Small Solar Frees Energy From Decades of Utility-Stifled Innovation — Episode 160 of Local Energy Rules

And so I started looking at that question and that, John, is when I decided that this is what I had to do because I realized that the, the same economic laws that drove down the price of computers, the price of internet, bandwidth, of computer storage, those same laws in different ways were going to drive down the price of solar and batteries. If it was just solar, it would be hamstrung by the need to be part of what, how do you power things at night, et cetera. But when both batteries and solar were going to see and will see decades of price declines, I realized that this was gonna be the cheapest way to generate reliable electricity in the history of humanity. And so I said, wow, this is gonna be a lot of fun. I gotta jump on that horse. And I left IBM with the idea that I would write a book so I could reach out to people like you, who were the ones who understood it and had shaped the discussion and the vision and learn from them as I did. Some of the podcasts you were generous enough to join of mine early on. And I became more and more excited that there was a better, faster, cleaner, more equitable future than anyone was talking about other than you and a few folks. Otherwise, it was a nascent idea and I wanted to join, help tell the story of local energy and how disruptive it could be to things that really mattered.

But I think the reason that we haven’t made more progress is the business model that Sam Insull launched to create the regularly of monopolies, and I tell a story in the book, which is, I love is which is, if I had a time machine, I’d go back and I’d grab the Wright brothers from the 1920s and I’d bring them forward to 2022 and I’d show them an F18 or a 747. And I would say, look at this idea that you created, look how far it’s come. Right? And I would, I would go back to Alexander Graham Bell and I’d bring them forward to 2022 and say that telephone you invented, Watson, come in here. Well, now it’s this device that I can hold in my hand and I can speak to 7 billion people on the planet earth with 10 digits and access to some total of all human knowledge within seconds. That’s what you created. Right? And he would be like, man, this is awesome. I’m so glad I did this. And I’d go back and get Tesla and Edison and I’d bring them forward to 2022. And they would be shaking their heads. Like this is identical. You haven’t made any changes for the last hundred years.

I have pictures in my book of a substation from 1920 and 2020. And they look to an outsider to be identical. And in structure and architecture, they are nearly identical. There’s obviously some improvements on the margin, but generally it’s the exact same technology. And so why is that? Why that, I think the reason John, to your question, isn’t because people are complacent, it’s because the business model that a man named Sam Insull created, which was his way to, to create great wealth for himself, until it didn’t work for him… But he basically said to the government of the United States, please give me a monopoly on electricity and I’ll make bigger investments in larger power plants and more transmission. And in doing so I can lower the price and make it available to more people. And it actually worked great. It worked so great that millions of Americans had electricity affordably for the first and reliably for the first time. And so, but that model got locked in. That’s the problem.

And while there’s always a lot of challenge with competition – companies go out of business, which no one likes and jobs are lost. The thrust, the excitement, the passion, the commitment that it can evoke, particularly for technology businesses, where they can move very quickly and make big changes. It attracts amazingly talented people and brings out their best efforts.

And I have always felt that the technologies are a dime a dozen. There’s certain exceptions to that. But tech generally, technologies are dime a dozen. It’s the assembly of teams that are able to bring those technologies, take huge risks, risks that many people wouldn’t choose to make. Most of them fail. Most of them declare personal bankruptcy one day, which a lot of people would never want to do, but some of them succeed and those are the folks, you know, that make massive changes in the world. And there’s just countless examples. And most of those changes, most of those people, starting with Thomas Edison, are not necessarily people of what I would call great character. They’re not people who do it… I’d like to think of myself as a nice guy. I don’t think Thomas Edison and I necessarily would’ve been friends. You know, he’s kind of a, he was kind of a difficult person and, you know, fast forward, Elon Musk may be the same kind of person. Right. I don’t know.

And when you have a competitive market and you have them able, as we do in the United States, to partake in the upside of the value they create, then they get engaged in a way. And I spent my entire life in businesses with people that had no idea what they were doing. Almost certainly outsiders to the ventures they were trying to compete with and just, you know, put everything into it and occasionally really make a dent in the universe. And that’s been the arc of my career. And I got excited about energy because I think it’s a time to do that. I think Edison would look at where we are today, Insull would look where we are today, and say, wow, we’re gonna get back to creating competitive, innovative products again.

