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Distributed Generation: Implications for Restructuring the Electric Power Industry

Fortnightly Magazine - June 15 1995

Until a few years ago, the concept of distributed or modular generation was largely academic. Recent developments in the electric power industry, however, have brought this once esoteric subject to the attention of utility executives as well as state and federal policymakers. Centralized, large-scale plans to use modular generators and demand-side management (DSM) to displace utility investments in bulk-power resources and high-voltage transmission projects is unrealistic. Nevertheless, the inevitable growth in the market for distributed generation will place increasing stress upon regulatory and organizational infrastructures.

The basic forces behind the anticipated expansion of distributed generation are the increasing scarcity of resources, the concomitant technological innovations in energy conversion and storage applications, and the evolution of regulatory oversight in response to resource scarcity and technological change. Resource scarcity is reflected in the growing competition over fuel availability, increasing power-plant siting constraints, and the dwindling number of large thermal hosts for cogeneration projects. Downsizing facilities increases both investment opportunities and the number of eligible investors.

Technological change has created a diverse array of commercially competitive products. For example, the average consumer can purchase a portable 2.25-kilowatt (Kw) standby generator at a retail price of about $100/Kw from major discount warehouses. At the other end of the spectrum, large commercial and industrial (C/I) customers can acquire gas turbine cogeneration packages in sizes exceeding 10 megawatts (Mw) per unit. And the future promises even more intriguing products.

Regulatory oversight itself has, perhaps unintentionally, promoted a downsizing of investments in new generating facilities. For example, the 50-Mw project size limit on the siting jurisdiction of the California Energy Commission has prompted a remarkable shift to investments in smaller power plants. Another illustration of technological adaptation is the development of cogeneration packages as small as 60 Kw for applications as common as the heating of public swimming pools.

Off-the-Shelf Technologies

Distributed generation forms a subset of a broader class of distributed technologies that includes DSM tools and power-quality enhancement products. Such technologies meet four fundamental prerequisites for a competitive market: many sellers, many buyers, product divisibility, and product substitutability. However, distributed generation is distinguished by the fact that it can provide more than the real and reactive power of large generating stations. Utilities, for example, can use modular generators and energy storage devices to minimize distribution system upgrades, facilitate customized energy services, and neutralize much of the debate over the externalities of electric power generation.

Commercially available distributed generation technologies can be divided by type of service into six categories: standby generation, peak-shaving generators, baseload generation, cogeneration packages, energy storage devices, and mobile resources.

Standby generation consists primarily of internal combustion (IC) engine-generator sets (gensets), fueled with natural gas and/or petroleum derivatives. Because of safety codes, and the high reliability needs of certain C/I electricity users, standby generators are by far the most commonly applied form of distributed generation technologies. A relatively new application for this type of distributed generation is emergency support to defer reliability-related upgrades of distribution systems. Current applications involve unit sizes ranging from less than 5 Kw to several megawatts. Standby generators normally require