Is DG for Everybody?

Everyone seems to want everyone else to get involved in distributed generation (DG). And many organizations, agencies and public officials have been on the bandwagon lately, the following being but a few examples:

• The Worldwatch Institute issued a thick summer 2000 paper called Micropower: The Next Electrical Era. Mayor Richard M. Daley of Chicago, in November, spoke of plans to "link emergency generators in hospitals and factories" in his city, and to help "private companies generate more of their own electricity through gas-powered generators."
• Austin (Texas) Energy, the nation's 10th largest municipal utility, issued a September report saying that DG solutions are "especially useful in meeting unpredictable power needs."
• The California Public Utility Commission approved a $125-million incentive program for businesses and residential users to install their own generating capacity.
• The U.S. Environmental Protection Agency, whose motto has not previously been "let a thousand generators bloom," actually started a combined-heat-and-power (CHP) initiative last year. Founders include 17 major industrial companies, who agreed to promote energy efficiency and pollution gains from the use of on-site generators.

Owners, consulting engineers and installation contractors can build a power plant on a company's site, but all must ask whether it is the wise choice. The first question is: What do all of these people mean by terms like "distributed" energy or generation or CHP? (see "DG: What is the Meaning of This?" on page 8). A good working definition of DG is that it is a non-utility, non-merchant company generating electric power primarily for its own use—either meeting most or some of its needs, some or all of the time.

In reality, DG represented about 5% of all U.S. electric power generated in 2000-2001, according to the U.S. Department of Energy—no major change from the same period three years ago. However, the DOE believes that DG could account for 10% to 20% of new power-generating capacity built over the next 15 years.

DG is being marketed by many companies, ranging from old-line firms such as Caterpillar to formerly unknown microturbine specialists such as Capstone Turbine. There's also a large contingent of not-yet-profitable fuel-cell businesses, solar photovoltaic providers and many subsidiaries of deregulated utilities.

It's the utility angle that's most interesting. DG is a mixed blessing for power sellers. Their traditional business model is to generate massive amounts of megawatts (MW) in a few places and sell them to all comers on a local or regional grid. In fact, utility resistance to DG is legendary.

In fact, it has been almost a silent battle, coming in the form of tough, expensive-to-meet utility requirements for on-site generators. For example, one utility actually had a 12-page list of requirements for customers who wanted to generate some of their own power. There were even reports that during the period 1998 through 2000, generation facilities costing $50,000 fully installed needed $30,000 in legal and consulting fees to comply with requirements.

Even worse, some utilities instituted a charge for backup power, giving their users the choice of paying the fee—$91,000 per month for one Rhode Island manufacturer—or going completely off the grid forever.

More recently, however, utilities have recognized the inescapable fact that some large users aren't interested in remaining 100% reliant on their grids. American Electric Power of Ohio, for example, is one utility that has seen the trend and recently formed a joint venture—AEP Gas Power Systems—to manufacture and market 1.2-MW gas turbine generators. And there appear to be dozens of similar DG deals elsewhere.

Further, the DG trend is infiltrating down to the lowest levels. There is a great deal of talk about residential power generation, to free at least the wealthier homeowners from reliance on the grid via small fossil-fueled generators, solar installations, fuel cells and even small windmills that can be bought from catalogs.

Companies with emergency and standby generators already on site have been looking at operating them on a more regular basis. As for using fuel cells, while not yet economical, they are getting a heavy amount of play from the media and governmental entities because of favorable environmental aspects, including their role in DG.

Those who have kept abreast of energy-related news over recent years—or have paid a facility electric bill—already know why DG is catching on, at least as something to talk about. Issues driving the trend include:

• The perception, thanks in part to California's crisis and events elsewhere, of reduced grid power reliability due to electric deregulation.
• The demand for higher power quality—as a relentless, never-missed standard—than many power grids can be counted on to supply.
• The need for 24x7 reliable, always-on, no-outage power. This need has led many companies to build on-site emergency generators, and to think about using them more frequently. Additionally, firms are looking to use generators for peak-shaving and load-shedding, and to gain freedom from fluctuation in power prices.

Unfortunately, there can be several fallacies in their reasoning. Take energy prices, for example. Many conventional on-site generators are fueled by natural gas, the price of which has fluctuated by a factor of five—from $2 to $10 per unit—in some places over the past two years. Savings—even gains over 10 months—can evaporate in just two months of much higher input costs.

More than half of U.S. and Canadian businesses that were surveyed by energy-research firm Primen said that they are already "actively evaluating" DG options. "By and large, reliability is still a big driver," reports a Primen researcher, indicating that it is more important to end users than savings.

Most companies responding were interested in a payback of four years or less. The greatest interest was shown by manufacturing companies—those in process industries where the primary DG advantages were high reliability and power quality—not price. Finishing second were companies who potentially could use the recovered heat from an on-site cogeneration plant, where potential energy efficiency gains (i.e., savings) were prominent. It is interesting that companies in "the digital economy" were not among these groups.

A separate survey by RKS Research & Consulting found that, by a 4-to-1 margin, end-user companies are more likely to turn to an equipment manufacturer, not their local power provider, for help with new on-site power equipment.

Most impressive, perhaps, is the list of companies pursuing DG. Public Utility Fortnightly recently provided a list of major suppliers, distributors, utilities and others, including: Williams Distributed Power, GE Power Systems, Capstone, Elliott MagneTek, PSEG Energy, Honeywell, Unicom, DTE Energy, Plug Power, Kohler, Generac, GPU, Ballard, People's Energy, NuPower, Energy Partners, FuelCell Energy, Enron, PPL EnergyPlus, Duquesne Enterprises, H-Power, Hydro-Quebec, Plug Power and GE Distributed Power.

Could all of these companies, collectively, be barking up an unproductive tree? Perhaps. What will matter down the line are decisions made by the facility owners, consulting engineers, plant engineers and contractors: Will electrical contractors provide a workforce skilled in special DG service and maintenance work? Will engineering consultants propose DG as a solution to their customers? Will plant engineers and corporate officials look at DG as a key to more efficient operation in the future?

From Pure Power, Spring 2002.