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Making Money While the Sun Shines: Rebuilding Urban America Through Economic Inclusion

September 27, 2013

By: Franklin M. Lee

Our power grid is all but broken. That was the frightening conclusion of a report issued this August by the U.S. Department of Energy. A full decade after a vast power outage shut down the Northeast, America’s electricity grid remains “highly vulnerable,” the report found, and its weaknesses are costing us dearly.

The DOE report cited the following:

  • Over this past decade, weather-related outages have cost the American economy between $18 billion and $33 billion.
  • Between 2003 and 2012, about 679 blackouts occurred due to weather events, each affecting at least 50,000 customers.
  • The aging grid has made America all the more susceptible to outages caused by extreme weather exacerbated by climate change.

With Congress in perpetual gridlock over government funding, senior administration officials are seemingly at a loss for alternative strategies to secure the hundreds of billions of dollars required to modernize the power grid.  The utility industry is similarly paralyzed in finding solutions.

The DOE report did contain a silver lining: a recommendation for greater use of “distributed power generation” – jargon for electricity production outside of traditional power plants, close to the site of consumption. Read: solar, geothermal, and wind. Such alternatives often do not rely upon our aging power grid to transport electricity long distances to customers.

As American cities are the most densely populated areas of our nation, it stands to reason that “distributed power generation” and community-based micro-grids in urban areas will represent the most cost-effective means of addressing our long-term energy insecurity problem.

The ideal form of “distributed power generation” for urban and rural communities alike is solar.  Sunlight, available freely everywhere, is not susceptible to being cornered by any cartel and subjected to price manipulation.   Furthermore, unlike non-renewable sources, solar energy has no fuel cost.

The efficiency of solar photo-voltaic panels is increasing, while the cost is rapidly declining to where it is now approaching parity with coal.  This phenomenon has resulted in unprecedented growth of the U.S. solar industry.  (A 2012  U.S. Dept. of Energy report stated that U.S. solar industry jobs continued to expand at a double-digit annual growth rate in an otherwise sluggish economy.)

While solar power’s potential has never been greater, many of our nation’s cities are plagued by crumbling infrastructure and chronic joblessness. Could we devise a strategy that addresses these problems simultaneously with the unreliability of our power grid, thus growing our urban economies, even as we  take on the threat of climate change?

The City of Baltimore is now launching such a strategy.  Earlier this year, Baltimore Mayor Stephanie-Rawlings-Blake’s Advisory Council on Minority and Women Business Enterprises released a report (“A New Day, A Better Way”) that calls for the establishment of a large-scale urban solar power initiative that embraces the principles of economic inclusion. The report provides a ground-breaking blueprint for transforming new residential and commercial developments into micro-solar power plants that will also serve as engines for the City’s sustained economic growth.

This plan is not simply about being green. It’s also about creating jobs and opportunities for populations that have long missed out on the benefits of economic growth. Specifically, the Advisory Council blueprint calls for the City to be intentionally inclusive of small minority and women-owned developers and solar installation firms in pilot project opportunities for building new solar-powered communities and commercial developments. In doing so, the City will be establishing a track record for a cadre of competitive local firms that will be well positioned for an alternative energy future.

The cornerstone of Baltimore’s urban solar power strategy will be the use of the City’s credit and public/private partnerships to provide incentives for attracting developers to build much-needed affordable, energy-efficient, and solar-powered residential and commercial developments. The City will issue municipal revenue bonds to finance 100% of the installation costs for community-based solar panel arrays.

In return for this financing, developers will be required to install community solar micro-grids that serve the entire development and that back up traditional electric power from the grid.  In addition, developers will be required to build projects in accordance with energy efficiency standards and within certain cost parameters.  Resultant energy cost savings to residential homeowners and commercial tenants are conservatively projected to be in the neighborhood of 50%.  (McCormick Spice Co. in Hunt Valley, MD, recently reported that it was able to achieve zero energy costs on a 263,000 sq. ft. plant facility as a result of such a combination of energy conservation measures with solar power installation.)

Under Baltimore’s innovative model, developers initially will own 100 percent of the electric output of the solar panels, and will incrementally transfer that ownership (along with repayment of bond debt obligations) to home owners or commercial tenants on a pro rata basis.  Thanks to favorable long-term revenue bond financing terms, we anticipate that in the early stages, the value of the solar-generated electricity will exceed consumption and debt-service costs, leading first to positive cash flow for the developer, and then to significant energy cost savings for residents.

In a deregulated power state such as Maryland, the primary load electric utility company is required by law to pay market rate for surplus electricity generated and uploaded to the power grid by customers.  This means that with the use of energy conservation methods, developers, and then City residents and businesses could literally “make money while the sun shines” with City-financed solar power!

These urban solar installations will pay for themselves in six to seven years.  Meanwhile, without adversely impacting their operating budgets, cities like Baltimore can effectively address a number of structural economic problems such as:

  • Attracting developers to build attractive, affordable, and energy-efficient housing and commercial developments within the City.
  • Reversing declining population trends by attracting new tax payers and businesses seeking lower energy bills.
  • Including minority and women-owned businesses in the mainstream of emerging high growth industries, thereby narrowing the color wealth gap.
  • Reducing chronically high unemployment rates by creating new, living-wage jobs and careers in the solar industry.
  • Reducing the urban tax burden by expanding the tax base and creating sustainable sources of revenue that enhance the quality of city life.

Our nation’s economic history is rich with examples of public policy facilitating entrepreneurial success.  At critical junctures in our history, the federal government has intervened and launched the growth of countless giants of industry.  The railroad, telecommunications, automobile, aviation, and internet technology industries have all benefited enormously from past government action.

Generally speaking, though, the accelerated growth of these industries in the twentieth century occurred when people of color were not allowed in the room as equal participants; until fairly recently, they were presumed to be unqualified and unfit to compete in business.  Over time, compounded by generational transfers of wealth, the color wealth gap in this country has widened to record levels.  The persistent racial economic inequalities that continue to plague our cities and our nation are a lasting stain from Jim Crow’s legacy of racial exclusion.

Thankfully, today is a new day.  Tomorrow promises a brighter future if we can find ways to include all racial and ethnic groups in the mainstream of the greatest economic opportunities of the new millennium.  While federal budget deficits have constrained assistance from Washington to the fast-growing solar industry, our cities are not without the means to finance efforts such as Baltimore’s.  Structured properly, urban solar power pilot projects can show us the way to rebuilding America’s cities in an inclusive fashion that leaves no community behind.

Franklin Lee, a partner in the Baltimore-based law firm of Tydings, counsels state and local governments in the establishment of economically inclusive contracting policies, and urban economic development strategies.  He served on the leadership team for Baltimore’s Mayoral Advisory Council on Minority and Women Business Enterprises and can be reached at flee@tydingslaw.com.

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