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Distributed Generation: Competitive Threat or Opportunity?
Will new technologies undermine the customer base?
Or can utilities use them offensively?The electric power industry stands poised to move to a fully competitive market. Business realities already imply a broadening of customer choice. At the retail level, direct transactions loom as a near-term prospect for electric utilities.
Coupled with this rising competition comes a growing variety of new, small modular power generating technologies. These new technologies have rewritten the competitive equation, changing the very nature of the utility infrastructure and providing strategic opportunities in the emerging field of distributed generation.
Nevertheless, should utilities consider distributed generation a competitive threat? Could distributed generation erode the utility's customer base? Or will distributed generation allow utilities to exploit the changing infrastructure for competitive advantage?
From Definition to Strategy
Distributed generation denotes the stand-alone or system-integrated generation of electricity in small modular plants (em ranging in capacity from a few kilowatts
to over 100 megawatts (Mw) (em whether by utilities, utility
customers, or third parties. Strictly speaking, the term "distributed generation" embraces, but is broader than, the concepts of on-site generation, self-generation, or cogeneration. (The term "distributed resources" includes both distributed generation and nongeneration alternatives for electric supply.)
Commercially available distributed generation equipment includes natural gas and liquid-fueled internal combustion and diesel engines and combustion turbines. Emerging technologies (em some of which are already available and economic for certain applications (em include solar photovoltaic arrays, fuel cells, microturbines, small Stirling engines, and storage technologies such
as batteries, flywheels, and ultracapacitors.
Nevertheless, the significance of distributed generation extends far beyond simple definitions. It implies a new corporate strategy that can be used offensively, to capture new retail markets, or defensively, to retain existing customers. At the technical level, it can lend support to a capacity-stretched distribution system. A myriad of applications come to mind:
s Meeting growing local peak demands for existing customers without adding transmission and distribution (T&D) upgrades with long payback schedules or new investments in central station generation.
s Serving new commercial, industrial, residential, or remote customers on a T&D system that already operates at near capacity.
s Retaining and adding value to current customer relationships through new, differentiated energy services and improved power quality and reliability.
s Growing new businesses within or outside the utility franchise.
In short, distributed generation can rewrite the competitive equation. The old motto, "low-cost producer wins," still maintains its validity in the bulk-power market within a regulated franchise. But a new credo, "preferred provider prevails," now does a better job of describing the future.
The New Technologies
A few recently improved and new technologies based upon natural gas will play important roles in competitive strategies using distributed generation. (For comparisons as to size, efficiency, and market application, see Table 1.)
Combustion turbines. Technological advancements over the past decade in combustion turbines and combined cycles (electricity from both a gas-combustion turbine and a heat-recovery steam turbine) have eroded the historic economy-of-scale advantage of long-payback, large, central station power plants. Compact turbines based on jet aircraft engine designs (aeroderivative turbines) and proven heavy-frame (industrial) gas turbines are now commercially