Big Power Goes Local

Ironically, these state subsidies seem to be the fastest and most effective way to create mass markets for new, efficient sources of energy. They break the monopoly of utilities over the electrical grid by allowing virtually anyone to sell their power. That creates an opening for local-generation technologies such as wind turbines, solar panels and household-size boilers cogenerating power and heat in the basement, which are now hitting the market in significant numbers at declining prices. Critics argue that many of these technologies are still far from competitive and depend on the continued flow of subsidies.

The idea of generating power locally, where it's needed, is as old as power itself. In the late 1800s, light-bulb inventor Thomas Edison envisioned efficient cogeneration of heat and power for every home and business, and even drew up plans for a self-sufficient home powered by a wind generator. However, it was George Westinghouse's vision of a giant hub-and-spoke system of centralized electricity plants and a vast network of power lines and transformer stations to distribute power that won the day. The central plants' efficiency was abominable, and much of the power was lost in transit from electrical resistance in the wires. That didn't matter in an age when fossil fuels were cheap, the environment didn't count and central planning was in vogue.

That equation is changing. The most powerful argument for generating local power is efficiency. The average power plant converts only about 30 percent of the energy content of fossil fuel into power—the rest is lost directly from the plant as heat to the atmosphere or cooling water. Of the power generated, 7 percent is then lost from transmission lines.

The newest, state-of-the-art power plants can reduce direct losses of heat to about 45 percent. Create power locally, even with fossil fuels, and not only do you cut transmission losses but you can also recapture waste heat to boil water or to heat homes. "Trigeneration" machines in schools and hospitals use generated heat to extract power, heating and, in a process that absorbs heat by boiling a liquid coolant, air conditioning out of a single fuel course, raising efficiency to about 90 percent. Do the math: tripling efficiency from 30 to 90 percent cuts fuel needs (and carbon emissions) by two thirds. Add better insulation or more-efficient appliances and local generation could cut the fuel required to heat and power homes and businesses to a small fraction of today's.

The poster child of local power is Denmark, the world's most energy-efficient nation. This resource-poor country began mandating local cogeneration of heat and power in the 1980s. In the 1990s, the Danish Parliament was the first in the world to create "a feed-in tariff" promoting local sources of alternative energy. Today, with less than one third of the nation's power generated by big utilities, Denmark uses less energy to generate each dollar of GDP than any other country in the world.

Increasingly, other governments are following suit. Thanks to a feed-in tariff established in 2004, Germany has become the world leader in solar power. In three years, 400,000 households and small businesses have installed 3,000 megawatts of solar generating capacity, enough to replace six conventional power plants. Germany is today the world's biggest market for photovoltaics and solar thermal collectors; the runners-up are Japan and Spain, which also have feed-in tariffs.