Small, distributed generation could change TVA's power pricing model

The nuclear power plant towers at Watts Bar are reflected in Watt's Bar lake during a clear late evening sun set.

More than 3,000 TVA employees and contractors are working around the clock at the Watts Bar Nuclear Plant to add a second reactor capable of supplying all of the electricity demands of a city twice the size of Chattanooga.

From the 1,200-megawatt nuclear unit taking shape near Spring City, Tenn., towering 500-kilovolt transmission lines will carry the power generated from the multibillion-dollar power plant across TVA's seven-state region. TVA maintains 16,086 miles of transmission lines across its service territory to carry the power generated at large, centralized power plants that have been the backbone of the TVA electric grid since the federal utility was created in 1933.

But even as TVA's power stations have gotten bigger and transmission lines stretched further, a new type of power is gaining force. Distributed energy generated by smaller, more localized and often intermittent sources such as solar, wind or small gas-generated turbines are producing more of America's electricity.

As new and smaller sources of generation have gotten cheaper and are backed by new battery storage systems, a growing number of power consumers are making their own power on site and more homeowners and businesses are generating power for the grid. In a few cases, they are bypassing the electric grid altogether by generating all of their power on site.

Over the past decade and a half, nearly 2,000 new solar-generating sites have begun generating electricity in the Tennessee Valley, TVA spokesman Duncan Mansfield said. Such solar installations -- and a handful of local windmills and co-generation heat-powered stations -- generate power that is sold to TVA, often as part of the utility's renewable energy programs.

Although such generation now comprises less than 1 percent of TVA's total power output, it is expected to grow significantly in the future.

Generating power from many smaller sources loses the economies of scale that have propelled TVA and other utilities to build ever bigger, centralized power plants through the years. But such distributed generation requires less power transmission, creates fewer environmental problems and improves the security of power supplies.

"As solar generation gets cheaper and the cost of other forms of power production go up, distributed energy could dramatically change the traditional utility model for electricity delivery," said Stephen Smith, executive director for the Southern Alliance for Clean Energy and a member of the TVA Integrated Resource Plan Stakeholder Group.

Experts say that calculating all of the variables for the new power sources will require a rethinking about how TVA values and prices its power and transmission services, especially if the tax and production incentives created to spur solar, wind and other renewable power sources are altered or phased out.

"What we're trying to do is make sure that we're valuing correctly both the solar generation that people sell to us as well as the back-up power and transmission services that the grid provides to them," said Joe Hoagland, TVA's vice president or stakeholder relations. "We want to make sure that we are doing it fairly for everyone."

The Solar Electric Power Association is facilitating a regional stakeholders group that includes representatives from TVA, local power distributors, renewable energy developers and state governments to determine the value of distributed generation and how to price the transmission and back-up power support provided for such power producers by TVA and its distributors, including EPB in Chattanooga.

Hoagland said the initiative, called Distributed Generation Integrated Value (DG-IV), will be the first in the Southeast to try to develop methods to set the value of distributed generation to the electric grid and the value of the grid to the small energy producer.

TVA, the nation's biggest government power supplier, and TVA's 155 power distributors such as EPB, which collectively deliver TVA-generated power to more than 9 million residents in the Tennessee Valley, often have different and competing interests in figuring out the value of new distributed energy generation.

TVA makes its money producing electricity for the seven-state region it serves in the Southeast and can benefit if power is generated closer to where it is used and in a cleaner or less expensive manner than the coal-fired or nuclear plants that now generate most TVA energy.

Distributors make their money delivering TVA-generated power to local homes and businesses within their local municipal and power cooperative territories. If customers generate more of their own power, distributors have less to sell and fewer revenues to cover their transmission services.

Connecting distributed energy generation to the grid also may require distributors to build more robust and costly transmission lines in some areas.

But distributors and customers also could benefit if they could directly buy distributed energy from cheaper, nearby generation by bypassing TVA. Currently, TVA has a virtual monopoly on electricity service in the Tennessee Valley.

"Distributed generation affects local power companies and their distribution systems more so than TVA," said Greg Williams, executive vice president and general manager for Appalachian Electric Cooperative and chairman of the energy services committee of the Chattanooga-based Tennessee Valley Public Power Association (TVPPA). "That is why TVPPA feels it is important to be a part of the process to help evaluate and determine the cost of distributed generation."

TVA invested about $25 million to buy solar power in fiscal 2013 through the distributed generation programs. That was part of nearly $400 million TVA spent on renewable energy and wind contracts last year.

Sandra Kurtz, a Chattanooga environmental activist and member of the Blue Ridge Environmental Defense League, believes that distributed energy could ultimately lower the cost of power generation even though such power, on average, is now more expensive than TVA's baseload generation and servicing the new distributed power, in most instances, will require the construction of additional grid connections.

"TVA may in fact be able to avoid the significant costs of building large central power plants and new tension lines," she said. "The transition to an increase in distributed energy is likely to lower energy costs for the end user."

Not all distributed-power involves renewable sources. Wesleyan University in Connecticut gets about 95 percent of its electricity and 30 percent of its heat and water from a natural-gas fired generator. The machine is set up to use surplus heat to supply about 30 percent of the campus heating and hot water needs.

But in the Tennessee Valley so far, solar photo voltaic panels that convert sunshine into electricity comprise most of the distributed energy production in the region.

As a result, Hoagland said, solar energy will be the first distributed energy resource investigated by the stakeholders group. The process is expected to last through the end of 2014. Public comments will be accepted and stakeholder group information will be posted at www.tva.gov/dgiv.

TVA is studying the value of such solar generation as it revamps some of the incentives it has provided to solar producers in the valley.

TVA's Renewable Energy Solutions staff has been reviewing the environmental impacts of mid-size solar projects (up to 20 acres) in order to develop a more streamlined method for evaluating projects, Mansfield said.

"This is expected to simplify and shorten environmental review times for some smaller solar projects that participate in the Renewable Standard Offer program, where the renewable energy generated is purchased at market rates (without the subsidies provided in the past for many small solar projects)," Mansfield said.

Contact Dave Flessner at dflessner@timesfreepress.com or at 757-6340.