I mean, the numbers are so obvious. And so once I, as we sci-fi nerds say, groked your concept. I started having conversations like you do every day. And the utility executive who agreed to speak with me off the record, on the book said, you know, Bill – it was very condescending. Polite, but condescending. And he said, you know the problem. I said, listen, if he said Bill, if people wanna do their environmental thing and put solar on the roof, I’m all for that, right. If that makes ’em feel better, but I’m a dollars and cents, pencil it out kind of guy. And it’s just flat out cheaper to build solar, you know, out in a giant field, than it is to put it on a rooftop. You’ve seen the numbers. It’s cheaper. And I let it hang out there. And I said, well, it’s cheaper for you.

And he’s, I could just see his gears turning, like it’s cheaper for you to do that. It’s not cheaper for me to do that. And he’s like, he starts to disagree. And I said, listen, when you build that hundred megawatt plant south of the city, do my electricity bills go down the moment you turn it on? Well, no. I said, well, if I put a tiny little solar plant on my roof, do my electricity bills go down the moment it is turned on? Well, yeah, they do. I said so as far as I’m concerned, and I’m frankly the only one that really matters in this equation, is it’s much cheaper for me to build it on my own roof than it is for you to build it in a field. And he, he literally changed the subject.

But even the advocates, John, and I think you’re one of the few folks that sees through this. so clearly, but even advocates don’t understand that basic idea that we’re so, so built around this assumption that utilities, we, the term utility, right? They’re just, they’re just this infrastructure like bridges that deserve a different set of valuations. And there, we want those utilities to be successful. We want, if it’s cheaper for them, it must be better for everybody.

But people forget part of Insull’s genius when he invented the regulated monopoly. And the reason that most utilities are not owned by governments is that governments have very limited ability to access capital. Now, obviously at the United States scale, we do it in a big way, but private enterprise has much more efficient access to large capital infrastructure investments. And so Insull’s genius was that he could never have convinced towns and cities to raise taxes enough to get the capital, but he could easily get it from banks, but banks didn’t want to give him the money because someone else is gonna build the same coal power plant next door. One of them’s gonna lose, the bank’s gonna lose their money. So his genius was well, let’s just build one coal power plant and one set of wires and the bank will make its money back. And thus the world, the United States and world got electrified and it works so well. We haven’t even changed it a tiny bit in the last a hundred years.

Now, when you talk about who makes the money right away, they’re gonna start profiting immediately from when that thing is built, they’ve spent the capital, they get their return on that equity investment. And the rest of us have to sort of wait to see if it shows up in our rates. And there’s no guarantee that it will. I think all the more pointed then for people who are customers of investor owned utilities who put on solar, where they’re like, you know, not only is this a question of who’s gonna, is someone gonna get a benefit at all? Am I gonna get a benefit at all from this installation of solar, but is it gonna be your shareholders or is it gonna be me as a consumer?

But one of the things that they did then that’s been problematic is they sort of ceded away their local control in order to do that. Yes. Which had been sort of a core to their whole beginning, which was, hey, we’re gonna for ourselves construct this electricity system that no one will build for us. And it’s so funny now to see, and Holy Cross again, is this amazing example, right? They, when their wholesale supplier went bankrupt like 20, 30 years ago, they said, you know what? Let’s, let’s not be so reliant. Let’s make sure we sign a contract that gives us flexibility. And all of a sudden, and this is the thing that I think is so beautiful about your book, right, is that the technological change is coming. And it’s those utilities that have that sense of flexibility that are really able to grasp it. Because now they’re building local hydropower, local solar, local battery storage, you know, Kit Carson Electric is doing it. Lots of these little co-ops, municipal utilities. The ones that haven’t tied themselves down to those big collective investments are the ones that are best able to take advantage of the technological change.

