Renewing Our Neighborhoods
A host of clean, cost-effective options for meeting the electricity needs of Boston Edison (BECo) and its customers are available right now from renewable resources in the BECo service area. Placing small renewable power systems in residential and business settings--where the energy is needed and used--can save money by avoiding the need for new or upgraded central power plants and electricity transmission systems. By incorporating "neighborhood renewables" into their generating mix, Boston Edison can join other leading utilities--including Pacific Gas and Electric, Southern California Edison, and the Wisconsin Electric Power Company--in saving money for its customers, as well as preserving the environment by reducing the use of polluting fossil fuels.
Key Findings
The Union of Concerned Scientists conducted an extensive research effort to identify renewables technologies that are or may become cost-effective for Boston Edison during the next decade, and specific neighborhoods in the BECo service territory in which use of these technologies would save the most money. Below are some highlights of our results:
- Neighborhood renewable energy technologies have the market potential to supply as much as 31 percent of BECo's annual electricity needs.
- In specific neighborhoods in BECo's territory, including Back Bay, downtown, Roxbury, and West Roxbury, some neighborhood renewables are cost-effective right now and would save the entire community money by avoiding the need to upgrade electric lines and substations and to build new power plants.
- With increased use and the economies of mass-production, all the renewables we studied could be cost-effective in these locations within the next 10 years, providing savings on the order of $50 million dollars per year with the potential for more.
Even with these encouraging results, however, numerous barriers still prevent renewables from competing successfully in a laissez-faire marketplace. For example, current energy markets and economic analysis methods undervalue clean, renewable energy resources. Nor are renewables credited for their value in reducing uncertainties in utility planning. Whereas large, central power plants are hostage to fossil fuel prices and require planning so far into the future that they may turn out to be costly and unnecessary, renewable energy technologies are not subject to fuel price fluctuations, and their modular nature and short development "lead-time" enables more precise and timely responses to changing capacity needs.
Crediting renewables today for reduced environmental damage and for the reduced planning uncertainties or risks in the future (fuel price jumps, etc.) is one way to recognize how valuable and cost-effective they really are. But utilities, regulators, state energy offices, consumer advocates, and nongovernmental organizations must also work together to accelerate the use of neighborhood renewables that are already cost-effective in the Boston Edison service area and in Massachusetts in general.
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What Are Neighborhood Renewables? Neighborhood renewable energy technologies are small, flexible power systems that use naturally replenishable resources, such as sunlight and the wind, which have little or no environmental impact. These technologies -- including solar water heaters, photovoltaic panels, wind turbines, and biomass-fueled electricity generators -- are often called distributed renewables, because they can be distributed on roofs or other sites throughout a utility's system where they can avoid electricity transmission and distribution costs, as well as costs associated with operating and building power plants. They are also called demand-side management renewables, because placing the renewables technologies where the electricity is used reduces the demand for more power from a central power plant -- as do energy-efficiency measures, another type of demand-side energy management. |
Technologies
In our analysis we examined several technologies, including
- solar water heaters, which collect and store the sun's energy to heat water. Perhaps the most familiar of the renewable technologies, they can be used for homes and apartments, institutions such as college dorms and high schools, and businesses with heavy hot-water use, such as nursing homes, restaurants, and hotels.
- solar air preheaters, or transpired solar collectors, which can be installed on south-facing building walls to preheat the fresh air drawn into most buildings by ventilation systems, thereby reducing building energy use.
- photovoltaics, which are semiconductor panels that convert sunlight directly into electricity. Photovoltaics can be installed on rooftops or on walls of homes, apartments, and businesses.
- biomass gasification, in which wood or other organic materials from the urban waste stream are converted into a clean, renewable gas for use in an engine generator or fuel cell.
- wind turbines, which convert wind energy into electricity. We examined onshore, offshore, and breakwater locations around Boston Harbor as potential sites for wind energy systems.
