Selling Power Back to the Grid
Carl Baldino, a plant manager for a textile finishing company in Philadelphia, is moonlighting as a small-time energy tycoon. In his second job, he's got the kind of overhead most businesspeople can only dream of. His rooftop solar power generation system pays him an extra $3,000 per year on top of producing all the energy he needs to power his New Jersey home for free. The money comes from an emerging market in renewable energy credits (RECs), part of a program in many states where electricity suppliers that are required by law to invest in renewable energy buy tradable certificates from sources like Baldino. It's just one way individuals and small businesses are making money off clean energy.
Baldino says he's never made a better investment—especially with today's unstable energy market. "I don't think I can find anywhere that I can make a return of $3,000 per year [just for having solar power], and that's if the price of energy doesn't go up," says Baldino. For him, the $12,000 upfront investment in the hardware and installation he made two years ago (New Jersey paid the remaining $38,700 through the state's Clean Energy Program) is worth the money he'll be making in the long run.
While the high cost of equipment, complicated state governing rules, and inefficiencies in the installation process still won't allow small-scale energy systems to compete directly with the established utilities, micro-energy production is paying off. With energy prices fluctuating and instability in many oil-producing countries, individuals and small businesses are touting the profits they're making off their wind, solar, and manure digestion systems as the wave of the future. These pioneers are finding that producing clean energy pays dividends that rival Wall Street (see BusinessWeek.com, 6/20/06, "Green Growth Areas for Entrepreneurs"). "There is a market that's growing, and we're just at the front end of it," says Heather Rhoads-Weaver, founder of eFormative Options LLC, a market-research consultancy for the wind power industry.
CREDITS FOR SALE.
At this point, most states only allow customers to generate enough energy to cover their own needs. Through a process called net metering, an individual or business produces energy during the day, feeds it back into the grid, then gets credited for the amount of energy produced. Though customers can't yet sell electricity to other customers, since they're constrained by having to send their electricity through the existing grid, there are ways to make a profit. The most common way is through selling renewable-energy credits, which are credits clean-energy producers receive and sell to utilities so that utilities can meet their quotas for deriving energy from renewable sources.
Brokers get in touch with local energy producers and purchase the credits, then aggregate them and sell them to the larger utilities. The producers usually get between $200 and $300 for every megawatt hour of energy they generate in a given year. They're not selling the energy itself, but instead are being rewarded for producing their energy cleanly and sustainably.
Michael Mercurio, the president of Island Wind, a clean-energy consulting firm in Long Beach Island, N.J., is one of the pioneers. He currently has a solar energy production system on his home's roof and is about to install a small-scale wind turbine generator. "I don't make money from the sale of [the energy back to the grid or to the utility company], but from the renewable-energy-credit side of it," says Mercurio, who expects to make about $2,820 in total RECs this year, or $235 per megawatt hour he produces.
NOT YET STREAMLINED.
The renewable-energy credit practice will continue to spread, as more and more states start to make it mandatory (see www.dsireusa.org, a Web site that lists selected incentives by state). By 2020, every utility will have to produce a percentage of its electricity through renewable means, says Andy Kruse, cofounder of Southwest Windpower, a producer of small-scale, consumer-size, wind-operated turbines, in Flagstaff, Ariz. If a utility doesn't produce as much as it's supposed to, it will be forced to pay a fine. The REC, or "green tag" as it's also called, is worth whatever that fine is, which varies from state to state.
Normally, the companies that buy and sell credits want to buy them in bulk, but they have been buying them from individual homeowners and small businesses because they want to have a diversity of supply. "[The market for selling RECs] hasn't yet seen its potential. It hasn't yet developed into a streamlined process," says Rhoads-Weaver.
And about 20% of utilities in the U.S. offer green pricing programs, where customers can pay a small premium to purchase renewable energy. But so far, only a few focus on facilitating smaller-scale, customer-generated energy. Most green pricing programs use energy from larger projects, like wind farms. Currently, the only way for individuals to sell their energy to consumers is through a program run via a utility that is designed to do so, says Blair Swezey, principal policy adviser at the National Renewable Energy Laboratory in Golden, Colo.
Though only a few such programs exist, they're so far proving successful for the producers and popular with consumers. Central Vermont Public Service (CVPS), the largest of 22 utility companies in Vermont, recently started a program called "Cow Power," where dairy farms that install an advanced manure digestion system (a process that uses anaerobic digestion to yield usable methane gas while limiting its escape into the atmosphere) produce clean energy that is sold to consumers at a premium. The Blue Spruce Farm, run by the Audet family, was the first to install such a system in Vermont, but four more farms will come online in the next six to nine months.
Since first offering cow energy in early 2005, demand among consumers has been high. Today, 50 consumers a week are signing up, and 3,100 total households are enrolled in the program, says Steve Costello, a spokesperson for CVPS. "We've spent hardly anything on marketing," adds Costello.
And it's been good for the farmers. The Audet family has saved about $10,000 in electricity costs in the first year and made about $120,000 through the selling of the electricity. Through the program, the family is compensated at 95% the market rate. The total cost of installing the system was $1.2 million, but assorted grants and incentives covered almost half the cost. "It's still a pretty young project, but so far, all indications are that it is paying for itself," says Marie Audet, one of the owners of Blue Spruce Farm.
For small businesses like Blue Spruce Farm, the benefits go beyond increased revenue. With 1,000 adult cows and 1,000 young ones, the Audets have all but solved their manure disposal problem—and the manure digestion system leaves them liquid fertilizer for their crops. They even use the leftover solids as bedding for their cows.
WIND LIFTING OFF.
The "Cow Power" program may provide one key way to save Vermont's traditional family farm. "The thing about this [energy production] part of the business is that it's consistent and constant, not at the mercy of the weather and the market. It's a predictable little endeavor," says Audet.
Though manure digestion and solar energy lend themselves to smaller-scale operations, wind power could be the next small thing. At the end of June, Southwest Windpower introduced a new small residential wind generator, the Skystream 3.7. It's the first fully integrated wind generator designed specifically for the grid-connected residential market, and it marks a significant step forward for tomorrow's small wind-farmers.
Wind can produce energy more efficiently than solar, and the residential or small-scale systems are getting less unsightly and safer than they used to be. Southwest produces 2,000 wind generators a month. That's up 70% from a year ago, and profits are expected to double from last year as well.
How soon will individual production of energy become a viable small business? Most likely when the cost of the equipment and the installation goes down, and the cost of energy from the major utility companies goes up. Meanwhile, those that have the systems already say their bets are hedged against the rising energy prices. "Every time the bill goes up from the electric company, my payback gets quicker," says Mercurio.
For today's clean energy pioneers, payback is quickly changing to paycheck.
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