Most of the discussion about substituting renewable energy for fossil fuels in the production of electricity focuses on major projects – the wind farm that can light Vancouver, or the co-generation plant that can supply all the electricity for Bellevue. It may be that such projects will be necessary, but they are at the very least difficult and expensive. Not only do they require a wide range of permits for the project itself, but very often they also require construction of new high-voltage transmission lines to carry the electricity to the existing electrical grid. Unfortunately places with consistent wind don’t just happen to be on the existing grid all that often. Nor do places where huge arrays of solar panels can be laid out to capture solar energy. We will, of course, have to build additions to our power grid over time. But the sad truth is that it can take decades to get a new high voltage transmission system through our permitting processes and built. We probably can’t wait for major new projects to solve our need to convert to renewable energy sources.

The pending Waxman-Markley climate change bill that has been passed by the U.S. House of Representatives and is pending in the Senate to be taken up when they have dealt with health care, introduces a different idea – distributed energy. It defines a “distributed renewable generation facility” as a facility that generates renewable electricity and primarily serves 1 or more electricity consumers at or near the facility site and is no greater than 2 to 4 megawatts. In other words – a small source, that serves a few homes or businesses. This is solar panels on a group of existing home roofs or solar panels on schools or industrial plants. The potential breakthrough of distributed energy in small sources is that it can be carried over the existing grid. It would take a lot of new distributed energy sources to substitute for one mega-project – but a lot of them could potentially happen, and make a huge difference in the demand on the existing power plants burning fossil fuels.

Is there precedent for distributed energy working? Actually there is. Germany is pursuing solar energy in distributed form in a major way, as are a number of other countries.

But what keeps it from happening here? The answers are at least two things – volume and money.

Volume matters because a recent estimate of the cost of putting solar panels on an existing house is that it may cost $35,000. There are federal tax incentives to cover some of that cost, and the Washington legislature has provided other incentives for the next five years. But the cost still is high enough that the pay-back period for the typical homeowner isn’t that attractive as an investment. Only significantly increasing the number of homeowners installing solar panels is likely to bring down the cost of both the panels themselves and the installation. Bringing down the cost will obviously make the investment more attractive.

Money matters because it is one thing for a homeowner to pay less in their electric bill, but it is another thing if they actually can sell excess electricity and get paid for it. To make that happen, there would have to be not just “net metering” – but a “feed-in tariff.” A feed-in tariff would require utilities to buy solar energy from small producers who could produce more energy than they consume, and thus create a potential revenue stream to repay the cost of investment in solar panels.

Tariffs that can be charged by Washington’s investor-owned utilities (“IOUs”) are set by the Washington Utilities and Transportation Commission (the “UTC”). The UTC is charged with insuring that rates that the IOUs can charge are “fair, just, reasonable and sufficient.” That generally boils down to a contest between the IOUs, seeking an adequate return for their stockholders on their investment in their existing and future capital facilities, and the UTC and its staff and public counsel seeking to minimize the cost to consumers. In that process to date, the utilities have resisted paying for electricity that is generated by distributed sources, beyond “net-metering” – allowing electricity that a consumer supplies to the utility to offset the utility’s charge for electricity that the utility supplies to the customer.

Utilities have a point about not having to pay for some renewable energy sources. The power companies must build capacity in order to meet their peak demand or buy that power on the open market. Peak demand usually occurs when air conditioning is at its peak usage. There is no assurance that the wind will blow when temperatures rise, and the utilities are forced to build conventional power generation plants to meet the demand when the temperatures rise even if the wind isn’t blowing. Solar energy, by contrast, has a unique value in that it tends to peak at the same time that demand for air conditioning peaks. So putting solar panels on thousands or tens of thousands of homes could accomplish the goal of reducing peak demands. That would in turn allow utilities to meet their peak demand without building as many new generation facilities. And, if we ultimately have a cap and trade system under which they have to pay for burning fossil fuels in their existing plants, it will be worth money to them to reduce the generation from their existing plants and substitute solar power instead.

If the thousands of solar panels it would take to make a dent in our energy demands are to be installed, it will probably be essential that the UTC establish a feed-in tariff, so that utilities have to pay for the solar energy they receive from home owners, and thereby create a stream of revenue to pay for the investment. That will first of all require a change in the law, to require a feed-in tariff, as Washington law currently requires at least limited net-metering. Then the Legislature will also have to figure out how to insure that a new group of stakeholders that the UTC normally doesn’t hear from – the potential homeowners who will invest in the solar panels and the makers and the installers of the solar panels – get a fair hearing when that rate is set. A typical rate proceeding in front of the UTC goes on for nearly a year, has lawyers and experts representing the IOU, the UTC, public counsel, advocates for low income consumers, and major industrial users. The costs for all those parties can be huge. Individual homeowners who may be willing to put solar panels on their roofs, and the businesses that are likely to manufacture, sell and install those solar panels, are not going to be able to make that investment in working the regulatory process. If the Legislature doesn’t give the new stakeholders for distributed energy a way to be heard effectively in that crowd, the result is unlikely to be satisfactory.

Because about half of Washington’s energy comes from government-owned providers the Legislature will have to figure out how to bring them into a feed-in tariff program. These government-owned electrical companies – the PUDs and Seattle City Light – have their rates set by local elected officials, not the UTC. They too will have to grapple with setting feed-in tariffs if distributed energy is to be an effective way to reduce dependence on fossil fuels for a large portion of the state of Washington.

The result of the effort to get a feed-in tariff for solar power could be significant, however. Because distributed energy does not require either the years of permitting or the billions of dollars in investment that mega-projects require, it could actually happen quite quickly if the financial incentive to make it happen was in place. As energy demand increases and the need to reduce dependence on fossil fuel increases at the same time, distributed solar energy could actually start to solve one of our most vexing energy challenges.