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Distributed Generation: Benefit Values In Hard Numbers

In the second of three articles, Oak Ridge National Laboratory reviews the economics and financial issues related to DG.

Fortnightly Magazine - April 2005

Economic assessment methods for customer-owned distributed energy resources (DER) typically compare the cost of purchased power and fuel with the cost of owning and operating a DER system. 1 However, largely because of current market structures, these assessments disregard a host of other DER benefits, such as reliability and power quality —often described in nebulous terms, if at all. A good review of the full range of DER benefits addresses the difficulty in assigning values to these more esoteric factors. 2

Moreover, DER benefits often are enjoyed by parties other than the DER owner. 3 For example, a DER system that provides voltage support improves electric-service quality for many nearby customers on the grid and reduces the load on the long-distance transmission system as well. The question of valuing DER benefits is obviously more complex than is reflected by the traditional cost-benefit analysis. 4 Recognizing this complexity, the Department of Energy’s Distributed Energy Program is examining DER benefits from multiple perspectives.

The issue is especially pertinent in this time of evolving market mechanisms precipitated by deregulation. As the markets accept, or even invite, broader participation, DER owners may be able to generate additional revenue streams by selling ancillary services. 5 Market instruments may motivate new operating strategies for DER systems that reflect their optimal performance from a broader system perspective. In another vein, a more concrete understanding of societal benefits, such as reductions in regional pollution, may lead to increased public support for technology development or other publicly funded incentives.

Figure 1 - The PJM Region Today

Methodologies to quantify several DER benefits—in particular, economic values for power supply, reserves, emissions, and transmission and distribution (T&D) deferrals, and the effect of DER on utility revenues and system reliability—will not give a definitive answer as to whether a particular DER project in a given location provides benefits outweighing costs; no broad study could, given the site-specific nature of DER. However, by analyzing the effect of DER and combined heating and power (CHP) on a large power pool, we can gain insight regarding system-wide changes.

This article looks at the PJM power pool ( see Figure 1 —although at the time of the study, the PJM power pool was smaller than it is currently, containing most of Pennsylvania, New Jersey, Maryland, and Delaware) because the deregulation process and electricity market development in this pool are well under way and appear to be functioning well. Second, PJM includes regions with transmission congestion and relatively high electricity prices. PJM also includes electricity supply and load concerns common to many other parts of the country.

Moreover, utilities typically assess the T&D potential of DER using a site-specific approach and focus on opportunities where planned expansions or upgrades of the distribution system can be avoided or deferred. This analysis looks at the potential of DER to avoid T&D costs from a different perspective—that of a long-run equilibrium in which DER is planned and coordinated fully with