Barriers to Distributed Renewable Energy

John Farrell, Senior Researcher

efficient | economical | equitable

Total Installed Capacity

4,034 MW

47,000 MW

Together = 3.3% of U.S. sales

How Much Community-Owned?

4,034 MW

47,000 MW

5%? 10%? 25%?

1%

Community-Owned

just

Community-Owned = distributed2

(distributed generation) x (distributed ownership)

Why Community-Owned?

Barriers to Distributed Generation

• Tradition

• Capital

• Cash Flow

• Legal

• Utility

Centralized Power

Utility Perspective

Transmission network

Distribution network

House

Storage

Local CHP plant

Commercialbuilding

Factory

Storage

Storage

Storage

Solar PV power plant

Windpowerplant

House with domestic CHP

Clean, local power

RealityTradition

Barriers to Distributed Generation

• Tradition

• Capital

• Cash Flow

• Legal

• Utility

Capital

How can they...

...buy this?

Rules for Raising Capital

• Full registration

• Regulation D

• Regulation A

• Intra-State

• Private

Type of registration

Upfront Cost

Compliance Costs Restrictions

Full SEC $100,000-125,000 Over $400,000/yr None

Regulation D $30,000-50,000 $10,000/yr Accredited investors;

prior relationship

Regulation A $50,000-75,000 $10,000/yr $5 million offering

Intra-State $50,000-75,000 $10,000/yr (MN) In-state only

Private Minimal Minimal Prior relationship; no advertising

Type of registration

Upfront Cost

Compliance Costs Restrictions

Full SEC $100,000-125,000 Over $400,000/yr None

Regulation D $30,000-50,000 $10,000/yr Accredited investors;

prior relationship

Regulation A $50,000-75,000 $10,000/yr $5 million offering

Intra-State $50,000-75,000 $10,000/yr (MN) In-state only

Private Minimal Minimal Prior relationship; no advertising

9%3%

Project CostUpfrontCompliance

Type of registration

Upfront Cost

Compliance Costs Restrictions

Full SEC $100,000-125,000 Over $400,000/yr None

Regulation D $30,000-50,000 $10,000/yr Accredited investors;

