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 DG Market Reports
summarize basic DG technology market issues and present detailed
information on the economics of DG systems in typical buildings in six geographic
regions of the US under alternative electric and gas prices.
The Reports are unique in their presentation of detailed DG economics for
typical customer sites. Site analysis includes 8760 hourly loads detail,
rate structure information and detailed DG technology characteristics. Baseload,
peak clipping and combined heat and power (CHP) systems are included in the
analysis.
For a report description including sample tables contact
Jackson Associates
It's Time For DG to Become an Integral Part of the Nation's Power Planning
Solution
Jerry Jackson, Ph.D.
President, Jackson Associates
4819 Emperor Blvd. Suite 400 Durham, NC 27703
919-967-9000 jjackson@maisy.com
August 18, 2003
Summary
Last Thursday's massive blackouts are certain to generate actions aimed at
preventing future electric transmission failures. The country has a unique
opportunity to transform the electric planning process into a system that
is more efficient, less costly, more reliable and more secure. Electric
generation technology advances over the last twenty years have reduced generator
size to a level appropriate for a variety of medium and large commercial
and industrial customers and apartment buildings. Integrating customer
generation, or DG, in generation and transmission planning, will provide
a more decentralized system, reducing costs and reliability.
Transforming the current electric system to include DG is similar to the
computer industry transformation that occurred with the introduction of PC's
and local computer networks. An insurance company, for instance, may have
had one computer center with a remote terminal at each branch office. When
the "mainframe" went down, the entire network died. Today's distributed computing
systems have two-way information flows with much of the processing and data
storage occurring at individual remote sites increasing reliability of the
entire system and preventing entire system failures.
DG has the potential to provide the same kind of benefits that remote computing
has had in the computer industry. Interestingly, the economic benefits of
this policy will more than pay for the process. This paper identifies a series
of measures which can be undertaken to insure that DG becomes an integral
part of the nation's power planning solution.
Distributed Generation
Distributed generation (DG) is the production of electricity at or close
to its use. DG has been used for decades by large industrial companies and
by institutions like hospitals and universities. Most DG systems provide
only a portion of a facility's power needs with the remainder purchased from
utilities or competitive power providers. While large utility generators
lose fifty percent or more of the energy content of generation fuel in waste
heat and transmission line loses, DG permits the capture of this waste heat
for space heating, water heating, industrial process and even air conditioning
resulting in efficiencies of as much as 85 percent. Onsite generation also
permits utilities to avoid transmission and distribution (T&D) upgrades
which would have been required to service DG customers. This comparison is
shown schematically below.
Technology developments, especially those achieved over the last five years,
have reduced the cost and improved the design of DG systems to such an extent
that smaller customers like health clubs, restaurants and nursing homes can
benefit with DG systems.
DG systems include engines, microturbines, turbines, fuel cells, photovoltaics
and a variety of other technologies. Engines and turbines have been used
for decades and reflect mature technologies. While microturbines are newer
technologies, they have now been successfully used in thousands of applications.
Fuel cells are applied commercially in a variety of niche applications and
are expected to achieve significant cost reductions within the next several
years making them competitive with other DG technologies. Photovoltaics are
economically attractive in limited climate areas; however, renewable incentives
available in many locations significantly improve their economics.
In addition to avoiding future T&D costs and reducing strain on the power
system, DG can also reduce overall levels of emissions. (a summary of DG
characteristics and an examination of its potential on Long Island is provided
in the paper Applying Distributed Generation Strategies to Ease the Long
Island Power Crisis ).
Current DG Market Barriers
While DG benefits to customers and the utility system are well known, a variety
of institutional barriers have prevented DG from playing a significant role
in the power delivery system to date. These barriers stem primarily from
the fact that the rules of utility regulation are based on utility system
designs of fifty years ago. When a utility customer adopts a DG system, most
of the lost revenue goes right to the utility's bottom line. Customer use
of DG, under most state utility regulations, reflects a serious threat to
utility profits. Not surprisingly, most utility policies do not promote DG.
Specific DG market barriers include:
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Expensive and time-consuming utility interconnection requirements
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High electric utility "standby" rates applied to DG customers
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Cumbersome and time-consuming permitting processes
DG Fallacies
A number of fallacious arguments often appear in discussions of DG . Since
many of these arguments appear "reasonable" at first glance, it is useful
to address them before presenting recommendations for integrating DG in utility
system planning.
Fallacy 1. Current natural gas shortages make DG a bad option. Wrong.
Using natural gas for onsite generation and capturing the resulting waste
heat actually stretches current supplies further. Instead of sending gas
to a utility turbine where half or more of the gas energy is lost as waste
heat, it should be sent to a DG system where only 15 percent or so is lost
to waste heat. Gas savings can also be achieved by switching to oil at dual-fuel
central power plants where the added benefit of more effective pollution
controls will also reduce the overall level of emissions.
Fallacy 2. DG isn't economical except for large industrial customers.
Ten years ago, this was true; it no longer is. System costs make DG an
attractive option for 15 - 25 percent of customer energy use in commercial
and industrial sectors. (see Applying Distributed Generation Strategies to
Ease the Long Island Power Crisis). Improvements in equipment costs are likely
to increase this potential to as much as 30 percent by the end of this decade.
