Are Small-Scale Renewable Energy Grids Already Starting to Replace Mega-Utility Corporations?

A situation overview by Encounters, the e-newsletter of the Maryknoll Office for Global Concerns’ Faith Economy Ecology Program. Also here.

Increasing efficiencies in energy storage and transmission combined with falling prices for renewable energy technologies are creating a profound transformation of energy systems around the world. Massive utility companies using fossil fuels are facing increasing competition from small-scale renewable energy producers ranging from farmers to community energy cooperatives. In more industrialized economies, especially the United States, this transformation is important to move away from dependence on fossil fuels and due to the increasing fragility of current energy systems; meanwhile, in less industrialized economies, this transformation is allowing countries to skip over dirty, concentrated systems and move directly to sustainable, distributed energy systems.

The environmental magazine Ensia shows that lithium-ion battery prices have fallen by 40 percent since 2010 while solar panels are 80 percent cheaper than five years ago. Wind turbine prices have also fallen up to 35 percent from their 2008 high. With these factors it is increasingly easy and economical to create energy microgrids “that can balance and smooth variations in energy supply; provide services, such as voltage support and frequency regulation, to the conventional grid; and export electricity to the larger grid to make a profit or provide a boost during emergencies. Most notably, it can also keep its operator — whether a university campus, military installation, hospital or other facility — up and running in the event the main grid goes down.”

These trends come at a good time because, as Massoud Amin, director of the University of Minnesota’s Technological Leadership Institute, shows, the U.S. power grid is in desperate need of renovation. The number of weather-related power outages in the U.S. has increased dramatically. “Between the 1950s and ’80s, outages increased from two to five each year; from 2008 to 2012, outages increased to between 70 and 130 per year.” These numbers should only increase as climate change brings stronger storms and the grid continues to deteriorate. Besides avoiding larger breakdowns in energy provision, Amin also gives the economic argument in favor of heavy investment in a new, smarter electric grid showing how the $2.96 billion invested through the 2009 American Recovery and Reinvestment Act created 47,000 full-time equivalent jobs and helped accelerate the introduction of new technologies.

These microgrids are already being created in remote areas such as islands that have long depended on expensive fossil fuel imports and facilities that cannot risk losing power such as hospitals, microchip factories and military bases. Ironically, major fossil fuel companies are also creating their own renewable energy microgrids for offshore oil and gas drilling platforms.

Germany is in the process of rapidly transforming its energy system after passing a landmark law, the Renewable Energy Sources Act, in 2000 that “guaranteed renewables a fixed, higher-than-market price for 20 years, and created an emphatic incentive to invest in renewables.” It also signaled the end of reliance on nuclear power, a decision reinforced by President Angela Merkel in 2011 after the Fukishima nuclear plant explosion in Japan.

The city of Schwabisch Hall in southwest Germany has radically transformed its energy profile with its complex mix of renewable energy sources. Its municipal utility company manages nearly 3,000 regional energy suppliers from “several thousand solar photovoltaic (PV) installations, two wind parks, one gas-and-steam power station, six small hydro-electric works, three biomass (wood pellet), six biogas plants, and 48 combined heat and power plants, as well as other conventional and renewable energy suppliers outside the municipality. …

“In just a dozen years, industrial-powerhouse Germany has replaced around 31 percent of its nuclear and fossil fuel generated electricity with green power, produced overwhelmingly… by a dynamic, decentralized patchwork that includes more than two million small and medium-scale renewables producers — businesses, villages and towns, co-ops, individuals, green investment funds, and farmers — whose numbers grow by the month.”

These changes represent a profound challenge to traditional energy companies as they face what some have called a “utility death spiral,” in which utilities begin to lose customers, forcing them to jack up rates to cover lost revenue, which in turn pushes more people away. The “Big Four” energy utility companies that have dominated Germany’s energy production and distribution have been caught largely flat-footed during these changes experiencing record losses that will likely never be recovered. Germany’s two biggest utilities, E.On and RWE, have both seen their net income drop by one-third since 2010. “At best,” says Berlin-based Paul Hockenos, “the big utilities can postpone the day of their inevitable redundancy unless they move into renewables fast.”

In less industrialized countries, this energy system transformation is taking a different tack. “Just as the mobile phone revolution in Africa dramatically reduced the need for telephone landlines, solar power is now leapfrogging the electric grid,” writes Tim McDonnell in Mother Jones magazine. Globally, 19 percent of people have no access to electricity, but in Africa that number rises to 58 percent, with higher percentages in rural areas. Tanzania, for example, 86 percent of people have no electricity.

Instead of waiting in vain for the construction of large electric grids as in industrialized countries, millions of rural Africans are turning to solar panels, part of “a clean-energy boom that development experts say could become a catalyst for widespread economic empowerment.” A 2013 World Bank report found that from 2009 to 2012, “sales of small solar lighting units have nearly doubled each year across the continent, rising to 4.4 million units sold in 2012.”

In contrast to focusing on small-scale, distributed energy systems like these that the Institute for Local Self-Reliance has shown to be more beneficial to communities, the Obama administration has launched the Power Africa project that aims to double power generation in Africa within five years through large-scale projects that will create centralized energy systems dependent on outside corporations. The U.S. has pledged seven billion dollars toward the project, though five of the seven billion is not in aid, but for loans to private corporations from the Export-Import Band, Overseas Private Investment Corporation and other government agencies. The project also includes at least $20 billion in commitments from private corporations.

International Business Times writer Jacey Fortin expresses the skepticism of many that Power Africa is not so much about providing sustainable affordable energy to Africans as it is about giving U.S. corporations a hand up in the race to dominate Africa’s rapidly growing economies: “Ultimately, Power Africa aims to build lasting partnerships between Western private companies and a continent that happens to have some of the world’s fastest-growing economies.” She explains further, “General Electric, [which is heavily investing in the project] has been shifting more of its focus to Africa in recent years. The multinational conglomerate stands to benefit heavily from the better access to finance and insurance that Power Africa promises. That approach could help American and other Western companies compete against China’s growing influence on the continent, but it might neglect small, innovative projects that could bring power to communities off the grid, which is especially important since rural populations are worse off in terms of electricity access.” Indeed, the fact that only $2 million of the multi-billion dollar project is being provided for an “Off-Grid Energy Challenge” that would build the microgrids like those we describe above shows where Power Africa’s priorities lie.

The changes described above are occurring not only in the energy sector but also in various sectors of the economy as society moves toward a collaborative economy with many more producers and less economic concentration. The entertainment, communications and publishing industries have already been radically affected by these changes and the effects are rapidly spreading into education, manufacturing and other commercial sectors. Look to the next edition of Encounters for a more in-depth look at the collaborative economy.