Can we power the Mitten with "energy freedom"?

Two visions are competing for Michigan's energy future.

In the first, utilities continue, as they have for the past century, to generate power at central facilities and sell it to consumers. In the second, local communities and individuals generate power for themselves. 

The first vision looks similar to the past, except that instead of coal, utilities will rely more heavily on natural gas and renewables, mostly utility-scale wind or large-scale solar farms. 

The second vision will require a substantial reorganization of Michigan's energy infrastructure. It's a vision of distributed energy resources, in which small-scale generators--rooftop solar, biomass digesters, micro-turbines and small natural gas plants--create electricity to be consumed locally, and sell the excess back to the grid.

Depending on who you ask, some combination of those two visions is likely to become Michigan's future reality. That will depend, to a great extent, on conversations happening now in Lansing, where lawmakers are set to chart a course for Michigan's energy future in 2015.

Michigan's net metering program

The path to distributed energy in Michigan began with  Public Act 295 of 2008, which established Michigan's net-metering program, as well as the state's Renewable Portfolio Standard and Energy Optimization programs. Net-metering is essentially a billing mechanism to account for the electricity sold by a distributed renewable energy source back to the grid.

The rules are complicated; systems below 20 kilowatts are eligible for "true net-metering" and receive the full retail rate for electricity. Systems between 20 and 150 kilowatts are eligible for "modified net metering" and receive only the generation portion of the retail rate or a wholesale rate. The law prohibits net-metering for systems above 150 kilowatts.

The average size of a residential system is 5 kilowatts, according to the Solar Energy Industries Association, while commercial-scale systems can range up to 1000 kilowatts or higher, so Michigan's net-metering law effectively precludes larger industrial and commercial customers from participating. And the law caps overall net-metering capacity at one percent of the utility's peak load for the prior year.

Large-scale entities may operate solar panels "behind-the-meter," as IKEA is doing with its 978-kilowatt photovoltaic panel system in Canton. But they must fully bear the cost of the system, independently owning and operating it, and cannot defray their costs by selling excess power back to the grid.

"Those limitations really get in the way of allowing Michigan businesses to take advantage of net-metering," says Dan Scripps, a former state legislator and President of the Michigan Energy Innovation Business Council. "In conversations we've had with a number of leading solar firms, they say, 'If you can fix net-metering for commercial installations, we will do business in Michigan all day long.'"

Policies for net-metering are more favorable in many eastern and western states, according to a 2014 report issued by advocacy organizations Vote Solar and the Interstate Renewable Energy Council (IREC). The report grades each state based on its policies for net-metering and interconnection. Leading states in 2014 included California, Massachusetts, Ohio, Oregon and Utah, which all received an "A." Michigan received a "C" on interconnection and a "B" on net-metering, according to the report.

The report recommends Michigan remove system size limitations and Increase the capacity limit for net-metering to 5 percent of peak load. 

But what about the grid?

Utilities and regulators across the country are grappling with change brought by emerging distributed resource technologies. 

Distributed resources may include generation, storage, energy efficiency and energy management, all of which lead to fewer electrons purchased from utilities. As utilities sell less electricity, revenues dwindle, yet they still have the fixed cost of maintaining the grid.

"We support customer investment in solar, if there are proper price signals reflecting the true cost of solar," says Irene Dimitry, vice president of marketing  and renewables at DTE Energy. "Currently, based on Michigan law, there are subsidies. If customers are selling at the full retail rate, all the other customers end up subsidizing them. We just don't think that's fair."

The subsidies Dimitry refers to include the costs of operating the grid.

"Net-metering customers are not covering the cost of having the grid to serve them; the same grid that allows them to sell their excess energy," she says. "Quite frankly, people who have distributed renewable resources are using the grid more than the average customer, because they're using it when they buy utility power and when they're selling power. We feel everybody should pay their fair share of keeping the grid up and running and reliable."

Dave Konkle, former Energy Director for the city of Ann Arbor, likens it to the situation Michigan faces with road funding and electric vehicles.

"I'm driving my car right now, and my car is a Volt, so I'm driving on electricity," says Konkle. "The argument is, since our roads are maintained through taxes on gasoline, aren't I cheating?"

Michigan lawmakers are in fact proposing an increased registration fee on electric and hybrid vehicles to go toward road funding.

"I think nobody has a desire to be unfair, but nobody wants to kill either the electric vehicle or solar energy by putting some kind of undue burden onto the cost," says Konkle. "I think that something reasonable can be worked out. I'm willing to be reasonable, with my car and with my solar."

In March of 2014, Minnesota became the first state to adopt a "value-of-solar" policy as an alternative to net metering. Such an approach accounts for the societal benefits of distributed solar (such as lower carbon emission, avoided cost of additional power plants, and avoided transmission losses). Those benefits are balanced with the utility costs of maintaining the grid. 

