The rise of distributed energy: what it means for utilities, consumers and green infrastructure

The rise of distributed energy: what it means for utilities, consumers and green infrastructure


Spring 2019 | Written by Calvin Hennick

Energy at the Edge

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In Germany, thousands of houses around the country work together to create and distribute energy. The homes, which generate electricity through rooftop solar panels, store that energy in onsite batteries at a company called sonnen. Collectively, the houses act as a power station, comprising a “virtual battery” that is able to compensate for fluctuations in the power grid.

Meanwhile, in Los Angeles, the 5,000 rooftops in the Westmont Solar Energy Project are pumping out 28 million kilowatt-hours of electricity every year. Rather than powering the homes on whose roofs the solar panels sit, the project feeds electricity directly into the grid, giving the Los Angeles Department of Water and Power a predictable, distributed source of electricity. The roofing giant GAF supplied the roofing material for the project, and in January the company spun out a solar roofing company called GAF Energy.

“We have 6,000 certified roofing contractors, and they said, ‘Customers are asking about solar,” says GAF energy president Martin DeBono. “We have an opportunity to make a significant impact on the world by increasing the adoption of rooftop solar, and it’s the right thing to do. But also, if you think long-term, solar is going to increasingly influence the roofing industry. Rather than sit back and watch what happens, we said, ‘Let’s drive this.’”

When roofers are starting solar companies and German houses are becoming cogs in a giant virtual battery, it’s clear that something’s up. The concept of distributed energy resources (DERs)—assets deployed across the distribution grid that produce, store, or control the use of energy—isn’t new. But DERs are currently having a moment, fueled by the rapidly decreasing cost of solar panels, increased interest in smart home appliances and electric cars, and the modest, but growing, adoption of backup battery systems that provide consumers with more control over how and when they pull electricity from the grid.

“Uptake of DERS has been accelerating, and depending on the location, it’s having significant impact,” says Kaitlyn Bunker, a manager at Rocky Mountain Institute, an energy research and consulting nonprofit. Distributed generation itself, Bunker says, can be controversial, at least from the perspective of utilities, which sometimes struggle to cope with the peaks and valleys in demand. This results when ratepayers generate their own electricity all day and then suddenly start pulling power from the grid at night.

The German company sonnen would like to see every house in Germany participate in its virtual battery program.

“During the day, when it’s very sunny, that means the utility company can turn off a lot of generation,” she says. “Then you get to the evening with the sun going down, and you lose generation from solar at the same time that people are getting home from work and turning things on. The utility has to ramp power output up, and not all traditional, centralized generation is meant to be ramped up that quickly.”

Bunker notes that many locations such as Hawaii, which has seen widespread adoption of solar panels, now require rooftop solar electricity systems to be built with onsite energy storage to prevent such dramatic spikes in demand.

But those local battery systems remain expensive, and so far lack the clear economic return on investment that homeowners and commercial property managers are able to achieve with solar panels and energy-saving appliances. Due to a range of factors— including the impact of distributed generation on utilities, the high cost of onsite storage, and the predicted spike in energy demand as electric cars become more commonplace, among others—the DER ecosystem is still shaking itself out. But many observers predict a near-future scenario where substantially more energy is generated and stored locally, rather than centrally.

“Look 15 years into the future, and solar technology will form the skin of buildings, generating electricity for use on-site” says Paul DeCotis, senior director for the Chicago-based business and technology consulting firm West Monroe Partners, which has extensively studied DERs.

“Buildings could have solar shingles on rooftops, small wind turbines on roofs or adjacent land, solar covered car lots, and geothermal power. There are any number of on-site technologies that a building could integrate into its operations, including fuel cells, energy efficiency, and load management technologies. If storage is then added, which a building occupant can either use later in the day or sell back to the grid as a provider of electricity if net-metering is available, buildings would become almost self-sustaining. To me, that’s the future of green building technology, and I don’t think it’s that far away.”

Kaitlyn Bunker of the Rocky Mountain Institute.

GAF energy president Martin DeBono.

Distributed Energy, Distributed Impact

The environmental impact of distributed, renewable power generation sources such as rooftop solar is fairly straightforward: Every kilowatt-hour of electricity produced from a rooftop solar panel is energy that is produced without burning fossil fuels, and therefore without adding carbon to the atmosphere. And from the consumer’s perspective, the calculus is also simple, at least in areas with a “net metering” policy where utilities are required to reimburse them at retail rates for the energy they generate from their roofs: Every kilowatt-hour they produce results in savings on their electric bill, typically resulting in a 100 percent return on investment over only a few years.

However, the math becomes trickier depending on local utility rate structures and available tax credits and incentives (and, of course, how much sunlight an area receives). Some utilities have been criticized for pushing policies that seem to disincentivize residential investment in solar panels. For example, some have sought to increase the base monthly amount charged to all customers (in effect, increasing the monthly bill for customers with solar panels, while pushing down or leveling off costs for other ratepayers). Other utilities have successfully lobbied regulators to dramatically reduce the amount they must pay for electricity generated by rooftop solar, or have even stopped paying for that energy entirely—reasoning that solar-generated electricity typically flows onto the grid during periods of surplus, creating more problems than it solves.

