Chicago’s Municipal Aggregation A Boon For Renewable Energy?

Editor’s Note: EarthTechling is proud to repost this article courtesy of Midwest Energy News. Author credit goes to Kari Lydersen.

When Chicago voters approved municipal aggregation on Election Day, some celebrated the possibilities offered by breaking with utility ComEd for alternative providers, while others worried whether it would be a wash or even a blow for renewable energy.

Paul Fenn, a Bay Area energy law and policy expert known as a father of the community choice aggregation (CCA) movement – roughly the same concept as municipal aggregation – cast his lot with the former group.

Chicago officials have stressed that cost savings are their priority, and local experts say the impact on renewables remains to be seen, especially since a fix to the state’s Renewable Portfolio Standard is needed to spur renewable growth.

Chicago skyline

image via Shutterstock

But Fenn thinks that with an aggressive and creative approach, Chicago can have its cake and eat it too – generating cost savings while sparking a boom of local and regional renewable energy construction; creating solar, co-generation, wind and other energy installations owned largely by the city and individual residents.

He thinks that in five years, Chicago could be getting 50 to 75 percent of its energy from local or regional renewables. He envisions rooftop solar PV on homes, businesses and municipal buildings; wind or solar installations on vacant land, co-owned by surrounding neighbors; waste heat captured from downtown buildings and factories to generate hundreds of megawatts of electricity. And massive investments in energy efficiency to greatly reduce the city’s overall energy demand.

“You could have local companies designing, building, maintaining and operating the systems,” Fenn said. “The city would probably be involved in labor training programs to get local people in those jobs. Any customer, residential, business, large or small, would be offered as a standard component of service the opportunity to own their power.”

The San Francisco example

As proof this is not just a pipe dream, Fenn points to San Francisco, where the company he heads, Local Power Inc., is helping the city launch its own aggregation-related renewable energy program, called CleanPowerSF.

In Chicago the aggregation plan mandates that the city meet or beat rates offered by the utility ComEd, and the city will enter into short term (likely one- or two-year) contracts with energy suppliers (or a single supplier) who will procure energy from different sources.

San Francisco’s plan, adopted in 2006, will be based on longer-term contracts and will emphasize actually constructing new renewable energy installations within the city or surrounding region. The city ordinance governing the plan, like Chicago’s, includes a “meet or beat” provision compared to market rates, but that will apply at the time contracts are signed, and over the long-term rates paid by aggregation participants could fluctuate above and below market electricity rates.

Fenn said that by investing in a “hardware hedge” — renewable energy infrastructure that can generate power for the foreseeable future with no fuel costs — residents should come out ahead in the long run.

This coming year San Francisco will launch “phase one” of the program, wherein about 100,000 participants will buy electricity through the city procured by Shell Energy, which will supply 100 percent renewable energy. About five percent will come from renewable energy certificates (RECs), according to Fenn, and the rest will involve contracts with area wind farms.

Phase two of the project will kick in a year later, with more participants enrolled and a shift to reliance on new renewable energy projects built in the area, combined with RECs and other sources as needed. After the first phase ends, the program aims for 51 percent renewables by 2017 and 100 percent by 2020, though these goals are not binding.

Chicago’s plan includes no specific renewable energy commitments.

San Francisco’s aggregation plan is to use revenue from ratepayers and also leverage other funding sources, including municipal bonds, to help people and businesses install their own systems, to incentivize the construction of local renewable power by private companies and to build renewable energy installations owned by the municipality.  Major energy efficiency overhauls will also play a big role, reducing overall demand for energy.

Financing the dream

The San Francisco plan calls for $1.4 billion in new investments, including a 150 MW wind farm and 3 MW of solar.

The city’s plan depends in part on an existing bond program which offers financing for solar panels, with the bonds to be repaid through revenue from electricity rates that the city collects under aggregation.

In a 2008 story in the trade journal Natural Gas and Electricity, Fenn and attorney Howard V. Golub noted that municipalities can build new power projects more cheaply than investor-owned utilities, in part because they typically finance projects entirely through lower-cost municipal debt, whereas utilities rely about equally on debt and equity.

Midwest Energy News, launched in 2010, is a nonprofit news site dedicated to keeping stakeholders, policymakers, and citizens informed of the important changes taking place as the Midwest shifts from fossil fuels to a clean energy system.