Blackout Insurance: Solar City Rooftops

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At the Greenpoint Manufacturing and Design Center, a nonprofit that rehabs old factories for use by small manufacturers, staffers have a story to tell about the big electricity blackout in Queens nearly one year ago.

It was last July, and the Center had been waiting more than a year for new rooftop solar panels – a photovoltaic or “PV” system – to be connected to the city’s electrical grid. Out of exasperation, they decided to turn it on before being issued an official permit. Con Edison workers appeared almost immediately and “really gave it to us, really bitched us out. So of course we said it was no problem and turned it off,” CEO Brian Coleman recalled. “Well, maybe three weeks later we got a routine phone call smack in the middle of the blackout asking us if there was something we could do to lessen our energy load.”

Planning director Paul Parkhill finished the story: “Yeah, I said to the guy, that’s ironic, because you just asked us to turn off our PV system. The best thing we could possibly do is keep it running.”

The story illustrates what many have pointed out about Con Ed for years. The utility giant would benefit tremendously from the addition of what energy experts call “distributed generation” – sources of electricity close to the point of consumption – since that would mean reducing the load on an already strained electrical grid. Problem is, they don’t want that extra energy coming from the very people who are supposed to be buying it.

The Greenpoint design center, for example, not only waited a year for Con Ed to supply a permit, it had to pay more than $6,000 for the company to read its application. Other obstacles include the high stand-by fees Con Ed charges to keep electricity available should private generators’ own systems fail, and the fact that the utility refuses to let commercial customers do “net metering” – an available technology that lets them sell excess energy back to the grid. (Con Ed does allow residential customers to employ net metering, however.)

To be sure, as Con Ed prepares for another summer of record electricity demand, the city’s primary energy supplier wants to prevent another major blackout more than anybody. But critics say one simple economic fact may be interfering with those efforts: the more customers produce their own energy, or cut down on consumption, the more money Con Ed stands to lose.

All of that may be about to change.

The state Public Service Commission (PSC), which oversees public utilities, is reviewing Con Ed’s own proposal to eliminate any perverse incentives the company may have to discourage energy conservation amongst its customers. The utility submitted that plan in May as a part of a proposed 17 percent rate hike on electricity. During the next nine months regulatory changes will be negotiated by the city, Con Ed and the PSC, and are expected to take effect when electricity rates are announced next April. Con Ed spokesperson Chris Olert declined to comment on the proceedings, but according to PSC rates and tariffs chief Doug Lutzy, an important part of the proposal is “a mechanism to break or decouple the natural link between profits and sales.”

Every few years the government and Con Ed negotiate electricity rates by agreeing on revenue requirements and dividing that amount by how many units of energy, called kilowatt-hours, they expect to sell. This motivates the utility to move as many units of energy as possible because, as Lutzy explained, “they’ll lose revenue if sales don’t materialize as expected.”

What a decoupling mechanism will do is pin the company’s total profits to agreed-upon revenue targets, by “truing up” or matching the difference between forecast sales and actual sales. In other words, the state will compensate the company if their actual delivery revenues fall short of expectations, so that Con Ed will have nothing to fear from even the most precipitous drop in annual energy sales.

According to Ashok Gupta, senior energy economist at the National Resources Defense Council (NRDC), it’s a first step toward making Con Ed take an active role in promoting energy efficiency amongst its customers. Gupta fully expects this change to affect the way Con Ed deals with customers like the Greenpoint center, since the utility won’t be forced to recover the money it loses from onsite electricity generation.

But Gupta was careful to reiterate that it’s only a first step. It eliminates the utility’s “disincentive” but doesn’t make it worth their while to actively encourage customers to be environmentally sensitive. “Can Con Ed be in the solar business or energy conservation business and make money doing it? That’s the real question,” he said.

It appears to be a question that Mayor Bloomberg, for one, wants to see answered in the positive. On June 11, Bloomberg announced that the city will be hiring a contractor in the fall to install two megawatts worth of solar panels on government-owned buildings. It’s still a long way away from the 800 megawatts of clean, distributed generation targeted in the administration’s “PlaNYC” sustainability initiative, but by one estimate it’s enough to power 1,000 one-bedroom apartments in Manhattan – and is nearly double the amount of solar energy being generated in the entire city right now.