Market Potential of Neighborhood Renewables
Renewable resources currently provide only a fraction of a percent of Boston's electricity requirements. To determine how much energy renewables technologies might actually be able to provide, UCS estimated the market potential--the maximum amount of energy and capacity, or power, that could feasibly be developed in BECo's service territory--of each resource over the next two decades, given natural resource flows and potential siting limitations. For solar systems such as water heaters, air preheaters, and photovoltaics, we estimated the amount of sunny and otherwise suitable roof and south-facing wall space on existing buildings and on new buildings built over the next 20 years. For biomass systems, we estimated how much clean biomass might be contained and recoverable in residential, commercial, and other waste flows in Boston, given trends in population, waste generation, and waste handling including recycling and composting. For wind energy, we identified locations around Boston on shore, on breakwaters or harbor walls, and in shallow waters offshore that could support a few wind turbines without impinging on existing residences, parks, or otherwise sensitive land-use requirements.
For these estimates, we postulated three scenarios: an optimistic case, in which we assume that neighborhood renewables are vigorously pursued and are well-accepted, so that much of the identified potential is used; a likely case, in which we assume moderate development of neighborhood renewables and likely levels of acceptance, yielding a reasonable fraction of identified potential; and a pessimistic case, in which we assume limited pursuit of neighborhood renewables and low acceptance, so that technologies are deployed on only a few of the sites we identified.
Tables 1 and 2 shows the long-run market potential for each technology and resource individually and in total, as a fraction of the Boston Edison system. In total, renewable resources in the Boston area could supply 4 percent to 31 percent of annual energy generation, enough energy per year to serve 120,000 to one million homes. In our likely case, photovoltaics account for 66 percent of the potential, followed by biomass at 16 percent, and wind and solar water heating at around 9 percent each.
1. Generation refers to the total energy put out per year
2. GWh=gigawatt-hours, equivalent to one million kilowatt-hours
3. Biomass resource total was calculated using the highest-efficiency conversion system--molten carbonate fuel cells/biogas--to define resource potential.
4. Typical house uses 5,000 kWh/yr installed capacity
| Table 2. Long-Term Total Market Potential--Installed Capacity | |||
|---|---|---|---|
| Pessimistic MW |
Likely MW |
Optimistic MW | |
| Photovoltaics | 289 | 876 | 2,031 |
| Solar Water | 81 | 160 | 249 |
| Solar Air Preheat | 4 | 24 | 107 |
| Wind | 13 | 64 | 128 |
| Biomass2 | 7 | 40 | 153 |
| Total | 393 | 1,164 | 2,668 |
| BECo Forecast Peak | 3,071 | 3,071 | 3,071 |
| % of Peak | 13% | 38% | 87% |
| Number of typical homes3 | 130,000 | 390,000 | 890,000 |
1. Capacity refers to the maximum power possible from the systems installed.
2. Biomass resource total was calculated using the highest-efficiency conversion system--molten carbonate fuel cells/biogas--to define resource potential.
3. Typical house requires 3kW.
Costs of Neighborhood Renewables
UCS developed cost estimates for each neighborhood renewable energy technology for installation today and after a decade more of growth and development. Sources for cost estimates included manufacturers' quoted prices, interviews with vendors and installers, and research reports by utilities, government laboratories, and private consulting groups.
The installed cost of renewable technologies is quite uncertain today, with prices varying depending on the size, type and difficulty of the installation, as well as other factors. Some of the costs to operate and maintain renewables technologies in the Boston area are also unknown, since, for many of them, there is not a long history of widespread deployment. Estimates of costs in 10 years are even more uncertain, depending, in addition, on how large the market grows and how the technologies develop during the intervening years. Purchases of these technologies by Boston Edison and other utilities in the next few years will help bring down the costs of these technologies in the future; no purchases now will mean high future prices.
To accommodate this uncertainty, we developed three technology-price scenarios, representing pessimistic, likely, and optimistic cost estimates. Pessimistic estimates generally assumed limited market size and growth and custom (high) installation costs; optimistic estimates assumed steadily increasing orders leading to manufacturers' achieving their price objectives; and likely estimates represent market development at a rate between the optimistic and pessimistic cases.
