Big Power Goes Local

The battle is creating some unlikely allies. Equipment manufacturers such as Germany's Bosch and New Zealand's WhisperGen hope to push superefficient household "micro-cogeneration" units onto the market. These units work like regular boilers for hot water and heat—except that they generate additional electricity that can be sold back to the grid, cutting household electricity consumption by at least 20 percent. Since the boilers run on gas, some gas utilities are helping to distribute them. Their hope, says Richter, is that future energy savings come at the cost of the power companies, not the gas utilities.

Though local production is growing mainly in electricity, some communities are starting to feed their own locally produced "biogas" into the existing network of gas pipes. After more than a decade of wrangling with the local natural-gas utility, the German town of Aachen became the first to pump biogas made from corn and rye—which yields twice the energy per unit of land as corn-based ethanol—into the city network. Replacing natural gas imported from Siberia, the biogas is enough to supply gas for 5,000 households. Other European towns are following suit, and German lawmakers are developing a law that would open up the gas-pipeline network to locally produced biogas.

In America, too, several trends are pushing local power. New green policies, from Texas's generous tax credits for wind generators, to California's Million Solar Roofs program, have helped kick-start a long-dormant market.

Yet the developing world has the most promising markets for do-it-yourself power. With the long-distance power network underdeveloped (in rural India or China) or nonexistent (as in much of Africa), local generation allows communities and businesses to leapfrog multibillion-dollar investments in power plants and transmission lines. In February, the Indian government announced a new project to fund biomass and wind generators for rural communities. China is expected to pass Germany as the world's biggest manufacturer of photovoltaics in 2009. For now, China's production is for export to Western countries, but China's entry into the solar market has raised hopes that prices will see another fall, to where solar starts making economic sense in China, too.

Critics of local power point to the high costs of current generating technology. With the exception of wind turbines, few of the new local power sources are yet competitive with traditional power plants. Their growth is still largely due to tax credits, renewables mandates and above-market feed-in tariffs. Consumers and taxpayers in Germany, to take just one example, are paying more than $6.2 billion a year to subsidize local and renewable power.

Defenders say the laws and subsidies are needed to jump-start the market; they can be slowly phased out as production revs up and equipment prices come down. The benefits of cutting imports and emissions should also be factored into the equation, they say, not to mention the estimated $300 billion in annual subsidies to the global utility industry. What's more, local power production could save much of the $22 trillion the IEA estimates is necessary to upgrade the distribution infrastructure by 2030. "You don't need to invest in a big grid if you have a lot of micropower," says an executive at Denmark's Energinet.

Will all this amount to a "paradigm switch" from central utilities to local power? "Technology might be disruptive, but changing behavior in the way we use energy is only going to be incremental," says Vinod Khosla, a leading California venture capitalist. All those increments—the thousands of communities like Freiamt producing and selling power—add up to a whole lot of change.

With Patrick Falby and Jesse Ellison

© 2008