Large power plants aren't the only solution for Arizona's power needs, experts say

While Arizona utilities invest in new gas pipelines and other large projects, some energy experts say smaller-scale devices — many located in residential homes — will play an equally significant role in addressing the state’s growing power demands.

Distributed energy resources refer to a broad range of technologies that can produce and store energy close to where it is actually being used. That includes rooftop solar panels, in-home batteries and even smart devices, like thermostats that can automatically adjust the temperature when energy demand is highest.

Will Greene with the Southwest Energy Efficiency Project said the category can also include devices that improve energy efficiency, like improved HVAC systems and attic insulation, and lessen strain on the grid.

“All these things that are extremely cost effective that we don't talk about as much,” said Greene, who joined other energy experts at a conference hosted by the Western Governors Association in Phoenix to discuss how those distributed technologies will help meet demand in Arizona and throughout the region.

The benefits

The need for energy in Arizona is growing.

Steady population growth over the past several decades, coupled with hotter temperatures, has led to an unprecedented demand for energy, especially during the summer.

According to the Arizona Corporation Commission, the state’s largest utilities all set peak energy demand records in August as temperatures reached 118 degrees in Phoenix and 110 degrees in Tucson.

At the same time, high-energy industries like data centers are flocking to Arizona. Commercial real estate firm Cushman & Wakefield ranked Phoenix second on its worldwide list of established data center markets.

As utilities and state officials try to meet those growing demands, distributed energy sources provide a few key advantages, the panel said.

The first is speed.

That’s because it doesn’t take much time to bring small-scale distributed energy resources, like rooftop solar, online.

And even larger distributed energy projects can be finished in a fraction of the time it takes to build a traditional power plant or gas pipeline.

“Last year we put four megawatts — we connected it to the grid. We went from contract signing to permission to operate in 88 days,” said Chris Mejia of Obodo Energy, which provides renewable energy services to businesses.

A pipeline being built from Texas to Arizona to serve APS and other utilities that was announced earlier this year won’t deliver gas to the state until 2029.

The tradeoff is scale.

Mejia’s project accounted for four megawatts. And the typical residential rooftop solar project produces a small fraction of that.

Comparatively, a new APS gas plant being developed in Gila Bend is expected to have a 2,000 megawatt capacity when fully operational.

But the panel was quick to point out that, while individual devices may produce relatively small amount of energy, the combined effect of a distributed system is substantial.

“So we've all seen the ribbon cutting ceremonies of the large project that took six years to develop. … We're doing that amount of megawatts every quarter, and no one notices just because it's 6 kW at a time on households all across the country, and we're just doing it every day,” said Walker Wright with SunRun, one of the country’s largest home solar providers.

For instance, in 2024, APS reported that 14% of its total portfolio came from its demand-side management program, which encourages customers to adopt energy-saving products and behaviors. Renewable energy located on customer properties made up another 7%.

The panelists also said the use of distributed energy can save people money in the long run as utility customers in Arizona face significant rate increases, because it reduces the need for expensive power plants and other infrastructure that utilities pay for with ratepayer funds.

The price tag for that Texas-Arizona pipeline? An estimated $5.3 billion.

The state of play

In Arizona, distributed energy advocates are navigating a complex regulatory landscape.

Just last month, the Corporation Commission scaled back programs at the state’s largest utility designed to incentivize energy efficient behavior.

But, at the same time, the commissioners retained several existing programs, including those that support the network of customer-owned devices that can help return power to the grid, also called virtual power plants.

“A VPP should not be treated as a niche pilot or a scattered set of incentives. It should operate as a true grid asset — one capable of delivering firm capacity, supporting reliability events, and reducing the pressure on ratepayers to build traditional generation or wires solutions prematurely,” Commission Vice Chair Nick Myers said in a statement.

Greene, a former adviser to Arizona Gov. Katie Hobbs, praised the commission’s decision to back virtual power plants. But he said removing the energy efficiency programs was misguided.

“It’s hard to measure energy you don’t use, and the commission has accepted that will happen no matter what,” he said, referring to the impact of those energy efficiency programs.

One program the commission axed provided incentives for residential customers to make improvements to their homes, like installing energy-efficient appliances.

“If EE products are so beneficial to customers, why do they need to be mandated and subsidized by other customers?” Myers said.

Greene suggested Arizona adopt an on-bill financing program that would allow customers to purchase those energy-efficient items and repay the cost in increments on their power bill rather than receive a direct subsidy. Over 110 utilities across the country have some form of on-bill financing, according to the Environmental and Energy Study Institute.

“So it addresses some of the concerns we've seen in Arizona at our public utility commission, the ACC, around cost shift and cross subsidy,” he said. “It kind of wipes that out and addresses the upfront cost barrier, especially for low and middle income customers.”

Greene also suggested utilities need to increase the incentive customers currently receive for participating in energy consumption reduction programs., such as those that pay residents whose thermostats automatically adjust during peak energy demand.

Right now, APS customers who participate in the Cool Rewards program, for instance, receive a one-time $50 credit and a $35 annual incentive.

Greene said that is “probably like two to three” times too low compared to the value they return to the grid.