THE COUNCIL OF STATE GOVERNMENTS
are ound more commonly in photovoltaic systems,localized wind turbines, uel cells, and combined heatand power systems, which recover heat that normallywould be wasted in an electricity generator by usingit to produce steam or hot water heaters, heatingor cooling. When connected to the electric grid withsmart technology, distributed energy can provideutilities options to meet peak power demand, powergeneration and localized distribution with discretebatches o electricity.
Another beneft o distributed generation is theability to help so-called microgrids isolate themselvesrom disturbances by continuing to provide powerduring outages with the local utility. The most com-mon example supporters o expanding microgriddevelopment use is the New York University Medicalcampus, which invested heavily in an efcient cogen-eration plant that utilized natural gas and combinedheat and power. The medical campus’s systemcreated almost continuous electricity and providedheat when Hurricane Sandy was causing tremendousdamage to the New York/New Jersey area.
Net metering is one policy nexus that utilizesthe connective, two-way unctionality o smart gridtechnology with distributed energy. According to arenewable energy consortium, the Database o StateIncentives or Renewable Energy, managed by theU.S. Department o Energy, 43 states have adoptednet metering policies allowing customers o certainelectric distribution companies the ability to generatetheir own electricity, which can be used to oset theirelectricity usage.
Net metering is an increasinglyattractive option or consumers because it also allowsa customer to sell excess power to the utility. Homesand acilities are connected with a smart meter thatcan communicate directly with a distribution com-pany or utility, which measures the net quantity o electricity that the customer uses. These meters spinorward when the customer uses electricity rom thedistribution company and spin backward when thecustomer generates excess electricity. In essence, theexcess electricity is exported to the electric grid andused to power other homes or businesses in the area.
I consumers generate more electricity than theyconsume, they receive a credit that is typically ap-plied to their monthly power bill. The value o thecredit is determined by a methodology approvedby the state public utility commission or publicservice commission. The size and capacity o powerloads available or net metering vary rom state tostate. Overall, the Solar Energy Industries Associa-tion, a trade association o solar energy companies,estimated in 2012 that roughly 220,000 customersnationwide utilized net metering—primarily throughsolar photovoltaic systems on homes and business.
AJuly 2013 report published by the advocacy organiza-tion Environment America ound that Arizona hasthe most cumulative solar power capacity per personin the country, while Caliornia leads the nation withoverall installed solar capacity at 1,033 megawatts.
The U.S. solar photovoltaic systems market can bebroken down into three segments: customer-owned,third-party owned and utility-owned. The astest-growing segment o the residential rootop solarindustry is the third party business model, which grew76 percent between 2009 and 2011. Many consumersfnd contracting with a third party an easier way toaccrue the benefts o solar power that can reducepower bills, while allowing a private company toshoulder the upront costs o installation and owner-ship o the inrastructure.
The solar installationcompanies, in return, get the ederal tax advantage o the alternative energy investment tax credit, whichprovides a 30 percent dollar-or-dollar credit againstederal tax liability.The American Recovery and Reinvestment Act o 2009 created a program in the Treasury Departmentcalled Section 1603, which allowed developers toreceive a direct ederal grant in lieu o the 30 percentinvestment tax credit. The Solar Energy IndustriesAssociation said the program has supported morethan $7 billion in private sector projects.
Combiningederal tax incentives with state programs, renewableenergy mandates, accelerated depreciation schedulesand long-term contracts allowed in purchase poweragreements or lease scenarios can be fnanciallyrewarding or third-party companies. Venture capi-talist Nat Kreamer, CEO o Clean Power Finance,estimated that as much as 45 percent o an inves-tor’s expenses can come back through avorable taxtreatment in the frst year o a loan and the returnon investment can be in the high single digits andmid-teens.
Although the total number o customers utilizingnet metering and distributed options is relativelysmall nationwide (less than 1 percent o the popula-tion), the growing consumer interest and anecdotalevidence o its expanded use across the country hassome in the utility world seriously questioning thelong-term viability o the traditional power deliverysystem. David Crane, the president and CEO o theutility group NRG Energy, said at a March 2013conerence hosted by
The Wall Street Journal
thatutilities “do realize that distributed solar is a mortal