that are interested in building local power, making sure that their communities empower to make their own decisions, why should they care where their electricity comes from?
John Farrell:	Well there’s a huge opportunity, and you think about it in a big scale here. We spend collectively in this country about 360 billion dollars a year on electricity. The technology in the electricity system is changing so fast to allow us more and more control over that at a local level. Whether that’s rooftop solar, or the fact that I can sit here on my couch and control my thermostat from my smartphone, or the rising prevalence of electric vehicles, and the fact that those batteries can both take energy from the grid but also give it back to the grid. We just have so many different ways in which we have local control possible thanks to technology, and the fact that it’s becoming cost effective that it really changes the whole dynamic of the system. It’s a really important place for us to look.
	Even more important than that, electricity is so exciting because it’s basically the only kind of energy source that we have, not that we can actually make renewable, that we can make clean. We know with the wind and the sun that we have cost effective alternatives to fossil fuels. Whether it’s from a local control standpoint, or the economic opportunities, or from the environmental standpoint, electricity is really an exciting place to play.
Chris Mitchell:	Let’s talk about the newer report that you’ve done, which actually it seems to me this is a continuation of some of the work you did when you first started at ILSR. It’s worth noting, I think our energy program is one of the longest running efforts that the institute has been involved with. Tell us what the new report is all about.
John Farrell:	Well the report was intended in some ways as an update, you’re right. In 2008 we examined the economies of scale, and wind energy production, and also in ethanol. Basically to look at this question of, “Is bigger best?” There is this conventional wisdom that bigger sized things are more economically efficient. That persists throughout our economy, but also in energy. It was true for a very long time. For decades in fact in the electricity industry, that the bigger you built the power plant the more energy you could get out of it at a lower cost per unit. That myth kind of persisted into renewable energy, even though renewable energy like wind and solar is really very different. The power plant that you build that’s 500 megawatts, or 1,000 megawatts to conserve hundreds of thousands of homes, is kind of one big built custom unit when you’re talking about fossil fuel generation.
	When you’re talking about renewable energy through we’re talking about modular systems. An individual wind turbine only powers maybe 500 homes. An individual solar panel only produces a couple hundred watts, enough to run your toaster, or something like that. When you build a big power plant you just build lots of them. We have this enormous opportunity with renewable energy to build things at a smaller scale, because we don’t need to have 100, or 1,000, or 500,000 of these units in order to make a power plant, we only need a handful of them. You can build a couple of wind turbines and have it power a small community. You can build a solar on a rooftop and have it power that home. That’s really the opportunity provided by the technology, and what we were investigating in our report then was this question of whether or not it’s cost effective in fact to do so at a smaller scale, versus doing so on a large scale.
Chris Mitchell:	I feel like when you say, “Cost effective,” I have to wonder where we’re going to draw the boundaries. It might be if you just look at the cost per watt produced, that might be one thing. How do you count in the reliability that comes from having multiple points of electricity production scattered around so they’re not likely to be disrupted by a single tornado, or hurricane, or earthquake? Did you wrestle with issues that are around that, of where you just draw the boundary of what costs are relevant?
John Farrell:	We didn’t wrestle with that particular issue in the report, although I appreciate you mentioning it because for example, utilities are required to have a reserve. The regional management of our grid system, the regional managers say to all the utilities, “You have to have as a reserve, basically a duplicate of your largest sized power plant, plus a safety margin.” To take into account that issue of when you lose, let’s say that biggest power plant goes out, plus another transmission line goes out and limits the amount of power you have available on your system. It’s funny because that reserve margin is directly related to the scale of the system. If you didn’t have large power plants then your reserve requirements would be relatively low, because you it would take a lot more disruption in order to turn off a lot of your power plants.
	To be fair we didn’t wrestle with that particular issue, although it is an important one in renewable energy in particular because the more you spread out, the less variable it is. With one solar panel on my home rooftop, if it gets cloudy right over my home the power output from that solar panel drops dramatically. If we have solar powered panels spread out all over a metropolitan area for example, on a partly cloudy day it’s unlikely that all of them are going to be clouded at the same time, and so the system can be more adaptable.
