Distributed renewable energy systems, in the sense of this essay, include
all small-scale renewables, i.e. small wind turbines, solar PV, solar
thermal, geothermal heat pumps, micro-hydro systems, biomass and possibly
even energy efficiency measures - applications mainly used in the
residential sector. Israel is the only country in the world that has
mandated renewables - that is, solar thermal systems - in new
construction, and California requires a certain percentage of solar PV.
Similar policies were implemented by municipalities, such as Barcelona
(Spain). This, of course, is a very efficient mechanism to further
distributed renewable energy systems. However, so far we are not seeing
this happen in most other countries.
Tax incentives and buy-downs or grants are the most popular policy tools
used to further the adoption of such technologies. However, this still
leaves the buyer with the task of financing the remaining capital cost.
Grant programs therefore often only capture "early adopters" - as it
seems, often the well-to-do that are very motivated to invest in
renewables, but are not necessarily short of funds to do so. The assertion
is that two types of incentives are required to achieve greater market
penetration: a) awareness and education and b) financing. The
counterintuitive aspect of this concept is that most existing incentives,
including net metering, tax benefits and grants or buy-downs, are counted
as educational and awareness tools only. This is because they don't
address the question of financing; they only reduce the up-front cost or
create an income stream that facilitates financing. While this is good,
such measures have not seen the success that renewable energy advocates
would hope for. International experience shows that renewable energy loans
can be more successful than grant programs.
An example is India. In a recent Renewable Energy Access
article the Indian soft loan program for solar thermal installations
was described. Before this program was introduced, the Ministry for
Non-Conventional Energy Resources provided a capital subsidy for solar
water heaters. The bureaucracies of the processes of availing capital
subsidies, with the lack of appropriate financing deterred market growth.
Even a 30% capital subsidy on the solar water heaters did not entice
either new manufacturers or potential clients. A policy change in the
mid-nineties, from capital subsidy to interest subsidy, completely changed
the scenario. Subsidising bank rates made low-interest loans available to
the general public. Rates for individuals are 2%, and 5% for commercial
entities. The effect: in the State of Karnataka alone, the number of
manufacturers increased tenfold from six to more than 60 in 2005.
In Germany, the Credit Agency for Reconstruction (KfW) provides
low-interest loans for a range of
energy efficiency measures in residential buildings , as well as
solar PV systems , biomass and geothermal. Current interest rates for
PV are 4.1 to 4.4%. In 2005, KfW accepted over 17,000 residential funding
requests for a total of 139 MW. It is the combination of low-interest
loans and a generous feed-in tariff that stimulates the tremendous growth
in the German PV market, which has now even left Japan behind in terms of
annual new solar PV installations.
In California, the Sacramento Municipal Utility District's (SMUD) Solar
Domestic Hot Water Program provides rebates of $1500 for residential solar
water heating systems. In addition, SMUD offers 100% loan financing to
cover the remaining costs, with a ten-year repayment period. The
initiative has led to the installation of 3000 units. Similar programs are
available in many other U.S. states for both energy efficiency and
renewable energy systems.
Canadian power utility Manitoba Hydro provides loans to install heat pumps
through its
Earth
Power Program. These loans are fairly market-oriented and do not
provide an interest advantage over usual bank loans. However, the fact
that these loans are promoted through the utility and can be paid back
over the utility bill have made Manitoba the national leader in terms of
heat pump installations: 30% of Canada's systems are installed in the
province, which only accounts for about 10% of Canada's population.
Clearly, providing attractive financing options has made all the
difference for distributed renewables in these countries. But is it always
necessary that financing is provided directly through government or banks?
In Britain, energy service company
EcoCentroGen (ECG) provides distributed energy systems for large
residential and mixed residential/commercial developments. The company
guarantees that the overall captial costs for the developers will not
increase as compared to a conventional energy system. Its offer not only
includes electricity services, but also heat, water, Broadband, TV &
telephony for residential end users. ECG also educates and encourages its
customers to use less energy. Its cost is recovered over long-term service
contracts for the entire bundle of services, which undercut competing
offers by 10%. Not only do homeowners not have to finance the renewable
energy system, but they also save space in their home as they may no
longer need room for residential heating systems and fuel storage.
