“Buy Local” marketing campaigns have long been a popular – and effective – way to spur economic growth within local communities. Such programs redirect consumer spending to independent businesses closer to home. Not only does this added spending increase local sales, but it fuels greater economic activity in general as the money is more likely to be re-spent locally on other goods and services. Traditionally, such campaigns have focused on boosting sales for local farmers and artisans. They have also been used to reinvigorate downtown shopping districts, helping local merchants retain customers against encroachment by big box retailers.
Distributed Energy Generation Creates Disposable Income
Perhaps not surprisingly, there has historically been little economic incentive to promote locally-generated energy as part of these campaigns since traditionally there has not been a more local alternative to energy provided by large national companies. Today, however, distributed generation energy (DEG) has the potential to fuel greater local economic activity by putting more disposable income (or profits) in the hands of local homeowners, businesses and investors that can be spent locally.
DEG systems – fueled by solar, wind, natural gas and other energy sources – are readily available for homeowners and business to install directly. Consumers can also partner with a full service provider such as SolarCity to finance, install and maintain such systems. By deploying DEG, homeowners and businesses typically reduce their overall energy costs as well as the variability in energy pricing. Renewable DEG has the added benefit of lowering ongoing cash outlays for fossil fuels. Moreover, local DEG owners can generate incremental income by selling excess power back to the utility – or perhaps longer term to neighbors through contracts negotiated directly or brokered through the utility.
DEG Provides an Attractive Investment Opportunity
DEG systems can also provide an attractive investment opportunity for investors looking to generate moderate returns at relatively low risk. Local economies can benefit by providing a way for locals to generate an attractive return on their money – especially in this low interest rate environment – while accelerating the deployment of DEG within their communities.
Investment vehicles have emerged to facilitate this. For example, Mosaic allows qualified investors to invest smaller amounts (minimum $25) in rooftop solar energy projects. This past week, SolarCity announced that it has completed the industry’s first securitization of large scale distributed solar energy assets valued at nearly $55 million.
Market Conditions Are Increasingly Favorable
Market conditions are increasingly favorable to scaling DEG. Just this past week, the Federal Energy Regulatory Commission announced new standards that make it much easier for small scale (<20 megawatts), renewable DEG including rooftop solar and wind to connect to the grid. Furthermore, installation costs are coming down rapidly as conversion efficiency increases and manufacturing costs fall which is accelerating adoption. Small solar PV power capacity, for example, is expected to double within the next two years.
Rapid growth in DEG is, of course, disrupting the traditional utility model. Yet, many utilities and regulators are moving aggressively to adapt to the changing competitive environment. Duke Power, for example, is increasingly focused on providing grid services like battery storage needed to ensure grid stability as more wind and solar power capacity comes online. Meanwhile utilities American Electric Power, MidAmerican Energy and others are backing new transmission capacity to bring wind power from the Texas Panhandle to major cities. Finally, regulators like the Arizona Corporate Commission are making accommodation for utilities to ensure that they get cost recovery for transmission investment and maintenance.
Distributed generation is growing rapidly and can provide a big boost to a local economy. Community leaders should take advantage of this by promoting its expansion – and motivate local consumers to buy home-grown energy. A “Buy Local” marketing campaign may be the perfect way to encourage just that.