Study sees USDA role in linking
electricity from alternative energy
sources to grid
Getting
Connected
By Alan Borst
Agricultural Economist
USDA Rural Development
alan.borst@usda.gov
Editor's note: This article presents findings
of Booz Allen Hamilton, a consulting firm
headquartered in McLean, Va. The article
does not reflect official positions of the U.S.
Department of Agriculture or any other
government entity.
SDA Rural
Development
commissioned Booz
Allen Hamilton (BAH)
to: examine current
renewable energy markets for electricity
generation; identify various barriers that
inhibit further development of these
resources by rural residents; analyze
business model options that can be
applied to better enable the profitable
sale of on-farm generated power to the
electric grid; and recommend programs
or policies that USDA could undertake
to promote greater capture of renewable
energy benefits by rural communities.
Affordable and accessible electric
transmission remains the greatest
obstacle to the development of rural
renewable energy projects overall. BAH
concluded that USDA, as the largest
lender to rural electric cooperatives for
transmission upgrade projects, has an
important role to play in working with
a variety of stakeholders and regulators
to develop comprehensive, equitable
and transparent transmission access
rules that provide the opportunity to
participate fully in the growing
renewables market.
Despite the lack of comprehensive,
nationally applicable transmission
policies, there are emerging policy
solutions at the state and federal level.
These include provisions of the Energy
Policy Act of 2005, which call on the
federal government to create new
transmission corridors in renewableresource-
rich areas. Regulatory
developments at the state-government
level will likely make transmission
access more transparent and affordable
for renewable energy projects. BAH
found that USDA could play a
significant role in helping analyze and
publicize these developments to ensure
that rural communities are able to
capitalize on them to the greatest
degree possible.
Supporting rural renaissance
Rural energy production holds much
promise as a means of supporting our
national energy needs and contributing
to the rural renaissance in America. A
high percentage of the estimated U.S.
wind and solar capacity and virtually all
of the biomass-derived electricity
generation capacity is located in rural
areas. BAH found that wind energy
currently offers the highest potential for
profitable development, followed by
biomass and solar opportunities.
Unlocking the economic potential for
these renewables requires analysis of the
various value chains to identify the
functions with the greatest potential for
capture by rural residents. Realizing
this value will require larger scale
projects, which in turn will inform the
choice of best business models.
The primary business model involves
large-scale (primarily wind) projects by
large and remote corporate developers,
including investor-owned utilities and
private energy companies. These
projects bring some limited economic
benefits to the local community but
return the majority of the earnings to
outside investors. Capturing the value
inherent in renewable energy
production requires major shifts in the
way rural residents think about and act
upon these opportunities.
Rural entrepreneurs
key to effort
The first step in promoting these
shifts is the dissemination of technical,
business and policy information in a
manner that America’s rural
entrepreneurs will understand. This
information must be timely to ensure a
market-based solution to both energy
and rural development needs.
The greatest opportunities for
capturing renewable energy value will
be realized if rural communities
aggregate their resources, either in the
form of land-lease rights or capital
formation, to develop new projects at
the local level. However, such
aggregation will only work if rural
investors are able to secure access to
expertise on various technical and
contracting mechanisms that govern
power production, including site
selection, project operation and power
purchase agreement negotiation.
There is no current means for
distinguishing renewable energy
generated and owned by rural
communities. An examination of
marketing and outreach mechanisms
that could stimulate greater demand for
community-owned renewable energy
should be undertaken.
Facilitating best practices
Given the pace of change in the
renewable marketplace, new policies
and business models are emerging on
an almost daily basis that fundamentally
alter the feasibility of rural- owned and
-operated rural energy. By providing
rural Americans with easy access to such
information, USDA would facilitate a
more rapid transition to creative new
best practices and help rural Americans
increase their profitability by adopting
cutting-edge policies and business models.
Providing access to
technical expertise
On-farm energy generation will
entail a number of technical decisions,
ranging from identifying appropriate
energy source, technology and size, to
project-related decisions involving site
selection and connecting to the grid.
Business challenges include the
aggregation of financing and finding
and negotiating a power purchase
agreement.
In most cases, tackling all of these
issues requires outside expertise or
counsel, which is often time consuming
and expensive. BAH suggests that
USDA help rural constituents overcome
this barrier by establishing a program
through which it would provide rural
investors access to experts on the
various aspects of renewable energy.
These experts would be pre-screened by
USDA to determine their level of
expertise and experience.
Promoting ‘green branding’
To assist in developing a local market
for on-farm energy products, tools
could be developed to create additional
demand for rurally owned renewable
power. The government has used
similar branding campaigns to build
consumer awareness and markets for
environmentally friendly products to
great success, most notably with the
ENERGY STAR Program. The federal
government could assist rural
developers in creating “green-market”
branding campaigns to help the public
connect the benefits of rural-based
renewable energy generation to those
regions and to their own lives.
Increasing use of
financial incentives
The federal Production Tax Credit
(PTC), with its relatively short
authorization periods and lapses
resulting from delays in reauthorization,
has had the effect of creating boom and
bust periods in the industry. To avoid
such cycles in the future, BAH suggests
the federal government should develop
guidelines for a consistent, integrated
set of financial incentives targeted
specifically at renewables and on-farm
generation, including making the PTC,
Clean Renewable Energy Bonds, and
Renewable Energy Production
Incentive long-standing and consistent.
Reforming the PTC to allow it to be
applied against ordinary income, instead
of passive income, would significantly
increase rural ownership opportunities.
In summary, USDA can play a
significant role in helping rural
communities to profitably invest in
renewable energy projects. Renewableresource-
rich rural areas can, and will,
lead the way in helping America to
reach its energy independence and
environmental goals while also
furthering their own economic
development.
