Why it is so Hard – and so Important – To Increase Distributed Resources

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By Lisa Cohn

August 14, 2008

If distributed resources are such a good idea, why don’t we build more of them?

A report released this week by Tufts University sheds some light on the answer. Despite all of the talk about the efficiency they bring to the grid, resources like solar energy and combined heat and power still face significant regulatory and monetary hurdles.

Consider the following findings from “Distributed Energy: The Way Forward” produced by Tufts’ Center for International Environment and Resource Policy.

* A company that develops on-site power pays 200 – 300 more basis points in debt service than a utility competitor. This is because private developers, unlike utilities, do not enjoy guaranteed equity returns, which are highly valued by lenders.

* Parent companies of manufacturers often erect insurmountable financial hurdles to installation of combined heat & power. Firms like US Steel, BP and DuPont characterize them as non-core investments, only allowed if they can achieve a one-year payback.

* Developers often face hostile utility policy, characterized by high exit fees and standby power charges, as well as ineffective net metering.

“These various tariff barriers and fees are often so high that they discourage any alternative to the status quo,” the report says. “For example, Boston University was offered a large grant and a 10-MW fuel cell system at well below the market rate plus installation assistance from the Massachusetts Technology Collaborative. However, when confronted with potentially high standby rates and other potential impediments by the utility, the university decided not to go forward with the project.”

Distributed energy is particularly important because it offers promise of driving down energy costs, which have been hitting record highs. High energy prices are bad news for a lot of reasons, but a big one is the link between energy costs and economic growth. The only long-term predictor of GDP growth is falling energy costs, says the report, quoting Bob Ayres, director of the Centre for the Management of Environmental and Social Responsibility.

The answer? Nothing quick and easy, but a unified push by industry representatives will help. Too often industry groups act without coordination, says the report.

Details about the study are available at http://fletcher.tufts.edu/ierp/projects.shtml.

Visit energy writer Lisa Cohn at www.realenergywriters.com and subscribe to her free EE Markets newsletter and podcast.

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Comments

  1. Lisa, I would like to read the Tufts’ DE report. Where can I find it? Did not find it on Google.

    I am part of the DOE NETL Modern Grid Strategy team. Our findings over the last 3 years are similar to the quotes you share above from the Tufts’ report. We would like to compare notes.

    There is one big scary truth about DE. To properly achieve the penetration of DE into the grid to benefit the nation will require the grid to have the ability to flow power two ways in the distribution network. This is a very scary thing to our traditional utility industry. This does not diminish the need to do it, but it helps explain the reluctance.

    It will take a little pushing, a little prodding, and a lot of hard work by utility engineers, vendors, and regulators to get over this hump. It is not impossible, just tough. Like most things of value in life.

    Steve

  2. Thanks very much for the comment and interest. We’d love to talk to you about your work sometime at your convenience. You can get a copy of the report by contacting mieke.wansem@tufts.edu

  3. Hi! I was surfing and found your blog post… nice! I love your blog. 🙂 Cheers! Sandra. R.

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