It’s a thorny issue, and there are too many variables from region to region to neatly summarize the utility industry’s stance on distributed energy. While only 3 percent of utilities characterize DERs primarily as a “threat,” under half view them primarily as an “opportunity” (see sidebar, “DERs by the Numbers”). Perhaps illustrating the complexity of the situation, 56 percent of utilities view DERs as “both a threat and an opportunity.” And, of course, DERs include not only generation sources like rooftop solar, but also solutions like smart appliances that help to flatten out the demand curve for electricity (see sidebar, “DERs, Defined”).

The 16.40-megawatt (DC) Westmont Solar Energy project in San Pedro, California, produces more than 28 kilowatt-hours of electricity every year, making it the most powerful rooftop solar project in the world.

DeBono says that the potential grid problems presented by widespread residential solar adoption (without onsite storage) are “greatly overblown,” but adds there should be ways to work with utilities to craft policies and rate designs that ensure “everyone is covering their costs and being paid for the value they create.”

Geoff Ferrell is chief technology officer for Mandalay Homes, an Arizona home builder that plans to include both rooftop solar and sonnen battery systems in 3,300 houses over 10 years. He’s more sympathetic to utilities’ concerns, saying that the threat of grid destabilization is “a real thing” that must be considered. “A lot of people think of the grid as a battery, and it’s not,” Ferrell says. “It’s a very shallow pool. When a developer or builder or consumer says, ‘Oh, we’re just going to put rooftop solar on, and the utilities have to take it and pay us for it,’ the utility is forced to respond with innovative new technologies that cost money. It’s easy to villainize the utility, but the reality is, we as consumers turn on a light switch in our bedroom, and we want the lights to come on.”

Paul Zummo, director of policy research and analysis for the American Public Power Association, says that utilities are simply trying to cover their costs, rather than specifically discourage renewable energy or distributed generation. “A lot of our members are developing their own renewable resources and their own distributed generation, too.” he notes.

“Customers can sign up, the utility will lease your rooftop, they’ll install the panels, and give you a credit for the production. But in that way, the utility has a little bit more control over where the panels are placed, and how much energy is going to the grid.”

“In the next five years, we’re anticipating that it’s going to be a lot more feasible to do solar-plus-storage,” Zummo adds. “You might not be able to go off the grid, but you will be able to produce a fair amount of energy and store it for later on. We’re anticipating enough of a reduction in costs for it to be economical for a wide percentage of the population.”

Arizona home builder Mandalay Homes plans to include rooftop solar and sonnen battery systems in more than 3,300 homes over the next decade. Photos courtesy Mandalay.

hydroelectric generator in a powerhouse is a highly efficient renewable energy source where the water energy can be reused.

LEED Direct Current Power

Systems Pilot Credit Answers

The Chicken and Egg Dilemma

Manufacturers are not inclined to produce Direct Current (DC)-powered systems because they aren’t specified in design plans; on the other hand, design teams don’t specify them because manufacturers don’t produce them. This new incentive for building designers to integrate DC power into buildings will help spur interest in the specification of DC systems, and thereby, their production by manufacturers.

The pilot credit builds on LEED’s Optimize Energy Performance credit. Building project teams have two options to earn LEED points for integrating systems or subsystems that operate directly on DC power into their design:

Option 1 is a prescriptive approach that requires 95 percent of the load of at least one major energy system to operate directly off DC power.

Option 2 is a performance-based approach that offers a whole-building energy simulation alternative compliance path, rewarding more points for more energy saved in designs that integrate DC power.

Projects that pursue Option 2 may reap deeper savings, as it encourages a systems approach and involves a holistic perspective on energy use. By rewarding credits for greater energy savings, designers are incentivized to be creative and flexible in determining how to integrate DC power systems into a building in a way that considers the interactions between systems to optimize whole-building energy savings.

Going Beyond Zero, a report published by the Alliance to Save Energy’s Systems Efficiency Initiative, calls for system-focused compliance paths for meeting building energy targets or certifications; accordingly, members of the initiative closely partnered with USGBC throughout the development and launch of this pilot credit.

Moreover, the opportunity for DC and hybrid AC/DC electrical systems in buildings will increase as more homeowners and institutions opt to power buildings with onsite solar photovoltaic (PV) systems. Because the energy-saving potential of DC power is greatest when paired with renewable energy, the DC power pilot credit complements LEED’s Renewable Energy and Grid Harmonization credits.

LEED pilot credits are designed to evolve through project feedback. To learn more about the pilot credit and to register to use the pilot credit on your project, visit the LEED pilot credit library.