prior relationship

Regulation A $50,000-75,000 $10,000/yr $5 million offering

Intra-State $50,000-75,000 $10,000/yr (MN) In-state only

Private Minimal Minimal Prior relationship; no advertising

59% 19%

Project CostUpfrontCompliance Too costly for small projects

Type of registration

Upfront Cost

Compliance Costs Restrictions

Full SEC $100,000-125,000 Over $400,000/yr None

Regulation D $30,000-50,000 $10,000/yr

Accredited investors; prior relationship w/

investors

Regulation A $50,000-75,000 $10,000/yr $5 million offering

Intra-State $50,000-75,000 $10,000/yr (MN) In-state only

Private Minimal Minimal Prior relationship; no advertising

Type of registration

Upfront Cost

Compliance Costs Restrictions

Full SEC $100,000-125,000 Over $400,000/yr None

Regulation D $30,000-50,000 $10,000/yr

Accredited investors; prior

relationship

Regulation A $50,000-75,000 $10,000/yr $5 million offering

Intra-State $50,000-75,000 $10,000/yr (MN) In-state only

Private Minimal Minimal Prior relationship; no advertising

Type of registration

Upfront Cost

Compliance Costs Restrictions

Full SEC $100,000-125,000 Over $400,000/yr None

Regulation D $30,000-50,000 $10,000/yr

Accredited investors; prior

relationship

Regulation A $50,000-75,000 $10,000/yr $5 million offering

Intra-State $50,000-75,000 $10,000/yr (MN) In-state only

Private Minimal Minimal Prior relationship; no advertising

≤ 2 turbines

Type of registration

Upfront Cost

Compliance Costs Restrictions

Full SEC $100,000-125,000 Over $400,000/yr None

Regulation D $30,000-50,000 $10,000/yr

Accredited investors; prior

relationship

Regulation A $50,000-75,000 $10,000/yr $5 million offering

Intra-State $50,000-75,000 $10,000/yr (MN) In-state only

Private Minimal Minimal Prior relationship; no advertising

5%27%

Project CostUpfrontCompliance

Still costly for small projects

Type of registration

Upfront Cost

Compliance Costs Restrictions

Full SEC $100,000-125,000 Over $400,000/yr None

Regulation D $30,000-50,000 $10,000/yr

Accredited investors; prior

relationship

Regulation A $50,000-75,000 $10,000/yr $5 million offering

Intra-State $50,000-75,000 $10,000/yr (MN) In-state only

Private Minimal Minimal Prior relationship; no advertising

Type of registration

Upfront Cost

Compliance Costs Restrictions

Full SEC $100,000-125,000 Over $400,000/yr None

Regulation D $30,000-50,000 $10,000/yr

Accredited investors; prior

relationship

Regulation A $50,000-75,000 $10,000/yr $5 million offering

Intra-State $50,000-75,000 $10,000/yr (MN) In-state only

Private Minimal Minimal Prior relationship; no advertising

5%27%

Project CostUpfrontCompliance

Still costly for small projects

Type of registration

Upfront Cost

Compliance Costs Restrictions

Full SEC $100,000-125,000 Over $400,000/yr None

Regulation D $30,000-50,000 $10,000/yr

Accredited investors; prior

relationship

Regulation A $50,000-75,000 $10,000/yr $5 million offering

Intra-State $50,000-75,000 $10,000/yr (MN) In-state only

Private Minimal Minimal Prior relationship; no advertising

Capital is HARD

• Full = EXPENSIVE

• Regulation D = RICH FOLKS

• Regulation A = SIZE/COST

• Intra-State = COSTLY

• Private = LIMITED

Hope: Crowdfunding• 2012 federal JOBS Act

• $1 million limit

• Minimal compliance

• Lower upfront cost: $10-15k

Private  Placement

Example

Barriers to Distributed Generation

• Tradition

• Capital

• Cash Flow

• Legal

• Utility

complex...

0% 25% 50% 75% 100%

20%25%25%30%

Minnesota Commercial Solar Project Cash Flow

Federal tax credit DepreciationState rebate Net metering

0% 25% 50% 75% 100%

100%

Germany/Ontario Commercial Solar Project Cash Flow

Feed-In Tariff

Feed-In Tariff

• Long-term, fixed price contract

• Guaranteed, simple grid connection

• Price sufficient for small profit

Risk

Policy Shapes CostR

etur

n

Germany

U.S.

Ontario

Low

Hig

h

Low High

Policy Shapes Participation

80%

of German solar is on small rooftops

U.S. Exception

University Park community solar

Barriers to Distributed Generation

• Tradition

• Capital

• Cash Flow

• Legal

• Utility

Which Makes Sense for Community Solar?

A.Nonprofit

B.City

C. County

D.Cooperative

E.All of the Above

Which Makes Sense for Community Solar?

A.Nonprofit

B.City

C. County

D.Cooperative

E.All of the Above

Which One Works?

A.Nonprofit

B.City

C. County

D.Cooperative

E.All of the Above

Which One Works?

A.Nonprofit

B.City

C. County

D.Cooperative

E.All of the Above

F.None of the Above

0% 25% 50% 75% 100%

20%25%25%15%15%

Minnesota Nonprofit Solar Project Cash Flow

Federal tax credit MiddlemanDepreciation State rebateNet metering

Exception

Group purchase, no legal entity

Mt. Pleasant Solar Cooperative

ExceptionSouth Dakota Wind Partners

7 turbines, 600 owners, 1 expired cash grant

Barriers to Distributed Generation

• Tradition

• Capital

• Cash Flow

• Legal

• Utility

True or false?

In 2012, most utilities measure how much electricity is used during peak periods and during minimum use periods on their own grid.

True or false?

In 2012, most utilities measure how much electricity is used during peak periods and during minimum use periods on their own grid.

FALSE

≤?

1. A Limit on Local Power GenerationUtilities always want local power generation to be less than local minimum electricity demand so that electricity will not flow out of neighborhoods and back onto the grid.*

2. A Guesstimate of Minimum Demand Whoops! Utilities assume minimum demand is about 30% of peak demand, because they don’t measure minimum demand.

3. An Arbitrary Safety MarginUtilities take this 30% threshold and divide by 2 to get a 15% cap on local solar.

*Also addressed with 2-way electrical equipment

How Local Solar Gets Capped

15%

Peak use

“Minimum”(30%)

÷2

Percent of peak power allowed from local solar

Default cap of

÷2

1. A Daytime MinimumHow much solar power is produced at 4 AM? None. But that’s the time of day utilities used for their minimum demand calculation.

Hawaii solar advocates negotiated a change: to estimate minimum demand when the sun is up (Sundays at noon).

Even though utilities maintain the arbitrary “division by 2” safety margin, this change could allow nearly twice as much local solar on the grid.

How States Can Raise the Cap (Hawaii)

“Daytime min.”

÷2

~25%

Hawaii’s Update (2011)Hawaii estimates the minimum demand during daytime.

Cap is raised toPercent of peak power allowed from local solar

Daytime minimum

~50%Cap is raised toPercent of peak power allowed from local solar

÷

California’s Update (2012)Measured daytime demand

No “division by 2”

How States Can Raise the Cap (California)

1. A Measured Daytime MinimumUtilities must actually measure the minimum demand on a power line between 9 AM and 4 PM and no longer use peak demand as a proxy.

2. No “Division by 2”Utilities can’t arbitrarily divide the cap by 2, now that the power line capacity is actually measured.

The result could nearly triple the original 15% cap on local solar power.

2

LEGENDno statutory net metering limitaggregate limit higher than 1% of peak demandaggregate limit 1% of peak demand or less

Utilities also Want Limits on Total Net Metering

Lets  customers  pay  “net”  of  own  use  and  own  generation

Exception

Replicable community solar!

Distributed Generation

• Tradition• Capital• Cash Flow• Legal• Utility

• Mt. Pleasant Solar Coop• Clean Energy Collective• Maryland Solar LLC• SD Wind Partners

Learn more at EnergySelfReliantStates.org

Barriers Exceptions