Since the costs of all energy systems include differing proportions of capital (mortgage) and operating costs, we chose a common utility cost measure called the real levelized cost for comparisons of different options. Because of the uncertainties described above, the range of real levelized costs for the neighborhood renewables evaluated in this study is very wide. Under likely scenario conditions, real levelized technology costs (in 1993 dollars) in 1995 range from around $0.02 per kilowatt-hour (kWh) for solar air heating systems to $0.45/kWh for photovoltaic systems. Large biomass engine generator systems can produce electricity at costs from around $0.04/kWh to $0.06/kWh, while wind, biogas fuel cells, small biogas engine generators, and solar water heaters are in the $0.10 to $0.20/kWh range.
Costs for most technologies are expected to decline within 10 years, with photovoltaics remaining the most expensive technology but declining in cost by about 60 percent, to $0.17/kWh, in the likely case. Real levelized costs for power produced by large biomass engine generators and phosphoric acid fuel cells are expected to increase slightly, because we expect the price of biomass fuel to rise faster than capital costs decline.
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What Will Bring New Technology Costs Down? Renewable technologies today are, in many ways, like CD players were when they were first introduced -- they are produced in very low volume and are, consequently, quite expensive. Thanks to the early buyers of CD systems, many of us can now afford the high quality and flexible capability that this technology provides. The future price of photovoltaics, fuel cells, and other neighborhood renewables technologies depends in the same way on buyers today. Many of the ongoing government/industry programs to commercialize clean energy systems are predicated on the concept that a modest but growing commitment to renewable energy technologies will bring about their sustained orderly development -- a process based on identifying and implementing technologies first in niche markets where they are most cost-effective, then achieving economies of scale, reducing production costs, enabling penetration of new markets, and so on. Looking for neighborhood renewables opportunities is an ideal strategy to support this process. |
Avoiding Conventional Expenditures
Under the "distributed utility" approach advocated here, utilities install neighborhood renewables instead of paying for electricity generation, new power plant capacity, and new or upgraded electric lines and substations. In conventional utility cost-effectiveness analysis, most of the costs of building or upgrading electricity distribution systems are aggregated and averaged over their entire service territory. But research in this study and at leading utilities, including Pacific Gas and Electric and Southern California Edison in California, Duke Power in North Carolina, and Wisconsin Electric Power, shows that this approach doesn't tell the whole story. These studies show that in some neighborhoods or local areas within a utility service territory--those in which large near-term expenditures on local electricity delivery facilities are required in order to meet growing demand--targeted installations of neighborhood renewables or other technologies can save utilities and their ratepayers millions of dollars by avoiding the higher-than-average conventional expenditures.
Certain neighborhoods in BECo's service territory--areas accounting for 36 percent of BECo's demand--fall into this category. Since these neighborhoods will require upgrades or increases in their electric service within the next few years, the costs of providing electricity are well above the system average. These neighborhoods are therefore the most attractive for installing neighborhood renewables and avoiding the planned construction or replacement of transmission and distribution lines and substation equipment. Those with the most to gain from avoiding conventional transmission and distribution expenditures include Back Bay, the North End, Roxbury/West Roxbury, and Westwood/Dedham. Areas with high potential savings include downtown Boston (Station 514), Hopkinton, Norfolk, and Woburn/Burlington.
Our study compared the gross savings (not including the cost of the renewables) from avoiding expenditures on building and operating large central power plants in areas with average, high, and highest transmission and distribution system costs in the Boston Edison service area. We also calculated the value of the different components of the avoided expenditures. Our results showed that local-area savings alone in the highest cost areas can be nearly as high as the energy generation and power plant capacity costs that utilities normally consider in their planning.
