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Rocky Mountain Institute/volume xviii #3/Fall 2002 RRMMIISSoooolllluuuuttttiioioioonnnnssss newsletter S m all is Pro f it a ble Today’s electricity problems—and costs— are in the grid B y A mory B. Lovins For the first century of electrical power, as Profitable: and Jeremy Heiman generating plants became larger and more The Hidden centralized, delivery of power became Economic lectricity has been so successful more and more dependent on the grid. Benefits of providing the energy needs of citi- Driven by demand that escalated as costs Making Electrical Resources the Right Ezens and industry that many of us declined, the size of power plants grew Size, written by RMI cofounder and CEO can’t imagine life without it. Flip a switch, during the first years of the 20th century. Amory Lovins and six coauthors. Small Is a light comes on. Spin a dial, a fan begins The complexity and size of the grid Profitable builds on the assertion central to whirling. Crank a knob and a pump starts increased at the same time. But by the Lovins’s groundbreaking 1977 work, Soft pushing. Electricity has become a pervasive early 1990s, it was Energy Paths, arguing that energy efficien- and essential force in modern life because clear that utilities cy and cheaper electricity from small, it is a versatile, convenient, controllable, were no longer put- renewable sources of energy will gradually clean-to-use, and generally reliable form of ting many large replace the output of large, centralized fos- energy. Although only about one-sixth of power plants in their sil fuel-powered generating stations and the total energy delivered in the United shopping carts. By nuclear plants. States is electrical, electric power provides 2000, decentralized A m ory Lovins our highest-quality energy services. electricity produc- Through the 20th century, coal- or oil-fired tion was the subject of stories in such steam turbine power stations evolved from But once in a while, the lights won’t go mainstream publications as The Wall Street local, neighborhood-scale generators into on. It could be due to a thunderstorm, a Journal, The Economist, and The New huge, remote, regional power plants that traffic accident, or anything else that can York Times. Power users and utilities alike often served customers hundreds of miles compromise reliability in an instant. are recognizing that smaller power sources away. Power distribution infrastructure Simple power failures such as these— that can reduce dependence on the grid evolved as a network rather than a direct as well as more complex ones—almost also have substantial economic benefits. line from producer to user, because inter- always originate in the grid, the complex lacing the unreliable power stations of the transmission and distribution network The economic advantages of these smaller early days with complex transmission sys- that gets electricity from today’s giant power generating units is the subject of an tems made consumer power more reli- power plants to the consumer. important new book from RMI, Small Is able—if one plant went on the fritz, the consumer was still hooked up to the rest. As economies of scale drove utilities to W hy C olor? build ever-larger power plants, the grid “Advances in printing technology, such as computer-to-plate press (CTP) became more complex. Distance, complex- imaging, has enabled four-color printing to become more energy- ity, and age made the grid steadily less reli- and resource-efficient and more cost-effective than two-color printing. able at the same time power plants were It also allows us to keep the presses in four-color process, eliminating becoming more dependable. ink waste and special cleanups.” Rich G arigen A rea A ccount Manager, C olorado Printing C ompany continued on next page “Central thermal power plants than a decade old, no systematic economic resources” the right size for their task can stopped getting more efficient rationale for a new pattern has been avail- boost their economic value, typically by in the 1960s, able up to now. The advantages, economic about tenfold, though the exact value is bigger in the ’70s, and otherwise, presented by distributed site- and technology-sensitive. Electrical cheaper in the ’80s, and bought in the ’90s.” generation have yet to be widely under- resources are not only generating systems, stood across the industry. The shift in the but also devices that save or store electrici- Small Is Profitable Executive Summary scale of power generation facilities has ty. Some of the broader and more impor- increasingly been driven by the financial tant findings of the study include: risks of big, lumpy, slow-to-build power In today’s electricity market, however, the plants that have