	To get to the point in terms of where you draw the line, what we really did that was different than what other folks do is we did extend the line to talk about how much does it cost to bring that power to the point where we use it. Most of the analysis that look at this issue of whether bigger is better say, “Oh, well that really huge power plant that we can build out in the desert for solar, it only costs half as much per kilowatt hour as it does to generate solar on a home rooftop.” It sort of ignores the fact that nobody’s out in a remote area of the California desert charging their iPhone, right? We’re doing that in our homes and in our businesses.
	What we tried to do is to take into account that delivery problem, both in terms of building the infrastructure to make that delivery, and the losses of energy that you have when you try to send it long distance.
Chris Mitchell:	I’m sitting at the edge of my seat, what’s the result? Is it better to have those giant plants out there in Nevada, or in California? Is it better to distribute it?
John Farrell:	The answer is it depends a little bit. We looked both at wind energy and at solar energy. What we found if you look just at where that energy is generated, is that the difference between a very small wind power plant with maybe like three or four turbines, and the really big one’s is about a 16% lower cost of energy if you build it really far away. That there are transmission costs that add a significant amount of cost to your project in terms of going distance. What we found was kind of an approximation is the best we could do. If your wind power project is more than, say about 400 miles away from the city where you’re going to be using the energy, it’s probably not going to pay off to try to go seek either that better wind resource, or build that bigger project than it would … instead it would be better to build that project locally and at a smaller scale, that you could make up that transmission difference.
	We actually have a map in the report that kind of looks at this with some concrete examples, whether that’s Minneapolis, or Chicago, or New York City, and just gives you a sense of what those costs are for that kind of distance to travel, and where it actually ends up being more cost effective to generate closer to home. With solar energy, it even gets a little bit more complicated in the sense that … and this is where that analysis starts to get, I think really into the important piece. Which is, it’s not really an apples to apples comparison. That power plant that’s out in the desert, that solar power plant that’s really large and out in the desert, is going to compete in the wholesale market. They’re selling energy into this big regional market, and they’re competing with all the other kind of stuff. Coal power plants, natural gas power plants, what have you.
	The solar on the rooftops really competing with whatever it is, whatever the price it is that the utility charges that ultimate customer. When I put solar on my own roof I’m just reducing my energy load, I’m reducing my energy bill. That price is a lot higher than out on a wholesale market when it doesn’t take into account all those delivery charges. There’s a couple things here. One is, yeah you could get cheaper electricity, even with transmission from a solar project delivered into an urban area, maybe. The point is that it’s not even competing with the same energy costs as that rooftop solar project.
	What we really found was that solar is competitive just about anywhere. That if you build it out in the desert on that large scale, it competes on the wholesale market. If you build it on a commercial rooftop on the top of a warehouse, or on top of a retail store, it competes with the commercial retail energy price. You can put it on a home rooftop, it competes with that energy price as well. I think that’s the most important thing is to say, “It’s going to compete everywhere. That no matter where we put it, the energy that it generates is going to be more valuable than the energy cost, than the energy that we pay for at that location.”
Chris Mitchell:	Is it even the right question to be asking in terms of whether things are cost comparative today when we’re talking about building a new facility? If you put a panel for solar photo voltaic on your roof, it’s going to last 20 or 30 years. If you build a new coal plant, it’s going to be 50, 70 years I’m guessing. To some extent isn’t there a forecasting element to this?
John Farrell:	Absolutely. When we compare in our report the price of the large scale wind and solar systems, we don’t compare to what the price is on the grid now from these old fossil fuel plants that are paid off, but that we’ll also have to retire relatively soon, many of them. We instead compare that to what does it cost to build a new power plant. A new natural gas power plant, since we’re not building a lot of coal thankfully. That’s the price that we find appropriate to compete against. When we talk about rooftop solar though, we’re still really only talking about that issue of what’s the price to deliver energy? I pay like, in Minneapolis 11 or 12 cents for every kilowatt hour of energy that I consume from Excel Energy, the electric utility. That’s the price of the competition.
	This price to get new natural gas power plant producing energy wherever it is on the grid that it plugs, is more like six or seven cents a kilowatt area. That’s what that large scale solar has to compete against.
