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: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.


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.

The DG Megatrend

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.

Trends and Directions

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.

Engineers, Owners Matter

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.

Tales from the DG Front

The following are recent distributed-generation opportunities that someone has turned, or is in the processing of turning, into reality:

Toray Plastics (America), of North Kingstown, R.I., is building a plant to supply about 40% of its power, because its production lines are extremely sensitive, even to minor changes in grid-supplied voltage.

The Long Island (N.Y.) Power Authority has jumped on fuel cells as part of its five-year, $170-million Clean Energy Initiative. LIPA in mid-2001 committed to one of the largest DG purchases ever—a $7 million demonstration fuel cell installation program.

Unitil, in Hampton, N.H., is reportedly studying the idea of uniting emergency generators at 10 hospitals. The idea is for a third party to operate the hospital generators as a network, taking the burden off hospital operations staff.

The LaQuinta chain installed a microturbine at its motel in Irving, in the summer of 2000. Fired by natural gas and operating only at peak hours, the unit reportedly has netted savings of $20,000 per year.

The Mauna Lani Resort, Hawaii, has installed a 100-kW solar photovoltaic system on its hotel roof, a 110-kW system on its golf course clubhouse roof and a 250-kW sun-tracking system to power golf course irrigation pumps, according to DG Insight.

Elderwood Health Care, Oakwood, N.Y., buys power at low-priced, off-peak times to run an electric chiller to create ice that fills six 1,500-gallon ice storage tanks. Each tank reportedly stores 100,000 ton-hours of "cooling." The system reportedly cuts the facility's summer peak load by 100 kW.

PPL Global LLC, a unit of a Pennsylvania power company, placed an order for 30 gas turbine/generators, 50-MW each, for installation at sites around the U.S. beginning early this year.

The Tennessee Valley Authority is employing a DG strategy by locating generators at remote locations. The nine gensets produce nearly 14 MW of power during peaks. Virtual Power Plant software from Encorp allows TVA to start up and monitor the generators at these remote plants without human involvement.

Madison (Wis.) Gas & Electric's three-year-old program now has 55 diesel generators, ranging in size from 500 to 2,600 kW, placed at 50 customer sites.

DG: What Is The Meaning of This?

Proponents of distributed generation, including the media and marketers, have applied the term to so many things that it is at risk of losing any relevant meaning. For example, DG might involve something as simple as a reciprocating engine that produces electricity to replace high-cost utility power at peak periods; or it can refer to a high-tech, state-of-the-art, cutting-edge installation.

Apparent confusion was reflected by the agenda of a late-November U.S. Department of Energy conference on distributed-energy resources that set hard definitions to technology within the DG realm. Titled "DER Technologies," the conference presentations included: fuel cells, combined heat and power, communications and control systems, energy storage, hybrid systems, industrial DG, industrial gas turbines, microturbines, reciprocating engines and "thermally activated" technologies. The following glossary of DG technologies and concepts offers a brief definition of each term:

On-site Generation. A synonym for DG, terms such as distributed power, distributed energy, distributed energy resources and distributed resources fall in this category.

Cogeneration. The productive use of heat created by the electricity-generating process. Heat is produced by all generation of electricity. Many facilities, including utilities, simply vent this heat, losing it, which is why electric utility power generation figures are calculated in the low 30% range. Cogeneration is a term for technologies that put the heat to use in some way, resulting in efficiencies that are claimed to range up above 70%.

Combined Heat and Power. Another term for cogeneration.

District Energy. A cogeneration plant serving more than one customer in a specific local area. For example, a cogen plant at an industrial park sells power and the heat to users. Tremendous efficiencies are possible, not only because of the 70% energy use, but also due to the small distances—and thus, small loss of power—between the source and the end-user.

Microturbines. Small turbines, as low as 25 kW, that typically use fossil fuels.

Fuel Cells. An energy technology where a chemical reaction produces energy. Hydrogen is one typical input. At present, they are often more hype than reality, but considerable investment has been seeded in this technology as of early 2002.

Wind Power. Wind-powered turbines and wind "farms" have become enormously popular of late in the media and among utilities, as electricity customers have proven willing to pay a premium for "green" power. Many power companies are building new wind farms, buying existing facilities or locking up 100% of the output of facilities owned by others.

Solar Photovoltaics. Solar-generated on-site power. Solar has never received the kind of "hot" treatment that fuel cells are getting now; perhaps the solar adherents want "in" on this trend so they don't get left out of the bonanza.

Energy Storage. It is difficult to call this a DG technology, and yet, it is typically included in such discussions. The concept is to take power, either from the grid or from an off-grid generator operating at non-peak hours, and store it for use later at peak times.

Portable Power. Power produced by portable generators has become an important means of meeting temporary needs at many facilities.

Additional types of power-generating technology that fall under the rubric of distributed generation include: biomass waste-to-energy plants and projects that recover landfill gas and turn it into electricity.

DG Desires Face Obstacles

The growth of distributed generation faces many barriers. Some have been put in place by those, such as some utitilies, who don't want to see this concept boom. Others are natural barriers. The good news is that several of these seem to be in the process of being removed.

