Generation: Big or Small?

Fortnightly Magazine - September 15 1996

Generation: Big orDistributed power may turn

heads, but economics points

to central plants.

By Joseph F. Schuler, Jr.

By 2010, distributed power technologies will make up as much as 30 percent of new electric generation.

So says a 1996 study prepared for The INGAA Foundation, Inc.: Natural Gas Use in Distributed Power Generation Applications.

For its part, the Energy Information Administration (EIA) predicts that 175 gigawatts (Gw) of generation will be added in the United States through 2010. If just 20 percent comes from small-scale plants, distributed generation will account for 35 Gw.

But talk to the engineers, distributed-power experts, manufacturers, power-plant packagers and suppliers, and power marketers working in new technologies and you'll find that few agree with the official predictions. Distributed generation's role as a firm power source (em for now at least (em will take a back seat.

Economics will be the driver in the choice of generation, and every unit will need to meet the mark (em whether it puts out 4 megawatts (Mw) or 400 Mw. What's the mark? From $200 to $450/Mw to install; about 2 cents per kilowatt-hour (¢/Kwh) to operate.

Economic factors will determine the route of new generation after what most agree is three years of remaining capacity. These factors include stranded-cost recovery, exit fees, and wholesale and retail access to electricity.

Fuel costs will be paramount. In fact, two market observers predict the (distant) return of nuclear power. Such plants would be technically flawless, the result of experience in foreign countries where nuclear power is still being installed.

Those that construct large plants or buy "packaged plants" will range from independent power producers (IPPs) to power marketers using generator sets to boost customer savings during peak periods.

Mason Willrich, chairman of EnergyWorks, a joint venture of PacifiCorp Holdings, Inc. and Bechtel Enterprises, says the future generating infrastructure will be very different.

"That's a no-brainer," he says. But he notes that many millions have been invested in plants fast becoming obsolete. And energy policies have not fostered the investment needed to fill the coming gap.

"With the technology that's out there, the pace of innovation needs to be speeded up. And you've got utilities and regulators, together, suppressing it." That means the United States is losing time, since the developing nations offer a "clean slate" for business.

But Willrich believes the construction cycle will return here. When it does, he predicts a balance in the size of plants: "I don't see us going back to 1,000-Mw nuclear plants, or to coal. From the standpoint of central station, I think we need to think of hundreds of megawatts, not thousands."

Willrich describes the central station of choice as combined-cycle cogeneration or just combined cycle, depending on natural gas prices.

But before that happens, says Bill Thompson, a senior business development partner for Black & Veatch, "consolidate" and "bulldoze" will be the watchwords. It will take at least three years, he warns, for the market to absorb the "bubble of electricity" created by FERC Order 888, which opens the wholesale transmission grid.

"I think we're