The mayor said that whoever wins the bid will continue to own the PV system, bearing both the cost of installation and upkeep. But they’ll get a long-term contract of 20-plus years from the city in return. Experts agree that it’s an innovative way to fund otherwise expensive technology and high installation costs. But it’s not likely to be replicated by anybody but the biggest institutions and corporations – universities like NYU or Columbia, for instance, which recently committed to reducing carbon emissions by 30 percent by 2030.

According to Anthony Pereira, a Manhattan-based solar panel contractor, smaller developers like the Greenpoint Manufacturing and Design Center can’t commit to a long-term contract that would be big enough for prospective solar installers to earn money on. To get a return on the contractor’s investments in a reasonable amount of time, the solar array would have to be much bigger and produce much more energy than these developers need, he said. Still, New York is full of smaller, environmentally conscious developers – such as the Lower East Side People’s Mutual Housing Association and Sustainable South Bronx – who would love to include solar energy in their burgeoning green portfolios; they just need to see another, better way to recoup a considerable investment.

For example, in addition to a $6,000 application fee, Con Ed made the Greenpoint center pay $14,000 to run a test on a device called a “reverse relay,” which prevents electrical current from “feeding back” into the grid and causing disruptions. Government grants and tax abatements already help smaller energy producers, but they also need costs like these to come down, and, just as important, they need Con Ed to start allowing commercial systems to sell excess energy back to the grid – all of which brings us back to that 17 percent rate hike and Con Ed’s proposed regulatory changes.

In order for Con Ed to get into the sustainable energy business, as Gupta recommends, performance incentives must be introduced so that the utility is actually rewarded for helping independent generators, and for actively encouraging individual customers to cut down on consumption. To fully understand what a tall – and counterintuitive – order that is, though, you have to remember that Con Ed is a publicly traded corporation that gets paid like any other to move its product. Getting Con Ed into the green energy business will be an experiment in reverse capitalism. Government will have to enable Con Ed to generate revenue by figuring out ways to move less and less of its commodity.

If regulators succeed, said Lutzy, you may be seeing a whole lot more of those Con Ed-sponsored subway posters and television commercials advertising energy-efficient appliances and compact fluorescent lightbulbs. In effect, they will read: don’t buy our product.

Both Gupta and Lutzy were optimistic that an arrangement of some kind will be agreed upon by the end of the review process next spring. And yet not even that will be enough to reach the mayor’s sustainability objectives. Most important of all, it turns out, is upgrading the city’s electrical infrastructure, which means raising even more revenue.

The NRDC, a longtime advocate for these changes, said it doesn’t expect the rate increase to be as high as 17 percent, but it readily acknowledges the need for an increase of some kind. The city’s electrical grid, though advanced in some ways, presents special problems for net metering, and Con Ed is so worried about electrical disruptions that it requires independent generators to run far below capacity. The New York City Economic Development Corporation, which represents the city in negotiations concerning utility rates, confirmed the need for a rate increase, saying only that it wants to make sure the extra money is spent in ways that further the mayor’s sustainability goals.

Could it mean net metering for the city’s solar energy pioneers? Cheaper stand-by fees? Reduced administration costs?

A recent CUNY study claims that in the near future, solar energy could support as much as 18 percent of the city’s peak electrical load. Are we going to start seeing solar panels on every bit of rooftop in Manhattan and the outer boroughs?

The NRDC’s Gupta thinks so. But the upshot of it all may be surprising: It’s not the energy giant or the independent generator but the average Con Ed customer who will be called on to bear much of the responsibility. By next April, you’re either going to have to pay a whole lot more on your monthly electric bill, or cut down dramatically on the energy you use. “Rates may be going up,” Gupta said, “but if people are more efficient in the way they use energy, their monthly electric bill can still go down. We want people to shift their focus from rates to bills.”

– David Giles