One problem is generic: A great increase in the number of power-generation facilities nationwide would mean, over time, more maintenance, service and repair of such installations. Are there qualified persons out there to do that? Can a facility afford to keep several of them on staff? As one utility industry magazine put it, in discussing the service element, "Who wants to be a power generator?"

Another problem is financial. Industrial and commercial concerns generally have "bean-counters" who are impressed only by return-on-investment figures. However, a little creative thinking goes a long way. If a plant averages five annual significant power problems—outages or sag-caused machine errors, for example—the return on a DG investment might well go beyond the cost of energy and include hours of lost production.

Further difficulties arise from the fact that a power plant, even a small one, is a power plant. It's likely to have emissions. It's likely to elevate ambient noise levels. Fuel has to be stored and regularly delivered, increasing truck traffic. It's not a thing people want to live near, generally speaking, or want their children to play near. Even environmentally "harmless" fuel cells can operate at more than 1,000°F.

Moreover, laws and rules now in place did not anticipate the coming of DG. A recent study by consultants from Arthur D. Little provided three areas for legislators and regulators to help:

Changing emissions reviews, from evaluating emissions per unit of fuel to emissions per unit of power produced.

Easing siting requirements for "environmentally friendly" DG facilities in areas that do not already attain Clean Air Act standards.

Including DG in thinking through the trading of emissions credits at the state level.

Utility Barriers

Many utilities, especially those that still own area grid systems, have been creatively erecting new barriers. Typical of this mindset is a presentation at an Electric Power Research Institute (EPRI) late-November conference on DG. A slide presented four "likely adopters" of DG: generating companies, utility distribution companies, retail energy service providers and end users. An "x" was drawn through the end users; a question mark was put next to the retail providers.

In other words, in EPRI's vision of DG's future expansion, power generators and utility line owners—the utilities and the spawn of utilities—are the only realistic providers.

Much of the rest of the world does not share such a vision. The U.S. Department of Energy is working toward establishment of "standard commercial practices for any required utility review of interconnection." This is a key issue, as a DG plant owner can't sell power back to the utility, or use existing power lines to sell power to anyone else, unless interconnection rules allow compliance.

Up to this point, utilities have been resistant. There are safety reasons for some requirements: Utility line workers working to restore downed power lines can be killed when they start work on what they think are de-energized lines, only to find high voltages from a DG unit feeding power into the cable. This reportedly has happened at least once in recent years.

Interconnection Standards?

DOE's goals to further DG in the U.S. are as follows:

Reduce the cost of interconnection hardware by 15% by 2005 and 30% by 2010.

Institute a national interconnection standard in 2002 and major revision by 2007, with modular universal plug-and-play interconnection technology by 2010.

Provide Underwriters Laboratories/American National Standards Institute standards and certification processes to cover interconnection equipment for all DG by 2003.

Set up model emissions rule for small DG units by 2003.

A key here is the Institute of Electrical and Electronics Engineers (IEEE) P1547 Standard for Distributed Resources Interconnected With Electric Power Systems. While this is to be a voluntary consensus standard, it is likely to be refined and even adopted in many places. When the standard is in place, utilities will pretty much have to substitute it for those creative "rules" DG adopters must live by.

Those involved in making DG happen—including suppliers, marketers, engineers and end users—would have a clear set of rules in place across the U.S. Many believe such a standard will lead to wide commercialization of the DG concept and boost many of the specific technologies.

Unfortunately, the P1547 draft, circulated in the second half of 2001, did not receive enough votes from the IEEE subcommittee members to pass. It is difficult to tell from the outside whether there are real technical issues yet to be resolved, or this is more political game-playing by those not interested in seeing the spread of DG. As of this writing, the involved group—which has met roughly every two months since 1998—was scheduled to meet again mid-winter.

Further DG Info - On The Web

Downloadable documents:

Late November DOE conference (presentations):


Primen DG research (two-page research summary):


Guidelines For Implementing DG (from National Energy Marketers Association):


Sites with information:

Fundamentals of DG from the Gas Technology Institute:


DG in California, California Energy Commission pages:


DG News wire:


IEEE Interconnection Standard, P1547:


U.S. DOE's Distributed Power Program:


U.S. DOE's Distributed Energy Resources page - includes a "weekly summary of events" downloadable in PDF (a "government newsletter" on DG):


Combined Heat & Power Association:


Command, Control and DG - from EGSA:


"Energy Yellow Pages" page on DG - from Power Marketers Association - includes listings of DG vendors:


Informational site sponsored by a technology consulting firm:


Info for a fee:

Jackson Associates offers Distributed Generation - Utility Service Area, a database, software and analysis system providing information on DG technologies for more than 200 utility service areas in the U.S. and Canada:


"Micropower: The Next Electrical Era," downloadable as PDF:


"The North American Market for Grid Power Solutions: DG & Ride-Through Technologies,"

a research paper from Venture Development Corp.:


Distributed Generation Update, biweekly in PDF format, subscription:


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