Canadian company Earth Energy Utility had a similar concept and installed
heat pumps in large residential and commercial developments, offering
heating services at a fixed price for 50 years - very effective to hedge
against price increases in the oil & gas sector. Sadly, the company
experienced serious problems in sourcing drilling services for heat pump
installations in Canada and saw business growth hampered for a variety of
reasons. It is now moving to Britain, where the climate for renewable
energy systems is better due to generous government support, such as the
Clear Skies Program, which provides grants of GBP 1,200 per heat pump
installation.
Also in Canada, newcomer
Lifetime Energy, an initiative of Waterloo Hydro (Ontario) and
NextEnergy, offers heat pumps to residential and commercial customers. The
company makes use of the promotional value and increased credibility
created by the fact that financing works through electric utility bills -
Lifetime Energy actually pays Waterloo Hydro for its billing services.
Once the loan for the heat pump is paid off, the company retains ownership
of the heat exchange coil in the ground and provides heating services at a
stable monthly rate way under natural gas or electricity heating options.
Only a few months into its offer, Lifetime Energy has received five to
seven calls a day. A similar initiative of an Ontario utility that offered
buy-downs for heat pumps but no financing only generated three calls in
one year. British Columbia company
Geotility Corp. pursues a very similar concept, and natural gas
utility Terasen Gas also leases the ground loop of heat pumps to
homeowners in
Sun Rivers, Canada's first 200-home geothermal community. Finally,
ThermUtility will equip 500 homes with a combination of geothermal
space and solar hot water heaters in 2006, while retaining ownership of
these systems, only charging homeowners for the energy they consume. The
company plans to extend this offer to all of Canada in 2007.
It is easy to see how such concepts could be expanded to other
jurisdictions and could include all types of renewables. There appears to
be a great opportunity for the private sector to work as "distributed
energy utilities" that provide services to their residential or commercial
customers, but retain full or part-ownership of the renewable energy
systems, or provide long-term financing. Ideally, homeowners should not
pay more on their utility bills than before - due to savings incurred by
the renewable energy systems - making the installation of distributed
energy systems an easy, no-regrets decision. This concept is already
working well in the commercial and industrial sector through so-called
energy service companies, but has not yet reached the residential sector.
But even the commercial sector still has lots of room for improvement:
when will se see a solar or wind energy contractor lease the air space of
Wal Mart or Zellers stores to install renewable energy systems on these
huge unexploited surface areas?
The concept can complement existing in initiatives like buy-downs. In
fact, it will work best where such incentives are already in place.
Teaming up with utilities has paid off for some of the companies that have
ventured out into this new field of activity: the credibility of utilities
is high in customers' minds, and if they can be won to cooperate in a loan
system and book monthly charges off through utility bills, this will have
a great positive impact on the success of private ventures. Finally, there
is a great opportunity for municipalities to play a role. London (UK)
mayor Ken Livingstone has created new rules such that building permits for
new developments are only granted if renewable energy systems and energy
efficiency have been duly considered as part of the planning process.
EcoCentroGen has found this condition extremely helpful in their endeavour
to provide distributed energy services. The City of London is even working
towards creating its own energy service company that will deliver
cogeneration, geothermal, solar PV and solar thermal energy services in
the capital.
About the author...
by Martin Tampier is an Associate with ENVINT Consulting, Montreal,
Canada. He holds a degree in environmental engineering from the Technical
University of Berlin, Germany. He is resident in Canada and is consulting
government and industry in the fields of green power policy, climate
change and emissions trading, and has published numerous articles in each
area. Contact him at martin.tampier@telus.net. or via ENVINT Consulting,
http://www.envint.ca/
