Big Power Goes Local

Although these programs are based on tax credits and subsidies, they have jump-started the market for photovoltaics, spurring entrepreneurs to bring prices down to where solar power is expected to be competitive with conventional power generation by 2010. As a result, solar is no longer confined to off-grid niche markets like remote cabins or pocket calculators. The majority of new solar installations are now directly connected to the grid.

Opening up those grids hasn't been easy. Not only do utility companies jealously guard their turf, but there are technical complications as well. Power plants can be turned on and off, but countless local generators working independently of one another can't match demand at any given time (at least not until there are better ways to store power).

New technology is being developed to solve this problem. The Scandinavian countries have connected their power grids across their borders. Now, when a gale blows through Denmark's wind farms, hydroelectric turbines in Norway shut down. Ireland and Scotland are working on a similar network. The Germans last year tested a "virtual utility" that uses the Internet to monitor power generation at hundreds of dispersed local facilities producing solar, wind and biogas power, turning reserve generating capacity on and off to match demand.

In Denmark, grid operator Energinet is developing the next step: using "smart meters" and variable prices depending on the time of day, sunshine and wind speed, to create a self-regulating grid no longer dependent on a central utility—a kind of "energy Internet." "Moving to a decentralized smart grid is like shifting from analog to digital," says John Balbach, managing partner at Cleantech, a Silicon Valley venture-capital firm. "We'll be there in 10 years."

In the lucrative global power market, utilities in many other countries aren't always happy about the newcomers. Most French and German utility oligopolies have little interest in opening their grids. Since they own both the transmission network and the power plants, they naturally want to sell as much of their own power as possible. Local-power advocates accuse them of using technical norms and licensing procedures to keep new sources off the grid. That's why the European Commission is pressing member states to create separate companies to run the grid, as the Scandinavians have done.

The market would take care of the rest, says Richter. In late February Germany's biggest utility, Eon, announced it would pre-empt the EU mandate by selling its high-voltage grid. The surprise announcement is a step in the right direction—but by keeping ownership of the "last mile" of power lines to customers, Eon maintains substantial control over the market. Germany and France, in particular, oppose any further liberalization.