By Andrew L. Shapiro
FORTUNE -- In his highly anticipated speech on climate change Tuesday, President Obama promised to limit power plant emissions, accelerate clean energy deployment, and bolster resilience to extreme weather shocks. These efforts are critically important, yet they will take time to implement and are already facing political opposition.
Meanwhile, nature isn't waiting and neither is the market. The good news is that a transformation is already occurring that could not only make our electric power cleaner, but also cheaper and more reliable.
The key driver of this shift is the ability of individuals -- as well as communities and organizations -- to generate their own electricity on-site, rather than relying solely on centralized power generation. Thanks to innovations in technology and finance, Americans can play a greater role in their energy future, and our public policy should support this.
Solar is the fastest growing source of distributed power generation. Rooftop installations for homes and businesses have grown rapidly due to falling solar panel prices, which have decreased nearly 60% over the last two years, and no-money-down leases from installation companies like SolarCity and Sungevity that guarantee customer savings.
Solar in the U.S. grew 75% last year. If this growth rate continues for five years, emissions-free power from the sun could produce about 10% of our electricity. Combined with wind and other renewable energy, and the boom in natural gas from shale (which, at current low prices, is displacing coal), the U.S. could dramatically reduce its carbon footprint. Already, our greenhouse gas emissions in 2012 were the lowest in two decades.
Reliability is another key benefit of distributed energy. Following the electrical outages from Hurricane Sandy, there have been renewed efforts to expand on-site power ranging from traditional diesel generators to natural gas micro-turbines to cleaner biogas systems. Battery storage startups are also getting funding from the likes of Bill Gates, who perhaps sees similarities to the shift he led from centralized mainframe computing to PCs (and ultimately tablets and smart phones). Distributed generation could similarly empower individuals.
Other energy innovations are also giving consumers more control while reducing emissions: Smart thermostats allow homeowners to automate heating and cooling, adjust settings remotely, and participate effortlessly in money-saving efficiency programs, while electrical vehicle owners can jettison high gasoline prices and inconvenient fill-ups, as well as tailpipe emissions.
The Edison Electric Institute, a utility trade group, recently published a report, "Disruptive Challenges," warning its members that they need to adapt to these changes. Otherwise, the group noted, utilities could face the same threat that the telecom industry has experienced as mobile phone uptake has led customers to cancel their home phone lines.
Can utilities pivot to a new paradigm? Some of the largest appear to be testing the waters. NextEra recently acquired Smart Energy Capital, a developer of commercial rooftop solar systems. Edison International invested in Clean Power Finance, a marketplace for financing distributed solar. And NRG (NRG), the largest independent power producer, has launched its own residential solar business.
Nick Akins, CEO of American Electric Power (AEP), one of the largest U.S. utilities, captured the rationale well: "If it's truly a disruptive technology, you better have a part in it."
While it's unlikely that many Americans will go completely off the grid anytime soon, even partial on-site generation could make a big impact environmentally and financially -- if technology and business models continue to advance and supportive government policies such as solar subsidies remain in place. Surprisingly, President Obama made no mention of distributed energy in his speech.
However, the President did note that his ambitious climate plan "will require all of us to do our part." Innovations in distributed energy will make it easier for each household and business to do just that.
Andrew L. Shapiro is founder and partner of Broadscale Group, an investment firm focused on accelerating energy innovation.
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