Co-ops and munis finally get a spot at the clean energy table
In the energy industry, utilities have long run the show. The transition to clean energy is undercutting utilities’ historical dominance of how electricity generation, transmission, and distribution occurs. Distribution cooperatives and small municipal utilities have long ridden on the shoulders of these giants, working through contracts that typically stipulate that they must purchase nearly all of their electricity from generation and transmission (G&T) providers. In most contracts, a whopping 5% has been the limit placed on their self-generation, rendering these smaller players [almost] powerless in determining their own energy future.
There is some poetic justice in having the small folks granted a spot at the distributed clean energy table. As electric cooperatives and municipal utilities were severely handicapped in their ability to procure their own electricity, they have only dabbled in contracts with independent power producers (IPPs) and other clean energy generators. This came to a head with probably the most unsuspecting sounding cooperative you could think of, the Delta-Montrose Electric Authority (DMEA). As a member-owned, rural electric cooperative based out of southwest Colorado, it is not hard to imagine that the time would come when they would want to be afforded the right to procure their electricity from whoever they please. In an act of magnanimity that perhaps surprised many, the Federal Energy Regulatory Commission (FERC) ruled in favor of DMEA in their case against Tri-State, another cooperative that provides generation and transmission services to 44 distribution co-ops across five states.
In short, the ruling lifted the limit on DMEA’s ability to procure electricity from renewable qualified facilities (QFs). The loophole, of sorts, lies in the fact that the Public Utility Regulatory Policies Act of 1978 mandates that utilities must purchase electricity from QF projects. The de facto interpretation of PURPA, for oh the last 38 years, has been that larger-scale utilities and G&T providers would be sole purchaser of electricity from QF projects. DMEA, in a moment of true inspiration, said “to hell with that,” and managed to supersede their contract with Tri-State by asserting that they are themselves a utility, and should be afforded the same rights. This move did not ingratiate DMEA to Tri-State, to say the least, and Tri-State attempted to impose an exit fee on DMEA, which FERC summarily rejected. Message received. Renewables on the grid will no longer be a unilateral decision.
Co-ops & Community Solar = Match Made in Heaven
It is not hyperbole to claim that this is a game-changer for the nation’s 905 electric co-ops and 835 municipal utilities who woke up following this FERC ruling to a new world of opportunity. How fitting. Co-ops and munis were probably on the leading edge of support for renewables, and now they have license to act on their values, rather than be subjected to energy procurement decisions out of their influence. And that is a very good thing. In fact, it is 987 TWh/yr of a good thing, which if you do the math, implies that the potential market for co-op/muni renewables approaches 400 GW.
Many co-ops and other smaller utilities are structured in ways that are much more conducive to serving the public good. Often they are publicly or member-owned, or at the very least not publicly traded, which makes them more intimately connected to their customers and ratepayers than the larger utilities and G&T providers that dominate much of the electric power procurement space.
Moreover, they are more likely the engage in novel project types like community solar. There is some cosmic symmetry in enabling co-ops/munis to sponsor community solar projects. It makes so much sense. It seems ludicrous that this was ever challenging to execute at a meaningful scale for many co-ops. According to RMI, the market for community-scale solar projects ranging between 500 kW and 5 MW of capacity each could exceed 10 GW by 2020.
Wake-up Call for the Generation and Transmission Providers
An ancillary benefit of this new arrangement is that community solar projects may now be easily integrated into the local distribution system, therein avoiding many costly infrastructure upgrades. Translation: electric distribution co-ops/munis may be able to purchase power directly from QF projects at a lower cost than what they are currently charged by their G&T providers. Memo to G&T providers. This also means that they will be reducing their reliance on your services and undercutting your revenues, unless you can evolve together into helping to co-create a clean energy future.
Now, there are limits to be sure. Electric distribution co-ops/munis have only been afforded the right to negotiate PPAs (and not just based on avoided costs, as in the past) with QF projects in their territory. Not a bad deal, but it does not make them an autonomous entity. Co-ops/munis still have to balance their energy supply, which can only be done through grid management in the transmission and generation system. So, there may be some building tension in the marriage between electric distribution co-ops and their larger G&T brethren. No one wants to see the G&T providers go extinct. In fact, they are still a critical species in the electric grid ecosystem. But, the challenge will be in better collaborating and coordinating with their member co-op/muni friends. This is not a reach. And there is no better time than now. Look for inspiration? Well, look no further than RMI’s Shine Initiative, an innovative program aimed at helping accelerate solar procurement in the community-scale market.