Fallacy 3. DG can't make a big enough difference to have an impact on
the system. Reducing system loads by even a small amount when the system
is at or near capacity has a substantial impact on system reliability. DG
contributions can significantly improve transmission and distribution system
reliability.
Fallacy 4. DG causes safety problems for utilities. A great deal of
effort over the last several years has resulted in a final set of industry
standards that addresses safety and other interconnection issues.
Fallacy 5. The DG market isn't mature enough to provide substantial benefits
to the electric system. DG opponents often point to the high current
cost of fuel cells to suggest that DG cannot provide an economic solution
to today's energy problems. The DG market includes a variety of technologies
which vary in their development stages. As pointed out above, engines and
turbines have been used for decades and can easily be integrated in the current
electric system. At this moment thousands of companies are using DG to lower
their electric bills and improve reliability - DG is not the distant technology
option portrayed by some media reports of the last several days.
While the current cost of fuel cells makes them attractive only for niche
markets that require maximum power quality and reliability, rapidly declining
costs will make fuel cells a competitive option within several years. In
meantime engines, turbines and microturbines can economically be integrated
in the current electric system. (see the white paper When Will the DG Market
Take Off? Distributed Generation Market Development and Investment
Opportunities).
A Policy that Pays For Itself
Current DG market barriers are primarily a result of misguided regulatory
requirements. Both utilities and consumers are prevented from taking advantages
of the benefits of DG. Correcting regulatory shortcomings will encourage
utilities to promote DG and provide a level playing field for customers to
consider DG.
DG-related efficiency improvements and cost reductions permit utilities,
their customers and DG users to end up better off than they were before.
This result is similar to the impact of production efficiencies which permit
producers to grant workers pay increases, to reduce prices to consumers and
to increase profits at the same time.
NIMBY and the Environment
One reason that the transmission grid has become so antiquated is the difficulty
of gaining permits to build additional transmission lines. "Not in my back
yard" or NIMBY obstacles can be completely avoided with DG. DG systems are
small in size and can be place on rooftops and in equipment rooms. Microturbines
and fuel cells are quiet while noise generated by DG engine systems noise
can be muffled.
Natural gas fueled DG systems also reduce the overall level of pollutants
released into the atmosphere. While a natural gas DG engine generates more
pollutants than a central power plant per unit of natural gas burned, that
increase is more than offset by using waste heat from the engine to avoid
pollution generated by burning gas in boilers for space heat, water heating
and industrial process.
Transmission Investments are Still Required
Large investments in the traditional transmission system will still be required
to bring the country's infrastructure up to date. DG costs and benefits should
be considered simultaneously with traditional transmission investments in
identifying a least-cost strategy for improving the electric system.
Making DG Part of the Solution.
The following policy measures will insure that DG becomes an integral part
of the nation's power planning solution.
1. Institute DG-related performance based rates. Utilities typically
earn profits on investments they make in transmission, distribution and
generation equipment. When customers install DG equipment, the utility sees
only a loss in revenue whereas if the utility had provided that generation
through an addition to its central plant equipment and its transmission and
distribution (T&D) lines it would have earned a return on these investments.
It is no wonder that utilities have not welcomed customer-owned generation.
Performance-based rates can provide a comparable return to the utility for
encouraging customers to make these investments themselves. The utility earns
a return consistent with what it would have made on comparable central
plant/T&D investments, the customer saves money on its utility bills
and other customers benefit from increased system costs related to expanding
the generation, transmission and distribution system.
2. Design standby rates to reflect actual "emergency" use of system capacity.
Utilities typically charge DG customers standby rates based on the capacity
that they would require if they have an unexpected DG system failure. However,
the nature of these demands on the system tend to be random and much less
frequent than assumed when utilities set these rates. A more equitable standby
charge can be modeled on unemployment compensation insurance principles where
initial charges are based on usage typical of similar businesses and subsequent
charges are increased or decreased to reflect actual experience.
3. Standardize and simplify interconnection requirements. Several
states, including California and Texas have standardized DG electricity grid
interconnection requirements for small and medium-sized customers, significantly
reducing the cost of installing DG systems.
4. Streamline the permitting process. California and Texas are also
in the forefront of states providing streamlined emissions permitting reflecting
"output-based" emissions advantages of DG systems.
5. Provide DG incentives to reflect externalities. When a customer
installs a DG system, benefits accrue to the utility and to other customers
of the utility by reducing transmission, generation and distribution expenditures
and in many cases reducing emissions. DG investments will reach their optimal
level only when DG customers are provided compensation for external benefits
that result from installation of their systems. Appropriate price signals
will provide a system where choices of thousands of individual companies
and households will provide the appropriate level of investment in DG.
About the Author
Dr. Jerry Jackson is an international energy expert with over twenty-five
years experience addressing energy technology and energy policy issues. He
was invited to give the keynote address on DG at an international conference
in Christchurch, New Zealand in June, 2003. He consults with electric and
gas utilities, energy service providers, equipment manufacturers, research
institutions, state energy offices and the Department of Energy. He has been
president of Jackson Associates since 1982. Prior to that he was head of
the Applied Research Division at the Georgia Tech Research Institute. He
can be reached at jjackson@maisy.com or 919-967-9000.
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