Despite the industry’s cautious and inconsistent approach, the smart grid is becoming a reality. Projects and pilots have provided valuable experience about what works and what doesn’t. Recent...
fact that future central-station electric production costs are likely to increase, especially under scenarios of mitigation of CO 2 release from new clean-coal technologies, the gap may be closing.
Because DER systems can provide power closer to the point-of-use, they have the potential to save customers money, provide back-up reliability, and help utilities minimize investments in new T&D facilities to meet peak loads. In practice, however, it is increasingly difficult to monetize the benefits of DER because many benefits are both time- and location-specific. Also, competitive markets have not been able to monetize DER benefits, and many utility business units have been disaggregated into separate energy supply, transmission, and distribution entities, compounding difficulties to capture and monetize value from decentralized systems.
Figure 4 shows the net benefit results for both customer-side and utility-side DER applications categorized by type: peaking, combined-heat-and-power baseload, and renewable. The figure illustrates the range of possible values given variances in key variables. Technologies that display overlapping error bars or net benefits greater than zero could offer cost-effective DER solutions for customers or utilities. While the figure and analysis do not identify all cases where DER could be cost-effective, they do provide insights as to the type of applications that are most likely viable from each ownership perspective.
For example, the figure shows that combustion turbines and natural gas engines used in CHP applications offer potentially mutual benefits to both customers and utilities. We estimate up to 20 GW of CHP market opportunity, or 28 GW of CHP and other DER, even at today's high natural gas prices. 3 In contrast, a diesel engine, used in peak-shaving applications, may offer modest benefits to a customer but very little to a utility unless there is a demand or local T&D system benefit.
The figure also suggests emerging technologies such as microturbines and fuel cells have not yet demonstrated their benefits to either customers or utilities. In fact, the figure shows that peak-shaving DER applications as a whole may or may not be beneficial to customers, but uniformly provide little benefit from the utility perspective (again without grid benefits), though they may offer other advantages that help offset financial disincentives.
While customer-side applications of DER will continue to be important in the type and amount of future DER applications installed, "utility-side" applications are increasingly being considered. In certain cases, when electric distribution capacity shortfalls are examined, DER may be economical. However, our benchmarking analysis, along with current estimates of DER costs and benefits, shows fewer instances of cost-effective, utility-side DER applications. Therefore, it becomes almost necessary to capture both the private owner and utility owner benefits for DER to be an economical choice, and it is the intersection between the two perspectives that holds the most promise for a "win-win."
Most DER systems today are being installed by a fragmented industry comprised of small engineering firms and consulting companies responding to end-user needs. This is, by far, the most prevalent business model, especially for solutions involving standby/back-up generation and, to a certain extent, CHP systems.
Electric utility companies, energy