Consumer Adoption and Development Drivers

DER advocates have lofty goals. Michelle Mapel, director of sales and marketing in North America for sonnen, Inc., says “The goal is to get every home in Germany” to participate in its virtual battery program. And the company (which was founded in Germany in 2010, but was recently acquired by Shell) is exploring similar programs in the U.S. For its part, GAF Energy has trademarked the slogan “Energy From Every Roof,” a phrase that DeBono insists represents a realistic goal, and not just a marketing gimmick.

“In terms of a five-year or 10-year time frame, I absolutely believe we’ll be generating energy from every new roof,” he says. “What’s driving that is the cost trajectory, and the investment in products that companies like GAF Energy are making. Look at Washington State, which is blessed with a tremendous renewable resource in hydroelectric power, and also has plentiful rainfall. And yet, solar is starting to make sense there because costs are so low. If you can make solar work in Washington State, you can make solar work in almost any state.”

There are many questions left to answer, though. Ultimately, consumer adoption of DERs will be influenced by a mix of still-in-flux considerations around cost and public policy, along with the efforts of companies like sonnen, GAF Energy, and makers of smart home appliances and electric vehicles. The wild card may be the price of onsite storage, which Mapel acknowledges is limiting adoption for the moment. Sonnen’s systems start at around $10,000 and go up to more than $26,000 for a larger battery with home automation features, meaning that homeowners may never see a full payback on their investment.

“It’s more of an emotional return on investment than an actual return on investment,” Mapel says. She says that the company’s chief buyer personas are “Sunny Sue” (who cares deeply about renewable energy) and “Prepper Pete” (who wants to have the ability to produce and store his own energy during blackouts or disasters).

Hawaii has adopted the use of solar panels and now requires solar electricity systems to be built with onsite energy storage. Photo: ©RevoluSun.

Michelle Mapel is the director of sales and marketing for North America for sonnen.

Sonnen brings together home automation, residential solar and energy storage in an energy ecosystem, enabling intelligent load controllers to effectively manage and optimize energy usage, securing smart homes against grid outages and helping stabilize the existing power grid.

The question is whether there are enough “Sunny Sues” and “Prepper Petes” to make distributed energy storage a key feature of green building. Some developers are already betting on “yes.” Sarasota, Florida–based Pearl Homes is in the early stages of building 148 houses targeting LEED Platinum, along with more than 700 apartments, which will all draw power from solar panels and store energy in onsite sonnen batteries. Marshall Gobuty, president of Pearl Homes, says the units will be “net-zero-plus,” generating more energy than they use. “We hope to be the first LEED Platinum, net zero plus, and LEED Zero certified homes on a production scale.”

Gobuty says he is counting on energy storage costs to come down over time, but he also hopes that the sustainability of the homes is attractive to buyers. “There’s doing the right thing, creating homes that run off solar panels, and then there’s just worrying about your cost. I believe the buyer is going to be more concerned about sustainability,” Gobuty says. “Am I concerned? Yes. Do I think it’s going to work? I sure hope so. I’m taking something on that is game changing, and I hope I’m right. I believe in this.”

Ferrell, from Mandalay Homes, says that a unique local context—one that includes tax incentives for solar, as well as a utility rate structure that greatly incentivizes off-peak electricity usage—is helping the homes to pencil out.

Mandalay has built 55 of the 3,300 planned houses (branded “iON Homes”) with around 20 occupied so far.

Out of 15 percent of utility customers that say they have renewable energy sources in the home, 2 percent utilize wind power.

After federal and state tax rebates, Ferrell says, Mandalay is able to include the solar and energy storage for only around $5,000 in additional costs to homeowners. The local utility is no longer paying residents for rooftop solar generation, but does offer a special rate structure that charges extremely low prices for off-peak energy use (and extremely high prices during peak hours). The sonnen batteries, Ferrell says, allow homeowners to disconnect from the grid between 3 p.m. and 8 p.m. each day, and then use a mix of solar and grid energy to power the batteries back up during off-peak hours. As a result, homeowners are typically able to slash their monthly electric bills from between $170 and $180 (for a comparable home) to around $30 to $40. “For investing an extra $25 on your monthly mortgage, we’re going to put $150 back in your pocket,” Ferrell says.

Ferrell acknowledges that the business case for DERs is still a “completely regional, utility provider–specific conversation.” And he says it takes a fair amount of planning and legwork on the part of developers to help homeowners realize savings. Mandalay, for their part, studies its buyers’ energy use patterns and optimizes the solar and storage setups before having homeowners switch over to the special rate plan.

“The resources are out there,” Ferrell says. “They’re growing. But no, you can’t just Google ‘hybrid solar installer’ and get a list of people to call in Tulsa, Oklahoma. It’s not there yet. But our solar contractor has embraced it. He can now go out to the buying public and say, ‘We’re certified sonnen installers, we know how this works, we understand the rate plan.’”

Ferrell adds: “I think you’re going to see that grow over the next couple of years.”

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