DECOUPLING WASTE FROM GREED, COUPLING EFFICIENCY WITH NEW ENERGY

Something called “decoupling” is on the Obama administration's New Energy agenda. The President did not mention it by name during his appearance Monday in Elkheart, Indiana, but his colloquial description of it was clear.

President Barack Obama, February 9, 2009: “The third thing that we should be doing is working with utilities all across America, including here in Indiana, to do what some utilities are already doing in California. And this is a really smart thing. What they do is, the utility is able to make money not just on how much energy it sells, but it’s also able to make money on how much energy its customers save.”

President Obama describes decoupling in Elkhart. From VoiceofAmericans2008 via YouTube.

It is clear the President truly grasps this rather arcane and wonky concept because he is able to explain it in very simple terms.

President Obama (cont’d): “So you can structure how they charge your electricity bill so that, if you started installing a solar panel, that you would actually, as you point out, be able to sell some of that energy back when you’re not using it. You get to put some money in your pocket, and the utilities are rewarded for encouraging you to do that. Right now, they don’t have enough incentive to do it because they’re making money the more energy you use, whereas what we want to do is make — give them incentives so that they’re constantly telling you how you can save energy.”

Utilities are in the ideal position to drive customers to distributed generation like solar panels and small wind turbines and to efficiencies like Energy Star appliances and home weatherization. But why should they? New Energy and Energy Efficiency mean less electricity consumption and less electricity consumption means less income and profits for the utilities.

This is what economists call a disincentive.

The California plan decouples waste from greed. It uses a state-managed redistribution of a utility bill surcharge (based on estimated power costs). It rewards utilities that show reduced consumption in their ratepayer bases. Individual ratepayers recoup more than the surcharge in power use savings (and often have the savings returned in the form of bill credits) while the utilities are rewarded from the fund created by the cumulative surcharges. The more efficient their ratepayer bases become, the more the utilities earn.

click to enlarge

By simply marrying efficiency and New Energy to the utilities' attention to their own bottom lines, California’s decoupling policies have kept energy consumption in the state flat for 30 years while U.S. energy consumption has risen 50%.

click to enlarge

(See also CALIF MANDATES MARKET-BASED EFFICIENCY and Decoupling in California)

There is another way to get utilities to increase the use of solar energy: Let them own it. That’s the idea behind 2 simple changes in the investment tax credit allotted for solar energy by Congress at the end of 2008.

Until the change was made, the 30% investment tax credit was applied to only a portion of the system’s total value. After the 1st of this year, an alteration in the law allowed the 30% tax deduction on the system’s entire cost. More importantly, the credit may now, for the first time, be used by utilities. These policy revisions sparked a sea change in utilities’ attitude to solar.

Julia Hamm, executive director, SEPA: "Utility access to the federal solar investment tax credit will significantly change the pace for solar electricity adoption by the traditional utility power sector…Investor-owned utilities across the US are in the midst of strategizing not about whether they should incorporate solar into their generation mix, but rather how and how much…The question utilities are now investigating is which business model, or combination of business models, will be most beneficial to the utility, its shareholders, and its customers."

The importance of utility investment in New Energy at this time cannot be overstated. Utilities are among the few large entities with big enough ongoing cash flows and good enough credit ratings to obtain the huge capital that large-scale New Energy projects require.

Upendra J. Chivukula, chairman, Telecommunications and Utilities Committee of the New Jersey State Assembly: “This type of investment is long term, so you’re not going to see the benefits right away…But if you don’t do it now, you’re never going to become energy independent.”

Example: Public Service Electric and Gas of New Jersey (PSE&G), New Jersey’s biggest utility, is set to invest $773 million in Solar 4 All. If regulators approve, the utility will install 120 megawatts of solar panels on public buildings and utility poles all around its service area. By feeding all the generated power into its grid, the utility plans to recoup installation costs.

click to enlarge

There will be a small initial cost to power consumers, probably 10 cents/month in the first year and perhaps up to 35 cents/month farther down the line. But there will also be a reduced dependence on the greenhouse gas emissions (GhG)-generating sources of power that are likely to have cost increases much higher than 35 cents/month in the very near future.

Ralph Izzo, chief executive, PSE&G parent company Public Service Enterprise Group: “We saw how the financial crunch has really brought renewables to a grinding halt, and this is a way to get it back going and a way to make sure all our customers benefit…”

While there are other New Energy plans on the table in the New York metropolitan region, such as electrifying dams and building offshore wind, financing remains a problem in a credit-constrained economy. The projects closest to realization are in solar energy, thanks to the investment tax credit now being offered to the utilities. Long Island Power Authority and Con Edison have solar plans, as do Pacific Gas & Electric, Southern California Edison, San Diego Gas & Electric, and Duke Energy.

Even for utilities, however, this PSE&G project in New Jersey is big.

Scott A. Weiner, partner, Resource Energy Systems and former commissioner, New Jersey Department of Environmental Protection and Energy: “P.S.E. & G. is taking solar to another level…They are stepping up to facilitate the solar market in New Jersey and to contribute to achieve public policy objectives.”

