[SustainableTompkins] Community Renewable Energy Is Just Around the Corner

[GayNicholson at aol.com]

Community Renewable Energy Is Just Around the Corner  
By Ted Bernhard  
Renewable Energy Access  
Monday 11 September 2006  
For decades, the conventional wisdom about developing  energy projects in the 
US has been that "big" always meant cheaper, and  therefore better, projects. 
This produced what has become our modern centralized  electric power system 
fueled primarily by coal, natural gas and nuclear power.  
In the mid-to late 1990s, however, the electric power  industry began to hear 
concerns, particularly from the environmental community,  about the negative 
environmental consequences of a system based too heavily on  these types of 
power. As a result, a second wave of thinking arose that called  not just for 
producing the cheapest power at any cost, but also for finding ways  to produce 
cleaner energy from renewable sources such as the wind, sun, biomass,  water 
and geothermal heat - and to do so on a scale large enough to become a  
significant portion of utilities energy portfolios.  
Although the shift toward large-scale renewable  energy has already begun to 
make a positive difference, today the US finds  itself on the verge of another 
new wave of thinking that incorporates the  lessons of the past, but goes 
beyond merely addressing cost and environmental  concerns and seeking maximum 
output. This new model, which is gradually and  quietly rolling into communities 
across the country, is the distributed  "community renewables" model, in which 
new power projects are smaller and  tightly integrated with local communities 
and local resources in a way that the  economics become more favorable and 
communities are able to participate directly  in some of the benefits.  
There are three characteristics that distinguish  distributed community 
renewables from the "cheaper at any cost" and the  "mega-renewable deployment" 
mindsets.  
    1.  Increased community participation. Unlike a project developed, 
financed  and controlled exclusively by an external developer, community energy 
projects  actively seek to involve local communities as much as realistically 
possible.  This can be done by using fuel from local feedstocks or natural 
resources;  hiring local contractors for construction, administration, management and 
 maintenance roles; giving the local community members an opportunity to 
invest  and share directly in the project's financial benefits (particularly on 
the  back end); creating additional tax revenue for the local governments, and  
even, in some cases, selling the power produced to local individuals and  
businesses. 

    2.  Smaller-scale projects. Project size is driven primarily by federal,  
state, and local tax incentives; the proximity and availability of natural  
resources; and the ability to transmit power to customers. Given these  
constraints, the optimal size for most of these projects is usually relatively  
small, between 5- and 6-megawatts (at least in the Pacific Northwest). With  the 
existing transportation and distribution infrastructure and the lack of an  
economically viable long-term energy storage technology, most projects end up  
either selling their power to utilities under the Public Utility Regulatory  
Policies Act of 1978 at the avoided cost rates, or at retail rates under net  
metering. Some developers are also beginning to explore innovative ways to  sell 
their projects' power to the local communities themselves or on the open  
market. 

    3.  Additional societal benefits. Finally, community renewables projects  
create a wide range of social benefits that transcend the economics of a  
particular project. These include decreased dependence on foreign natural gas  
and oil, a power infrastructure that is far less subject to large-scale  
disruption or terrorism because of its distributed and diverse nature, local  control 
of generation facilities, creation of much needed high-quality jobs in  rural 
areas, and a supplemental revenue stream for agricultural community  members 
that allows them to maintain their rural lifestyle. Additionally, this  
approach has demonstrated an uncanny ability to bring together people from  very 
different backgrounds - Republicans and Democrats, urban and rural  residents, 
businesses and environmentalists - for a common cause.
Utilities and large-scale commercial developers also  are beginning to 
recognize the wisdom of this approach as complementary to their  own efforts, 
because it often helps familiarize local communities with the  benefits of renewable 
projects and ends up making it easier to get their larger  projects sited in 
the future. Some even like the model so much that they are  considering 
building some of these types of projects themselves as a way to  replace aging 
facilities in difficult-to-reach rural areas.  
As exciting as all this sounds, the reality is that  the distributed 
community renewables market is still in its nascent stage. To  date, most of the 
projects that have been completed are community wind projects  in the Midwest 
(particularly Minnesota) and small-scale biofuel facilities.  Although the model 
appears to be taking root, spreading to more states and  beginning to include 
other types of renewables, there is still considerable need  for education, 
particularly for potential investors who are not from the energy  industry.  
One thing is for sure: when done right, investment in  community renewables 
can be highly profitable for investors. This is because  they offer:  
    *   Higher risk-adjusted return than virtually any other investment. 
Under the  community renewables model, equity investors with the right tax profile 
are  sought by community developers and are asked to write a check only when 
most  of the risk is out of the project (i.e., the project actually starts 
producing  and selling power). It is not uncommon for investors to receive 
after-tax  returns of 12 to 15% for five to 10 years. 

    *   Sustainable long-term business models. Smaller projects tend to be 
better  able than mega-projects to match capital expenditures to local resources 
and  feedstocks and demand. Smaller-scale projects often have the luxury of 
using  only the highest-quality resources and bearing less risk, because the 
amount  of power they sell is low relative to the total amount used in the 
surrounding  area. 

    *   Increased operational efficiencies. As people who have experience in 
the  renewables industry shift their attention toward smaller-scale projects, 
they  are able to apply their knowledge to squeeze out savings from operations 
that  keeps the variable, and in some cases even the capital, costs to a  
minimum.
The community renewables projects breaking ground  today are just the 
beginning. As the full value of carbon emissions savings  become a tradable 
commodity, and as new storage and interconnection technologies  become available, the 
distributed community renewables energy model has the  opportunity to become an 
increasingly significant piece of broader efforts  moving us toward clean 
energy and a healthier society.  
 
____________________________________
Ted Bernhard is a corporate and securities lawyer  with Stoel Rives LLP in 
Portland, Oregon, working with companies and developers  involved with 
innovations in the clean energy marketplace. His firm is  sponsoring, along with Nth 
Power and others, a conference called Investing for  Clean Energy in the Pacific 
Northwest on October 4, 2006 in Seattle, which is  designed to explore 
investor-related renewable energy issues with some of the  nation's most active and 
successful clean energy investors.  
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Gay  Nicholson, Ph.D. 

607-533-7312 (home office)
607-279-6618  (cell)

1 Maple Avenue
Lansing, NY  14882
gaynicholson at aol.com

Sustainable Tompkins 
Program  Coordinator 
w_ww.sustainabletompkins.org_ (http://www.sustainabletompkins.org/) 

Southern Tier Energy$mart Communities
Regional  Coordinator
Cornell Cooperative Extension of Tompkins County
615 Willow  Ave., Ithaca, NY  14850
agn1 at cornell.edu