Book Review

Small Is Profitable: The Hidden Economic Benefits of Making Electrical Resources the Right Size

By Amory Lovins et al.
Snowmass, CO: Rocky Mountain Institute, 2002.
399 pages. $60.00 paperback.

Reviewed by Larry Chretien

For those looking for pathways to clean, decentralized energy solutions, Small Is Profitable will be an indispensable reference work and source of inspiration.

Amory Lovins and his six coauthors write of how distributed resources—those devices that make, store, or save electricity near to where it will be used—"could displace bulk power generation, bulk power trade, and even much transmission as new technologies, market forces, institutional structures, analytic methods, and societal preferences propel a rapid shift to ‘distributed utilities’, operating on a scale more comparable to that of individual customers and their end-use needs."

They document an astounding 207 ways in which the small size of distributed resources contributes to their economic value. These benefits stem from shorter lead times, portability, locational specificity, reduced fuel volatility, and many other factors. The most valuable benefits have to do with risk management, interest rates, discount rates, option values, deferral values, and other financial factors. Also important are utility-based benefits such as lower grid costs and losses

Given the congestion that we have in Boston and other parts of the northeast, and with the advent of "locational marginal pricing" (charging customers the cost of supplying the next unit of electricity to their particular location), you would think that distributed resources would now be given their due attention. But spending on what Lovins once called the "soft path" continues to be a drop in the bucket compared to what society spends on central plant generation, transmission, and distribution. Why? Because the grid masters want it that way!

Clean distributed resources will not penetrate the market to a great extent until we capture the value of these resources to our transmission and distribution systems. Small Is Profitable shows how this is possible. In the end, the authors suggest that the best way to reconcile the interests of investor-owned utilities with those of humanity is to reward utilities more for providing good overall service than for how much electricity consumers use. That’s an idea that almost took hold a few years back and it’s worth resurrecting.

If you want to see more PV, fuel cells, cogeneration, and energy efficiency, read Small Is Profitable and encourage utility regulators to do the same.

Larry Chretien is Executive Director of the Massachusetts Energy Consumers Alliance (www.massenergy.org), a nonprofit organization with a dual mission of energy affordability and environmental sustainability.