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How Much Does Pollution Cost? Massachusetts has, until recently, required electric utilities to adjust the costs of the energy resources they consider -- different power generators or energy-efficiency programs -- to account for their pollution costs. This adjustment for environmental "externalities" is intended to reflect the fact that the various electricity resources emit different amounts of pollution and carry varying risks of future costs, and that these costs to society are not included in the market price. Pollution costs are assessed based on the pounds of different pollutants emitted in producing or delivering a unit of electricity. Based on these principles as they were applied in Massachusetts, power plant emissions would cost approximately $0.05 per kilowatt-hour. A clean, zero-emission resource like a solar water heater or wind turbine would be free of pollution costs. After a legal challenge, this approach to estimating the cost of the pollution from utility resources has been struck down, so its future is uncertain. |
Cost-Effectiveness of Neighborhood Renewables
Installing photovoltaic panels on rooftops in Roxbury makes sense from the utility perspective when the costs of installing and operating them are less than the costs of operating, building, or upgrading conventional electricity generation and delivery systems. One way to determine if a specific neighborhood renewables system is a good investment is to measure its cost-effectiveness in terms of its net savings--that is, the costs of operating, building, or upgrading a conventional system minus the costs of the renewables, expressed in dollars per kWh. We were particularly interested in the net savings produced by solar, wind, and biomass systems in areas with the greatest (five times the average) projected costs for conventional electricity distribution. We found that a number of options would be cost-effective if installed in the right areas today, and that most of the systems we considered would be cost-effective within the next decade.
Under renewables cost assumptions in the likely and optimistic cases, the majority of the technologies--including solar air preheaters, solar water heaters in nursing homes, biomass, and wind--can save money whether or not their environmental benefits are considered. When their environmental benefits are included, several of these technologies are cost-effective even under the most pessimistic cost assumptions.
By 2005, our likely and optimistic cases for all technologies are cost-effective, even without considering the environmental benefits. This result comes about because within 10 years a number of developments will increase the net benefits of these technologies in Boston: their costs will decline, and at the same time their value to Boston Edison will increase. In Back Bay, the North End, Roxbury/West Roxbury, and Westwood/Dedham, then, the least expensive way for Boston Edison customers to receive their electricity could very well be from photovoltaic panels and solar water heaters on roofs and, for some businesses and industries, from ultra-clean fuel-cell generators fueled by gas from wood or paper waste.
Long-Term Annual Net Savings
Providing electricity to the homes, schools, businesses, and institutions of Boston is a large industry, with annual revenues of $1 billion to $2 billion. Given that scope, cost savings can really add up. To provide a sense of perspective, UCS compared the annual net savings that could be achieved through application of the results of this report to Boston Edison's annual revenues (see table 3).
Aggressive pursuit of renewable opportunities in neighborhoods with high potential net savings, including Back Bay, downtown Boston, Hopkinton, Norfolk, the North End, Roxbury/West Roxbury, Westwood/Dedham, and Woburn/ Burlington, combined with optimistic technology performance and cost developments, could save Boston Edison customers as much as $500 million per year in 15 to 20 years. A more modest effort, combined with likely price and performance improvements, could still yield savings of $50 million per year. Even if technology costs do not improve very much and opportunities are fewer then expected, our analysis shows that neighborhood renewables could be installed without increasing costs to customers, and would provide the added benefit that Boston Edison would have begun to produce a significant portion of its electricity requirements from clean, local resources.