In June of 2014, a Michigan Public Service Commission-facilitated Solar Working Group issued a report discussing application of the value-of-solar concept to Michigan.

"One of the work groups looked at value-of-solar, and it looks like something worth exploring further," says Julie Baldwin, manager of the Renewable Energy Section at the MPSC. "We are waiting for a utility to file a case utilizing that if they decide to go that route." 

So far, no cases have been filed.

Meanwhile in New York state, an entirely new vision for utility operations is being proposed, one in which utilities are no longer responsible for generating and distributing electricity, but instead serve as an intermediary platform between distributed generators, some of whom would be connected on smaller "micro-grids" that could operate independently of the larger grid and stay online during blackouts.

"Our investor-owned and municipal utilities have to deal with all of these changes: new energy sources and technologies, sensors and bidirectional communications capable of harmonizing literally millions of energy inputs and outputs, where for the last 75 years, we've had a power system that was unidirectional," says Skip Pruss, principal and co-founder of 5 Lakes Energy LLC, a Michigan energy consultancy. "Major change is coming. The same sort of change that affected telecommunications, newsprint, and the film industry are coming to the electric utility industry."

Is distributed solar the best path to renewables for Michigan?

Although the cost of solar panels is coming down significantly, currently the cheapest source of renewable energy available is utility-scale wind. So why should Michigan consider promoting distributed generation like rooftop solar?

University of Michigan research scientist Jeremiah Johnson recently authored a study evaluating the economic and environmental costs and benefits of several scenarios to increase Michigan's renewable portfolio. According to Johnson's analysis, distributed solar doesn't win on a cost basis or an environmental basis.

"If your objective is simply to introduce renewable energy into the system at the lowest cost, additional incentives for solar are probably not in line with that objective," he says. "You need to consider if you have other objectives.  For example, do you want a diverse energy resource portfolio, to ensure that you have a variety of resources on the system?"

That may be important to even out production, due to the intermittency of renewable sources. For example, on a sunny day with no breeze, solar panels will be pumping out electricity, while wind farms lay idle. On a windy night, the opposite would be true. Biomass and natural gas can also fill in those gaps. 

And having diverse distributed generation and micro-grids can make the system more resistant to large-scale outages.  
Beyond resource diversification, says Johnson, growth in distributed solar would support the development of the technology and drive costs downward.

"Solar cost has dropped very quickly in recent years, and you need more development for it to continue to drop," he says. "Having such a policy could assist with that."

All together now: Community solar

One type of distributed generation gaining some traction in Michigan is community solar. In 2013, the Cherryland Electric Cooperative launched a community solar array, in which customers purchase shares and receive credits on their utility bills. Community solar makes it easier and cheaper for people to invest in renewable energy, even if they don't have optimal space on their property. They can invest in much the same way they would a community garden.

Konkle authored a Guidebook for Community Solar Programs in Michigan Communities on behalf of the Great Lakes Renewable Energy Association in 2013.

"The idea was to get the public and decision makers aware of community solar, work with the municipals and co-ops to get some projects up and running to demonstrate success and demand, and pressure public utilities into action," he says.

Both DTE Energy and Consumers' Energy have indicated they will pursue community solar projects in 2015, according to Baldwin. The Lansing Board of Water and Light is also exploring the development of a 5-megawatt community solar project, which would make it Michigan's largest.

To promote the expansion of community solar, House Bill 5674, part of an "energy freedom" package, was introduced last year. It would have made it easier for non-utility sponsored community solar projects to be established.

That bill did not make it out of committee.

Representative Jeff Irwin, a southeast Michigan Democrat who championed the bipartisan bill, says he plans to reintroduce it--with appropriate tweaks--during this legislative session. 

An inevitability?

Pruss and Scripps recently issued a new report detailing policy recommendations to address Michigan's barriers to advanced energy development. It advocates addressing Michigan's projected near-term reserve capacity shortfall, driven by impending coal plant retirements, with energy efficiency and distributed energy resources. Such an approach, the report argues, would be an economic boon for Michigan.

"Currently, we spend about $22.5 billion a year importing fuel into the state, for both transportation and power," he says. "We get 80 percent of our natural gas and 100 percent of our nuclear energy from other states. Solar and wind are fuelless; once installed, the cost of energy is zero. That is all money that then gets spent in Michigan." 

He adds that Michigan's manufacturing prowess makes it an ideal place for renewables manufacturing. And since distributed systems must be installed by contractors, they represent a significant opportunity for job growth.

According to Pruss, the transition to distributed energy is inevitable.

"In the U.S., we’ve deployed more solar in the last 18 months than in the prior 30 years," he says. "At the end of 2014, 600,000 homes and businesses across the nation had solar installations; it will be a million at the end of 2015. The transformation is underway."

Nina Misuraca Ignaczak is a metro-Detroit-based freelance writer and editor,  frequent contributor to Metromode and Model D.
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