PRACTICAL PLANT ECONOMICS: Co-ops and DG…You want it, we’ll build it

Before the advent of competition, electric utilities collaborated all the time. Electric cooperatives still do. They form cooperatives for everything, such as generation and transmission (G&T), commodities supply, loans and financing, and equipment pools. The cooperative model was created when it became clear early in the electric industry’s history that the investor-owned utility (IOU) model couldn’t shake enough profit from the trees in the hinterlands.

Rarely do cooperatives go it alone, especially on national policy issues. As an example, unlike IOUs, every state has a “state-wide” cooperative association looking after common issues below the national level. If you’ve ever attended one of their annual meetings, you know they are a tight-knit bunch.

Most co-ops are, literally, wed to their G&T. They are governed by “all-requirement” supply contracts, with a 5% to 10% exemption here and there for renewables.  The G&T guarantees the loan from the Rural Utility Services with those contracts. For this reason, distribution co-ops frequently look askance at renewable mandates because they tend to strand generation assets already under contract. But it’s important not to confuse the mandate with the resource.

Wind, for example, tends to huff at the wrong time of day. Co-ops solve that problem by using wind-generated electricity to heat hot water off peak. Hundreds of thousands of such units constitute a giant thermal battery.

Solar DG is a bit different. It can function as demand side management, a way for co-ops, particularly those with large irrigation or air conditioning loads, to peak-shave.

Co-ops like community solar, or solar gardens, which they sell on a subscription basis, usually in watts; the “planting” is in 40-kW increments. Doing so can accommodate some 80% of homes unsuitable for rooftop PV. A garden also clocks in with a much cheaper rate, often set for 20 years. 

Co-ops loathe making members pay for something they don’t want, another difference with the IOU; the latter knocks back a healthy return on investment (ROI) for capital projects and can, in effect, bill the ratepayer a second time for kilowatts supplied.

When you serve a small number of ratepayers, each voice is amplified. Co-ops strive to treat every member fairly. Providing renewables on a “you-want-it-we’ll-build it” model has worked well. It’s a model that might become more prevalent. Some IOUs have become, in effect, regulated distribution companies (discos). But that doesn’t mean their customers are going to be any happier about paying for something they don’t want.

Mark Glaess,
GRiD Editorial Advisory Board