| Table 3. Potential Net Savings by the Year 2013 | ||||||
|---|---|---|---|---|---|---|
| Technology | with Environmental Costs | without Environmental Costs | ||||
| Pessimistic $ millions |
Base $ millions |
Optimistic $ millions |
Pessimistic $ millions |
Base $ millions |
Optimistic $ millions | |
| Photovoltaics | $0.0 | $120 | $500 | $0.0 | $25 | $340 |
| Solar Water Heat | $0.6 | $10 | $30 | $0.0 | $2 | $20 |
| Solar Air Preheat | $0.5 | $5 | $30 | $0.3 | $3 | $20 |
| Wind: All | $0.4 | $10 | $60 | $0.1 | $3 | $20 |
| Biomass: All/Best | $2.3 | $30 | $170 | $0.2 | $11 | $110 |
| Total | $3.8 | $170 | $800 | $0.7 | $50 | $530 |
| BECo Revenues | $1,590 | $1,590 | $1,590 | |||
| % Revenue Reduction | 0% | 3% | 30% | |||
Market Barriers
Even though our analysis shows that Boston Edison could save money for its customers today by installing systems like solar water heaters on nursing homes or solar air preheaters on appropriate businesses or apartments, neighborhood renewables are not yet playing a significant role in BECo's service. The reality is that numerous barriers to neighborhood renewable technologies exist in the current energy market and in society. The major market barriers include
- the prices of clean, local energy resources are not adequately differentiated from more polluting or imported resources in energy markets. As a result, current efforts to use market forces to reduce our energy costs are liable to produce pollution problems unless some mechanism is used to account for the environmental costs of using fossil or nuclear fuels
- today's electricity market has been dominated for many decades by technologies and thinking geared to large central generating stations coupled to long-distance electricity distribution systems. The concept of local, neighborhood resources, such as fuel cells or photovoltaic panels, competing with large-scale power plants is still little-known and untried by many planners and decision makers today. Developments in the neighborhood utility technologies are just beginning to be incorporated into the industry's decision-making and will require extra consideration in the design of a restructured electricity industry
- challenges in arranging long-term financing and obtaining equitable tax treatment for high-capital-cost/low-operating-cost systems
- limited understanding of and experience with these systems, and challenges delivering large numbers of relatively small systems efficiently and inexpensively to appropriate customers. Equipment suppliers, system designers, inspectors, and buyers will all develop together in much the same way that the energy-efficiency infrastructure has grown and matured.
Recommendations
This report presents many tasks, large and small, that various stakeholders in the electricity industry should undertake to provide Boston Edison and its customers with the full benefits of neighborhood renewable resources. The following are the most critical recommendations for the most influential entities in the energy system:
Boston Edison
- Develop and implement a detailed and comprehensive distributed, neighborhood resource assessment, siting, and valuation plan. This activity includes comprehensive analysis of the full menu of neighborhood resource options (e.g. neighborhood renewables, energy efficiency, and storage technologies) to identify those that will provide the greatest savings. It requires a better understanding of the customers served in specific neighborhoods and will stimulate the development of new skills and information, and importantly, better communications with customers and communities. Neighborhood energy resources offer new opportunities for community development, new business services, and improved quality of life.
- Add currently cost-effective measures such as solar air preheaters directly into existing and future demand-side management programs or solicitations.
- Undertake pilot and demonstration projects for promising technologies.
Regulators
- Clearly identify and account for the value of neighborhood renewables, particularly the savings on local area-specific electricity-distribution expenditures in resource planning and acquisition.
- Credit neighborhood energy systems (such as fuel cells, photovoltaics, solar water or air heating systems, and wind turbines) with their full value in terms of reduced planning uncertainty, distribution system support and regulation, reliability improvement, and other planning benefits.
- Account for environmental performance over and above current standards in electricity resource selection.
- Adopt mechanisms for supporting renewables commercialization and preserving public benefits of renewables.
Legislators
Many of the benefits of neighborhood renewable resources might not be accounted for or realized without clear mandates from Massachusetts elected officials. The most effective legislative opportunities are to
- Build quantitative measures of the pollution costs and reductions of utility planning uncertainties into the process for purchasing electricity.
- Mandate support for sustained orderly development of renewables using utility portfolio targets or standards.
- Levelize or neutralize property tax treatment of capital-intensive energy projects compared to fuel intensive projects.
Although the above recommendations focus on the role of three key stakeholders groups, numerous others have an important contribution to make in capturing the benefits of neighborhood renewables. The main report includes specific suggestions for other parties, including consumer advocates, the state energy office, renewable energy developers, and clean energy advocates.
Neighborhood Renewables in Utility Industry Restructuring
Massachusetts is one of a number of states considering restructuring the electric utility industry to allow retail competition. Proposals have been made to eliminate regulation of electric utility energy choices and instead to allow customers to buy electricity from the suppliers or power plants of their choice.
As restructuring has been debated, most utilities have taken actions that, in general, are unfavorable to renewables, including focusing primarily on lowering short-term prices; reducing investment in technologies, such as renewables, that pay for themselves over a period of time; and reducing renewables research and development budgets. Under any restructuring of this industry, it is important that the public benefits of renewable energy technologies--which, until recently, were accounted for in the current system--be reinstated. Special mechanisms must be created to ensure that restructuring improves the environment and promotes continued development of renewables and other clean energy technologies.