Chris Mitchell:	You and I were in grad school together where you first became acquainted with my loud mouth. One of the things that I remember from energy course is the psychological impact from having a solar panel on your rooftop. It makes you think differently. It might make you more willing to get up and turn that light off that you’re not using because you’re thinking about where it’s produced. Whereas your neighbor might just be using power that comes from Manitoba’s hydro electric dams, or nuclear power plant that’s really far away, and they don’t really see themselves as having a relationship to it. I’m curious about the democracy part of your Energy Democracy Program. How does that really play into the electricity production in the United States?
John Farrell:	It really is a see change in this sort of culture of energy. That we have traditionally had these large companies that produce energy for us, and that we are simply customers. That our only job in terms of managing our energy consumption is to try to use less. What’s really happening in recent years is that we’re seeing a transition in the sort of rules of this system, where regulators are saying, “You know what? We need to focus more on energy efficiency and conservation because those are the cheapest way to get more energy for the whole system.” We’re also seeing more, like you point out, of people thinking about the fact that now that we have the technology at our fingertips, now that we can be producers, we want to have a lot more control and say over the system.
	Say in Boulder Colorado for example, the city there has now been in about a five year battle with the Incumbent Electric Utility over wanting to have more say in it’s energy future. On behalf of a lot of customers who have solar themselves who are saying, “Look, I individually can make this decision to reduce my reliance on the Incumbent Electric Utility, and our community wants to do that as well because there’s all these economic benefits, and spillover benefits that have nothing to do with energy, but everything to do with kind of the future and the resilience of my local economy that can come from this.” A perfect illustration of this is something like 30 or 40% of electric car owners served by the San Diego Gas and Electric Utility in Southern California, also have solar power. They look at this, they went out, they bought the car, and they realized, “Hey, rather than charging this from the utilities dirty power plants, I can own my own solar panel and I can charge from that. I can further reduce my transportation costs by generating the energy I use to put into my car.”
	People definitely resonate with that notion that once they have an element of control, they’re more interested in having more control over their energy future.
Chris Mitchell:	Let’s talk quickly about the, what I sometimes think of as the, “Big guys.” The big incumbent interests. Do they make more money from large central production generation facilities than they would from a grid that is more distributed?
John Farrell:	Well it’s important to kind of draw a line here and divide. There’s sort of two kinds of utilities. You have role electric cooperatives and municipal utilities, which are effectively owned by their customers. There’s no profit motive here, but there is kind of a cultural dependence on large scale power generation, sort of the relationship … most cities for example that have their own utility are part of a larger network of power purchasers, and power plant operators, and they all buy from the same people. They’re kind of stuck in this paradigm of, “Well we’ve always bought power from these guys, and they’re the one’s who make the power plant decisions, and they like building big things.” That’s kind of the nature of that relationship.
	With the other kind of utilities we have what are called, “Investor owned utilities.” Those are for profit private companies. In many cases, and probably in most states, about 30 states, they have, they are what called, “Regulated Monopolies.” They have control over all of their customers, there’s no alternative supplier. They make money in two ways. One is selling more electricity, although some recent laws have kind of tweaked that to allow them to make some money even when they’re encouraging conservation. They really make their most money, their return on investment when they spend their own money, when they spend their own capitol. Big utilities don’t like to build small things, they like to build big things.
	There’s a definitely bias toward building big from investor owned utilities, because that’s where they’re going to make their return on investment. They’re going to build, for example in Minnesota the utility was recently trying to replace a very large coal power plant with about 700 megawatts of natural gas generation. They want to own that themselves of course, because when they build that and own it themselves, however many millions or billions of dollars that costs, they’re going to get about 10% of that back for their share holders.
Chris Mitchell:	John, one of the things that I hear, and I sometimes think of this as your uncle at Thanksgiving when you’re talking about these sorts of issues will say, “Yeah, well Germany. They have all of this renewable energy and it’s a disaster. They’re just buying all this coal now, and their prices are outrageous. It’s a horrible, horrible disaster.” You talked about Germany in your report, what’s going on there?
John Farrell:	Well there’s a lot of different pieces to this sort of, “Germany is bad,” or this, “Doubling down on renewable’s is bad myth,” about Germany. What I think is important to understand first of all is that they have a term of what they’ve been doing in Germany, they call it, “Energy [Foreign Language 00:16:22],” which means … and I apologize, my German language skills are very limited. I probably mispronounced that horribly, but the basic concept is that word means, “Energy change.”