It was when I got into this and I realized how much the traditional monopoly is like the group that served me here, where I live in Atlanta, Georgia Power and Southern Company, how much control they have and how little they prefer not to have local energy or clean energy for most of the last couple of years, I thought, hey, the EMCs and the Munis are gonna be great. But then I went out and interviewed a lot of EMCs and I, first of all, they have these extremely limited contracts, so they cannot generate any of their own electricity. And then I’ve also discovered that many of them fall into the same trap that the large utilities have, which is it’s a profitable business. It, you just kind of show up and you keep it running or a caretaker everyone’s making, it’s working. No one’s complaining. And so there’s even these groups that theoretically, you could have the flexibility don’t embrace it, which is why a leader like Brian Hannigan is the fact that he’s doing it and he’s doing it boldly and telling the story broadly to you and others. That’s really important. So if listeners haven’t listened to Brian Hannigan interview, they must because he is the future. He sees what’s coming and his stories are gonna be universal in 20 years.

Hey, thanks for listening to Local Energy Rules. If you’ve made it this far, you’re obviously a fan and we could use your help for just two minutes. As you’ve probably noticed, we don’t have any corporate sponsors or ads for any of our podcasts. The reason is that our mission at ILSR is to reinvigorate democracy by decentralizing economic power. Instead, we rely on you, our listeners. Your donations not only underwrite this podcast, but also help us produce all of the research and resources that we make available on our website and all of the technical assistance we provide to grassroots organizations. Every year ILSR’s small staff helps hundreds of communities challenge monopoly power directly and rebuild their local economies. So please take a minute and go to ilsr.org and click on the donate button. And if making a donation isn’t something you can do, please consider helping us in other ways. You can help other folks find this podcast by telling them about it, or by giving it a review on iTunes, Stitcher, or wherever you get your podcasts. The more ratings from listeners like you, the more folks can find this podcast and ILSR’s other podcasts, Community Broadband Bits and Building Local Power. Thanks again for listening. Now, back to the program.

So I made this character named Ronald McDonald, and he was a hamburger entrepreneur and he was excited about that people should eat more hamburgers. And he was inspired by Sam Insull. So to really help grow and make hamburgers available to everybody, he convinced the government to give him, also like Sam Insull got for electricity, a regulated monopoly. But he knew that the government would be concerned, as they were with Insull that they might abuse it and raise prices unfairly. They created the oversight that basically regulated that industry. But the cool thing for Ronald McDonald and Sam Insull and all the utilities is that they were guaranteed perpetual high profits. And essentially it would be illegal in the case of Ronald McDonald for anyone else to sell any kind of food. And it was a big bet, but in this parable, guess what? Everyone ended up getting hamburgers that were affordable, universally available, and nobody went to bed hungry.

But there was a problem. A couple years later, a scientist came to Ronald and said, hey, we’ve done some research and we’ve discovered there’s this alternative food. And it’s called a salad. It’s actually much healthier. It’s much more nutritious and believe it or not, it’s also a lot cheaper. And Ronald’s like, Hmm, I hear this salad stuff has got some problems. It uses this thing called lettuce. And I hear that you have to grow it. And you can only grow this lettuce stuff sometimes in the year. So it sounds to me like if we do this lettuce stuff that the people are gonna be starving the half of the year. I just don’t see how it works.

But Ronald had just he’d seen the future. And so while he played off the scientist, he called his team and said, listen, folks, we’re dead. So I want you to go out and donate all the money to the politicians that will support our hamburger monopoly. I want you to find some scientists who will publicly declare that hamburgers are perfectly healthy and lettuce is terrible because we’re gonna starve half the time. And I want to create some grassroots organizations called Americans for Hamburgers. And I want you to pay them under the table to run some ads about how the high price of salads and the risk of starvation is we should not go anywhere near salads. So the problem was that people kept getting sicker and sicker, and eventually legislators got involved and they sat down with Ronald and said, admit you have to do something. So Ronald does what he did. He just, he’s a brilliant business person and a leader. He gets all the politicians on the state house steps. He announces, we are going to be adding a piece of this lettuce stuff to each hamburger. We’re gonna solve the problem by just adding a piece of lettuce and the supporters and politicians are like the man’s a visionary. He sees the future of lettuce he’s putting on, on his hamburgers. It’s fantastic.