weakened many utilities • Financial economics: modern tools economies of scale that justified building big for portfolio management reveal a nearly (and bankrupted a few) that forgot Miss coal-fired and nuclear power plants have tenfold gain in value for renewable Piggy’s Fourth Law—“Never try to eat been outrun by diseconomies of scale, both sources, about 3–5-fold for nonrenew- more than you can lift.” But invisible to ables, from properly counting the in the grid and in generating plants. Mass most practitioners, partly because of disci- reduced financial risks of small, fast, production of smaller generating units offers plinary boundaries between electrical engi- portable, and (for renewables) constant- greater economies than big plants can gain neering and financial economics, are price resources. through unit size. Centralized power gener- scores of positive economic advantages of • Electrical engineering: lower grid ation is no longer cheaper even on its distributed generation. Small Is Profitable costs, fewer losses, and longer equip- own—and when supply is expanded, new for the first time assembles these “distrib- ment life, and more graceful handling of power plants now cost less than the grid failures can increase the value of a dis- uted benefits” and makes them widely linking them to customers. tributed resource by 2–3-fold, or even accessible. more if the decentralized generating project is located in an area with a con- Smaller power sources located at or near “E. F. Schumacher would be proud of gested grid or if the customer requires the customer, collectively called “distrib- this rigorous extension of his thesis high power quality or reliability. uted generation,” today offer many other in Small Is Beautiful. benefits not provided by big, centralized It shows how making systems the • Miscellaneous benefits: dozens of plants. The power quality and reliability right size can make them work better other benefits may combine to increase and cost less.” the value of distributed generation essential to high-tech businesses such as resources, typically by about 2-fold— semiconductor manufacturers and Internet Dr. D aniel Kammen Professor of Energy and Society and of Public more if heat produced as a byproduct of service providers is not available through Policy, University of C alifornia, Berkeley electricity generation is recaptured for the grid, so large, centralized power plants industrial processes or space heating. can’t compete in power quality with onsite Small Is Profitable is the first comprehen- • Management of external costs: costs or neighborhood-scale generation. sive analysis of how making electrical not directly charged to the power pro- ducer, such as the environmental or pub- resources the right size can minimize their Although the gradual shift from the old lic-health costs of combustion emissions, central-plant-based pattern is now more costs and risks and capture unexpected can be important, though they’re not sources of profit and advantage. It enumer- included in the roughly tenfold overall ates 207 ways in which making “electrical gain in value. RMInews N E P Initiative D raws Crow d On 26 June, RMI CEO Amory Lovins participated in a Congressional briefing on the National Energy Policy Initiative in Washington DC. The event, sponsored by the Environmental and Energy Study Institute and Rocky Mountain Institute, drew a crowd of over 170 people. The panel was designed to give insight and direction to the current Congressional energy debate. Congressmen Zach Wamp (R-Tenn.) and Mark Udall (D-Colo.), co-chairs of the House Energy Efficiency and Renewable Energy Caucus, provided opening remarks. Amory Lovins of RMI intro- duced the audience to the consensus-based process behind the NEP Initiative, while Jack Riggs of the Aspen Institute (former Staff Director of the main House energy committee) and Bruce Smart, retired Chairman and CEO of Continental Group and former Under-Secretary of Commerce, described the Initiative’s implications for reconciling the House and Senate energy bills currently in conference. For more information on the NEP Initiative, please visit www.nepinitiative.org. 2 RMISolutions F a l l 2 0 0 2 SIP ” 2 o t y . t by alert market actors and policymakers. g i e i c f v i a , t 3 p a This extra value can swamp the small . a n p r C , e ) t l m 6 cost differences that normally drive e 9 A t 9 s 1 n y , A 2 S investment decisions, and can even make : . n n o i o n i s t , t solar cells competitive today in most 4 a n r 2 e e y n m c i t e applications. l s G o e P v d n y e I t g r u y t e b i If the electricity industry, related indus- i l n r i E t t ( s U i D c tries such as real estate, and public offi- i “ r t , . c E e cials respond attentively to the current l .