But with the opportunity to use the incentive tax credit now available, the PSE&G solar undertaking is already about to be surpassed. Los Angeles Mayor Antonio Villaraigosa and the Los Angeles Department of Water & Power will ask that city's citizens to take on a controversial 400-megawatt solar project in the upcoming March election.

click to enlarge

New Jersey Utility Plans Major Solar Project
Ken Belson, February 10, 2009 (NY Times)
and
SEPA Releases "Decoupling Utility Profits from Sales"; New White Paper Outlines Options for Addressing Utility-Solar Disincentive
Josephine Mooney, February 2, 2009 (Solar Electric Power Association)
and
SEPA Statement on PSE&G $773 Million Solar Program Investment; New Jersey Utility Announces Innovative Program to Build 120MW of Solar Capacity
Josephine Mooney, February 10, 2009 (Solar Electric Power Association)
and
Transcript: President Obama, Elkhart Indiana, Townhall - February 9
February 9, 2009 (CQ Transcriptwire via Clips & Comment)

WHO
President Barack Obama; Solar Electric Power Association (SEPA); Public Service Electric and Gas of New Jersey (PSE&G); Art Rosenfeld, father of California's Energy Efficiency movement

WHAT
- In Decoupling Utility Profits from Sales: Issues for the Photovoltaic Industry, the Solar Electric Power Association (SEPA) explained decoupling as “…a regulatory policy option that addresses the business disincentive that some investor-owned utilities face when their customers install a solar electric system and, as a result, purchase less electricity from the utility. Decoupling changes the way a utility's revenues are structured so that profits are no longer explicitly tied to electricity sales.”
- PSE&G’s Solar 4 All program will install solar panels on 200,000 utility poles as well as on schools and municipal buildings, low-income housing and areas like closed garbage dumps in its service territory.

click to enlarge

WHEN
- California began decoupling in its natural gas market in 1978.
- California began decoupling in its electricity market in 1982.
- The direction-determining changes in the investment tax credit were approved by Congress in October 2008.
- PSE&G anticipates starting installation in 2009 and build the program over 5 years.
- The solar panels on utility poles will not track the sun and therefore will likely generate power no more than 6 hours/day.
- New Jersey’s Renewable Electricity Standard calls for obtaining 22.5% of the state’s power from New Energy sources by 2021.
- The decoupling white paper is part of SEPA's annual series of research reports and educational programs on utility and solar.

click to enlarge

WHERE
- Decoupling is more common in the natural gas utility industry and at the state level. The President’s reference to it suggests it may be considered as a national policy.
- The PSE&G solar panel installations will be throughout its service territory.
- Many of PSE&G’s poles may not be in satisfactory locations. The utility may negotiate to use poles owned by wireless phone companies and other companies.

click to enlarge

WHY
- Utilities are in the best position to drive customers to efficiencies, but why should they? Efficiency means less electricity consumption and less electricity consumption means less income and profits for the utilities.
- Electric utilities’ revenues decline with the use of distributed generation and efficiency enahancements. They also fluctuate with changes in the number of customers, economic conditions, and weather conditions.
- The PSE&G solar panel installations will generate 120 megawatts and are expected to cost $773 million.
- PSG&E estimates the cost at $6.44/watt.
- Solar 4 All will install panels in 4 location categories: (1) on up to 200,000 utility poles, (2) as small rooftop PV systems on government facilities, (3) as large-scale solar power plants on utility property, brownfields, and underutilized real estate, and (4) on affordable housing developments.
- State regulators must approve the PSG&E solar panel installation plan.
- A different subsidiary of PSG&E’s parent company is developing plans for a 96-turbine, 346-megawatt offshore wind installation.

click to enlarge

QUOTES
- Mike Taylor, research and education director, SEPA: "…The impact of solar energy has been limited on utilities' revenue streams to-date…This 'distributed power plant' business model is a trend we expect to see continue in the future… In addition to adding solar capacity to the grid, this application has the potential for great educational value, both in familiarizing utility personnel with solar technology and putting widely deployed solar in front of millions consumers."
- Julia Hamm, executive director, SEPA: "This paper lays out what decoupling is, why it might be considered, as well as other options in place of decoupling that address the utility-solar disincentive."
- President Obama: “…three things that we can do, just very specific, and we can do them quickly. And then there’s a fourth thing that we can do that will take a little bit more time…Number one is that we need to pass a renewable energy standard…Point number two is, we should be providing tax credits and loan guarantees to renewable energy…The third thing that we should be doing is working with utilities all across America, including here in Indiana, to do what some utilities are already doing in California. And this is a really smart thing. What they do is, the utility is able to make money not just on how much energy it sells, but it’s also able to make money on how much energy its customers save…The fourth thing — and this is the thing that’s going to take a little bit longer — is we’ve got to improve basic science research and development. When it comes to solar, when it comes to wind, the — the price has gone down, but, generally speaking, it’s still a little more expensive than fossil fuels, coal, natural gas, and so forth…So we’ve got to improve the technology. And that’s why I want to make sure that we’re investing some money every year in the development of new energy technologies that will drive those costs down over the long term…The country that figures out how to make cheaper energy that’s also clean, that country is going to win the economic competition of the future. And I want that to be the United States of America. That’s one of my commitments as president of the United States…”