UCS supports the "environmental improvement" and "cost-effective demand-side management" and "fuel and technology" principles filed with the Department of Public Utilities on July 17, 1995 by a coalition of 19 utilities, business associations, consumer and environmental groups, independent power producers, energy efficiency companies and state agencies. These principles are "interdependent" as an entire package, and require that any restructuring:
- contribute to reducing environmental impacts of the industry, with the overall emissions profile of existing fossil-fueled power plants reduced toward, at a minimum, the level of emissions performance standards for new units
- preserve cost-effective demand-side management programs both during a transition period, and afterward where market barriers to energy efficiency remain
- recognize that "[c]lean and renewable energy sources can play a valuable role in providing fuel diversity, managing risks and reducing environmental impacts. However, some renewable and low emissions technologies may need transitional support to achieve commercialization and ultimately compete in wholesale and direct access power markets."
Both demand-side management program costs and renewables support, where approved by regulators, would be included in a "nonbypassable, nondiscriminatory, appropriately structured charge."
Many details remain to be settled to implement these principles effectively, however. Renewable demand-side management technologies, when cost-effective, should be explicitly included as options in utility demand-side management programs. Electricity distribution companies and other market participants must be provided with explicit regulatory and/or market incentives to use demand-side management and renewables to minimize combined energy generation (or purchases), transmission and distribution costs. Rate structures for transmission, distribution and retail charges need to be developed which do not discriminate against renewables and which provide appropriate incentives for the use of distributed generation, storage and demand-side management technologies.
The specific objectives and mechanisms for providing transitional support to clean and renewable technologies need to be defined. These objectives should determine appropriate levels of development and financial support for renewables, to the extent that their attainment is consistent with other public policy goals and with the overall restructuring goal of achieving meaningful near-term rate reductions for all utility customers. Renewables development objectives during this transition period should include
- familiarizing grid operators, transmission and distribution companies, and electricity customers with the unique cost and operating characteristics of these resources, to enable them to evaluate their reliability and cost-effectiveness fairly in comparison with conventional energy resources
- ensuring sufficient renewables development to resolve major uncertainties about resource assessment, siting, and permitting issues; and to develop a basic regional infrastructure for installing, maintaining and operating these technologies
- conducting research, development and demonstration projects for promising new technologies
- ensuring minimum levels of fuel diversity through inclusion of renewables in energy portfolios, at least until markets demonstrate that they can capture sufficient long-term diversity and risk-mitigation benefits of these resources
- mitigating environmental impacts where renewables can do so cost-effectively, at least until environmental costs and benefits are reflected in market prices or through other innovative mechanisms
- creating sufficient production volume, when combined with similar commitments from other states and regions, to create manufacturing economies of scale and reduce costs.
We recommend that parties to restructuring negotiations and utility regulators first investigate the level of development needed to meet each of these objectives for the most important clean and renewable technologies, and determine the level of financial support needed to meet those targets. Regulators and legislators should also consider developing standards for including clean and renewable technologies in the portfolios of all electricity suppliers selling in the Commonwealth.
Technology Research, Development, Demonstration and Commercialization of Neighborhood Renewables
In this report UCS identified technologies for which Boston Edison and other parties should provide research, development, demonstration, and commercialization support. In making these recommendations, we looked for activities for which cost-sharing with entities such as the federal or state government or the Electric Power Research Institute will be possible for the next few years. We also tried to select activities that would have the largest benefits either for the renewable energy industry or for Boston.
We concluded that solar air preheaters and solar water heaters warrant immediate implementation in BECo's existing neighborhood renewables programs, perhaps beginning with a pilot project. In addition, further research and development should focus on photovoltaics, phosphoric acid fuel cells, wind energy, molten carbonate fuel cells, and biomass resource assessment and gasification.
*Renewing Our Neighborhoods was released in 1995. Unfortunately, an electronic version of the report is not available. However, hard copies of the full report, executive summary, and technical appendices can be obtained by calling (617) 547-5552.