Chris Mitchell:	Just to be very clear for people who might not be familiar, what’s the 30 second thumbnail sketch of what Germany’s actually done?
John Farrell:	Germany has built more renewable energy, and gets more of it’s electricity from renewable resources than just about any other country in the world. They did this through kind of a crash plan in terms of investment in both wind and solar energy over the past 15 to 20 years. Germany is doing this form a standpoint about changing their energy supply to renewable energy resources, and also doing it in terms of changing the ownership of those resources. I did a comparison in the report for example, in a similar 5 year period both Germany and the U.S. installed about 22 gigawatts of solar, 22,000 megawatts of solar. There was a huge difference in the way that they deployed that. In Germany three quarters of those projects were smaller than 500 kilowatts, which for example is the roof of a fairly sizable retail store. In the United States, it was less than half of those projects, solar projects, were smaller than a megawatt, which would be like a big box store, like an IKEA for example.
	Way more of the solar that Germany built was built at a small scale. There are some policy differences about what drove that development, but the idea was, “Let’s spread this around to everybody. Let’s let everybody make a return on investment in this switch over to solar.” They also had a similar commitment in wind power. There’s that piece of it that I think is crucially important is that they don’t just look at this standpoint of the cost of the energy, but they look at it in terms of the overall benefit to the economy, and to the people. Millions of German’s are owners in solar individually, or they’re part of wind cooperatives, or energy cooperatives that are financially benefiting from this transition that is much more than just the cost of electricity.
	I think a second issue that’s important to address with Germany, cause it comes up a lot, is this issue of cost. Yes because of taxes Germany, German’s pay about twice as much per kilowatt hour of electricity as we do here in the United States, sometimes even three times as much. What’s important to understand is that German’s only pay about the same amount per bill as we do, about $100 a month as we do in the United States. They’ve learned to use less. They have tools available to them, like solar, to reduce their energy consumption. It’s not that it’s much more costly in Germany, it’s that they have a lot of different ways to help reduce their bill. Giving customers that control is a huge piece of this energy democracy movement in the United States as well.
Chris Mitchell:	I think it’s also worth noting that they have metric hours over there. It’s a totally different system.
John Farrell:	Right.
Chris Mitchell:	I want to conclude with a question as to recommendation that you can offer for an article, or a book that you’ve recently read that just peaked your interest that you think people should hear about.
John Farrell:	That’s a really great question. I guess what I would say is basically anything that David Robert’s over at Vox writes. He is a really insightful writer, he gives, I think really excellent perspective on the change in the energy system, but he also occasionally dives into some really fascinating pieces on politics, and the psychology of both energy and politics. The article that was most interesting to me recently was one that he wrote about kind of Donald Trump’s relationship with the truth, and the bad … he has just kind of a different perspective on truth than most American’s do, which I thought was really interesting. It wasn’t a critique per say, it was just sort of an acknowledgement that he sort of operates at a very different way than most of us do with that relationship. I find that he’s very insightful whether he’s writing about politics or energy, and so very much enjoy his work.
Chris Mitchell:	Great, and he was, I remember his name. He was with Grist before wasn’t he?
John Farrell:	Yeah. Yeah, he left Grist for Vox a few years ago but has been doing very similar and excellent work at Vox since than.
Chris Mitchell:	Great, well thank you for talking about these issues with us. We’ll hear back from you in a few months I’m guessing.
John Farrell:	Sounds good, thanks Chris.
Lisa Gonzalez:	That was John Farrell, director of the Energy Democracy Program here at ILSR, visiting with Chris Mitchell for episode number three of our Building Local Power Podcast. To download John’s new report, visit ILSR.org where you can also sign up for updates on the Energy Democracy Program, and you can checkout the latest updates from John. In addition to reports he regularly publishes articles on the Energy Self Reliant States blog, and he interviews guests for the Local Energy Rules podcast. In fact you can subscribe to this podcast, and all of the podcasts in the ILSR podcast family on iTunes, Stitcher, or wherever else you get your podcasts from. Never miss out on our original research by also subscribing to our monthly newsletter. You can also do that at ILSR.org.
	Thanks to Dysfunction Al for the music, license suit, creative commons, the song is Funk Interlude. This is Lisa Gonzalez from the Institute for Local Self Reliance, thanks again for listening to the Building Local Power podcast.

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