“Buy Local” marketing campaigns long have been a popular -- and effective -- way to spur economic growth within local communities. Such programs redirect consumer spending from multinational corporations to independent businesses closer to home. Not only does this increase local sales, but studies suggest that it also fuels greater local economic activity as the money is more likely to be re-spent locally on other goods and services. In the past, such campaigns have focused on boosting sales for local farmers and artisans. They also have been used to reinvigorate downtown shopping districts, helping local merchants retain customers against encroachment by big box retailers.
Energy has had little reason to be a part of these campaigns. But that is changing: Community leaders should take advantage of “Buy Local” campaigns to promote the expansion of home grown energy and motivate local consumers to purchase it.
A more local energy source
Perhaps not surprisingly, historically there has been little economic incentive to promote locally generated energy as part of “Buy Local” campaigns because, in the past, there has not been a more local alternative to energy provided by large regional utilities. Today, however, distributed energy generation (DEG) has emerged as a more local energy source. But instead of offering energy that locals readily can purchase, DEG creates an opportunity for local homeowners and businesses to generate their own energy directly. To do so will put more disposable income (or profits) in their hands that can, in turn, be spent locally to boost the economy.
DEG systems -- fueled by solar, wind, natural gas and other energy sources -- readily are available for homeowners and business to deploy. Consumers also can partner with a full service provider such as SolarCity to finance, install and maintain such systems. By deploying DEG, homeowners and businesses typically reduce their overall energy costs, especially in regions that have tiered pricing during peak periods. This means more money in their pocket and fewer dollars going to regional utilities to distribute to shareholders. With renewable DEG, it also means fewer dollars going far distances to purchase fossil fuels.
Moreover, local DEG owners also have the potential to generate incremental income by selling excess power back to the utility -- or perhaps over time to neighbors through contracts negotiated directly or brokered through the utility.
An attractive investment opportunity
DEG systems also can provide an attractive investment opportunity for investors looking to generate moderate returns at relatively low risk. Local economies can benefit by providing a way for locals to generate an attractive return on their money (especially given the low yields of alternative fixed income investments today) while accelerating the deployment of DEG within their communities.
Investment vehicles are emerging to facilitate this. For example, Mosaic allows qualified investors to invest even small amounts (minimum $25) in rooftop solar energy projects. Last month, SolarCity announced that it has completed the industry’s first securitization of large scale distributed solar energy assets valued at nearly $55 million.
Increasingly favorable conditions
Market conditions are increasingly favorable for scaling DEG. Last month, the Federal Energy Regulatory Commission announced new standards that make it much easier for small scale (less than 20 megawatts), renewable DEG including rooftop solar and wind to connect to the grid. Furthermore, installation costs are coming down rapidly -- as conversion efficiencies increase and manufacturing costs fall -- which is accelerating adoption.
Rapid growth in DEG is, of course, disrupting the traditional utility model. Yet many utilities and regulators are moving aggressively to adapt to -- and even thrive in -- this changing competitive environment. Duke Power, for example, is increasingly focused on providing grid services such as battery storage needed to ensure grid stability as more wind and solar power capacity comes online. Meanwhile utilities American Electric Power, MidAmerican Energy and others are backing new transmission capacity to bring wind power from the Texas Panhandle to major cities. And regulators such as the Arizona Corporate Commission are making accommodation for utilities to ensure that they get cost recovery for transmission investment and maintenance.
Distributed generation is growing rapidly and can provide a big boost to a local economy. A “Buy Local” marketing campaign may be the perfect way to encourage just that.
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