But the scientist came back a couple years later and says, but, but there’s a new idea. It’s even better: get this. It’s called a garden. So people can actually plant lettuce in their own backyards and generate their own lettuce for almost no money at all. And it’s even cheaper and even healthier. I mean, think about like all the innovations that people can do with their own lettuce. Like they can invent new products and new dishes and new recipes, like what’s more American than being self-reliant and innovative. This is the epitome of American culture. And now Ronald was really concerned, cuz this garden thing could absolutely kill him. So he went out and called all of his friends. He’d been lobbying all his legislators for years. They had a huge amount of money from him. And so almost overnight, anyone who owned a garden was now paying extra fees. If they grew their own salads, they were charged fees. If the garden was particularly large and to even plant a garden, they had to actually get permits, which often took months. And the biggest problem was if they had a little bit of extra lettuce, it was actually illegal for them to even walk across the street and hand the lettuce to their neighbor. They just had to throw it away. And if they wanted to sell it, they couldn’t sell it to their neighbor. They couldn’t sell it at a farmer’s market. The only place they could sell it was back to Ronald McDonald and Ronald could say, well, I’m gonna pay you way below what it’s worth, because that’s kind of what I wanna pay and, and wrap that in.

So anyway, the salad demand was strong and Ronald said, listen, this thing’s happening. I can’t get around it. So what we’re gonna do, last part of the story, is he says, we’re gonna make these salad things, but we’re gonna make ’em in our giant factories. And so just like hamburgers, it’s gonna use our distribution and our, you know, economies of scale. And a scientist comes in and says, wait a minute. But your salads are like twice as expensive as the ones when people grow it themselves. And they’re the same price as hamburgers and Ronald just laughed. So that’s the short, short, short version of the story, but thank you for calling it out, John. I really like that you like that.

So I thought it was brilliant and you know, whether or not it was perfect, whether or not it fit with the tone of the book… I mean, I thought it fit great with the tone of the book, which was, just as we have to question whether or not the technology and the way we generate electricity from a technical standpoint makes sense, from a cost standpoint, you brought in with this one, philosophically, are we doing this in a way that makes the most sense, or are we just doing it this way because we’ve always done it this way? And people can’t conceive of doing it a different way. So I thought it was great.

And I think this is so important for people trying to understand the difference between like large scale and small scale and why lots of small scale stuff can be very cost effective as compared to a few large things, which is sort of the, when you just boil it all down, that is the tension between, you know, utility scale solar and utility scale wind and local solar and wind is this notion that for some people that if it’s not done in a big chunk, it doesn’t count at all. So can you talk a little bit about this economies of scale economies of volume issue?

And in fact, one of my, the people I quote a lot in the book, in addition to you is Peter Fox Penner who’s the author of several books in the space. And he has some data that said that the size of new power plants actually peaked in 2003 at under just under 500 megawatts. And ever since then they’ve been shrinking. And this is just big power plants. It’s not the rooftop stuff you and I talk about. And so I think that the notion of big smaller is better is so commonplace in other parts of our lives. And it just drives me crazy that people can’t make this obvious leap to electricity generation or for that matter oil and gas.

And so for example, some of us are old enough to have heard about this thing called a mainframe and early computing days were entirely about these gigantic, centrally run computers, you can look up pictures on the internet and these men with white lab coats sitting around with clipboards studying this machine, which today would’ve been an equivalent of 50 million. And that was, and so IBM in their heyday made larger and larger mainframes and therefore the larger they got the better. And there’s this crazy notion that maybe we could make these little computers called personal computers. In the garage, Stephen Jobs and Steve Wosniak and Apple and it worked that you could, and that absolutely changed the world. And so next thing, you know, mainframes are a sort of dinosaurs and personal computers are taking off and then they become laptops and they take off even further, and then they become smartphones. And there’s, you know, I think seven or 8 billion smartphones on the planet earth. And it’s impossible to argue the scale of that impact, certainly some negative components, but by and large information and productivity has soared because of it. And so why people can’t see that same lens that has so clearly have benefited them.

