Power to the people

Lawrence Solomon
National Post
September 18, 2002

Rooftop power plants are sprouting in California, a state that has suffered from volatile power costs and electricity shortages, and before the end of the year, they’ll be sprouting in New York and New Jersey. By the end of next year, they may have come to electricity-challenged Ontario, where another botched deregulation is leading to wildly fluctuating prices, brownouts and threats of California-style rolling blackouts.

The power plants – pioneered by a new California company called RealEnergy – do more than provide security for their customers against power interruptions. They can also lower energy costs and dramatically slash environmentally harmful emissions. If economics, rather than politics, determines the future of these new plants, they will put many if not most large-scale generating plants out of business.

RealEnergy, which is installing dozens of systems in the United States and is in talks with several property owners about installations north of the border, gives building owners an offer they can’t refuse. It leases unused space on the roof of an office building or hotel – 1,000 square feet or more of space that doesn’t currently provide landlords with revenue – and builds a small power plant there, entirely at its own expense. It then offers power to the building – typically meeting 40% to 50% of the building’s entire needs – at rates no higher than the building currently pays the local utility.

Landlords find themselves owning a building offering a premium amenity while earning some additional rental revenue, and tenants appreciate the immunity from blackouts – a growing concern for many companies.

RealEnergy can make the kilowatt-cost guarantee because it has inherent advantages over traditional utilities, which must often transport power great distances from remote hydro, coal or nuclear plants. By avoiding the costs associated with transmission and distribution – often 20% of the total power bill – RealEnergy gives itself one big advantage over its central utility plant competitors. By using the rooftop plant’s waste heat to meet the building’s hot-water needs, RealEnergy gives itself another advantage: Rather than lose the heat to the atmosphere, as utility companies generally do, the water it heats provides a lucrative revenue stream. It all adds up to higher efficiency, less waste, and more profit.

RealEnergy uses no new technologies. It attaches its generating plants to the natural gas or other fuel supply that’s already available to a building. The plants themselves are off-the-shelf – whether natural gas-driven internal combustion engines, microturbines, or, when they become economically viable, fuel cells. RealEnergy typically requires six to nine months to install a system, most of it in obtaining permissions of various kinds. “Ideally, if all the permits are in place and the physical environment doesn’t present challenges, a system can be installed in three months,” says RealEnergy’s president, Paul Slye.

The advent of distributed power – the industry buzzword for small-scale plants located close to customers – is long overdue, almost 100 years overdue. The world’s first power plant – built by Thomas Edison in 1882 in lower Manhattan with help from financier J.P. Morgan – supplied 59 customers in 12 city blocks, and generated both power and heat. Edison accurately foresaw a proliferation of small-scale, localized electricity generation companies, and numerous on-site generators. A decade later, power plants had spread throughout the continent and two-thirds of all power was generated on site.

What Edison didn’t foresee was the industry’s hijacking by promoter Samuel Insull. Early in the 20th century, Insull struck a pact with the state of Illinois: If the government allowed him to wipe out small competitors – they were inefficient and ultimately costly to customers, he explained – he would voluntarily agree to allow the government to control the rates he charged. “In order to protect the public,” he claimed, “exclusive franchises should be coupled with the conditions of public control, requiring all charges for services fixed by public bodies to be based on cost plus a reasonable profit.”

Illinois agreed and the rest is history. State-sanctioned power monopolies soon became established across the United States and Canada, and wasteful, large-scale generation became the law. Large power plants typically convert only 30% to 35% of the energy they burn into electricity, and allow 65% to 70% of the energy to escape, heating the atmosphere to the environment’s sorrow. In contrast, Edison-type systems that capture waste heat achieve efficiencies of 80% to 90% or more. Put another way, we use two to three times the fuel we need to meet light, heat and various other energy needs because of the regulated monopolies that Insull pioneered.

Electricity regulation made that immense economic and environmental loss possible in the early 20th century. In the early 21st, electricity deregulation is making efficient energy use once again possible, and unleashing a torrent of innovation. Capstone, a California company, manufactures a 30-kilowatt microturbine the size of a washing machine that can supply a small office building or a restaurant. Calgary’s Enbridge, meanwhile, is betting big on fuel cells, possibly the ultimate on-site power system.

Ironically, the need for efficient small-scale systems is best understood in jurisdictions that have most botched the job of deregulation. Central utilities have their place, building owners and tenants are deciding – as a backup to clean, reliable and more efficient home-grown electricity.

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