I think about media right back when I was growing up, there was only a couple of channels and a couple of radio and a couple of newspapers. Now I have the choice of things. So that’s led to its own new problems, which is separate conversation, but the fact it’s proliferated. So, you know, why is it that we can’t apply that same logic to power? I think that’s what you and I have to help people see that bigger is not better. It was not better 10 years ago, and it’s not even, it’s actually much worse, whatever bigger is that the, you know, if you have a, don’t have a problem with nuclear because of waste or weapons proliferation, I have a problem with it cuz it’s just a big, expensive thing.

And we’re living proof to go look what we do here in Georgia. You know, we’re 10 years over behind budget on the one nuclear plant being built in the United States. And we’re twice over the budget and every six months like clockwork, oh, we’re gonna be not done in six months and it’s gonna be another six months. And so I don’t know when those plants will go online, but I’m already paying a massive fee specifically on my bill here in Georgia every month to pay for the overages of the nuclear power plant that our state doesn’t need. And there are places where nuclear’s gonna be great, right? And I’d much rather have China have a lot of nuclear plants than coal plants, right. But they’re pulling back on both of those in China, hopefully much faster in the coming years. But I think small is the future and it’s better to run and organize. It’s more reliable, it’s more secure and it also is cheaper.

And we need the power lines to our houses. That’s I think a natural monopoly, I think where Edison and Insull got it wrong was that the power plants are not a natural monopoly at all. Certainly not with today’s technology. The power lines are, so let’s have one or two companies. It could be the government that owns it. It could be private companies. That’s above my pay grade to determine, but, whatever works, a single organization, one throat to choke, as we say in the startup world, when the power goes down,  the wires go bad. Who goes and fixes it. And I think that’s where the monopolies can exist. And I think the companies overseeing, maintaining and allowing the trade to take place. That’s a great business for the utilities – if they choose to embrace it. I think a lot of them are gonna fight it like crazy and they’re gonna die trying, be irrelevant. And there’s, you know, one of my favorite books is The Innovator’s Dilemma by Clayton Christensen and he describes this just large incumbents in every industry, just basically self-humiliating as they try to preserve a future that’s just, doesn’t go. Isn’t going to exist.

And, you know, history says otherwise, actually bills did go up a little bit. I did check on that. Part of his concern was validated, but that quickly changed. And now the very thing that he was so concerned about, long distance calls are effectively free. You and I are in different places in the world – U.S. – having a free conversation for the cost of two cents of electricity and two cents of bandwidth. And so AT&T is a great example. And the breakup of AT&T was triggered by competition by MCI basically forcing themselves into that equation and convincing the government to break AT&T up. So I think that’s a great example for people that struggle with a post monopoly electricity utility, to look at and learn from there’s some great books on it.

And I think, but I think we don’t have to look nearly that existentially or that intellectually. We can just look at places like Hawaii, right? We can, Hawaii’s doing a range of things, some of which I’m sure will regret and histories look back, but they’re doing a lot of things that are smart, and they’re incentivizing homeowners to own batteries,  economically very attractively. And you know, the regulators in Hawaii have said, we know we didn’t wanna move to renewables, which not every state says, but they know they wanna move to renewables. But they said, we have this beautiful land and mountains. We don’t wanna build giant solar farms. And so they actually intentionally need to build their grid with rooftop solar, and they’ve leaned into it. They stumbled along the way, but they’re doing wholesale changes. You know, one of the most advanced things they’re doing is changing how they incentivize utilities called performance-based rate making. You know more about that than me, John, but, but they’re looking at every single angle of this from consumers to regulators to capital and they’re showing, and I just read something from a Hawaiian regulator. It’s like, look at us. This is possible. Don’t say it’s not possible.

It’s like Brian Hannigan and Holy Cross, look at us. This is totally possible. The things you said were impossible are possible. Just take a second to look at what we’re doing. And you’ll realize that the things that concern you legitimately in some cases, and just fear of losing a monopoly in others, those are not real. Those are what I call monsters under the bed. And they’re not real. So move past your fears, embrace the future and go pay attention to Hawaii. Go look what FDR did in the 1930s with the rural electrification act and how that financed the build out. We just need to do a rural electrification act, except it’s a local energy electrification act, easy peasy. Politicians in DC will jump on it probably by this afternoon.