The Distributed Generation Puzzle:Piecing It Together

Issue 4 and Volume 104.

Unicom Distributed Energy and Honeywell/AlliedSignal Power Systems have been demonstrating the Parallon 75 microturbine at The Energy Efficient McDonald’s in Bensenville, Ill. since August 1999. Photo courtesy of Honeywell/AlliedSignal Power systems.
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While many of the details of distributed generation still need to be worked out, forward-thinking industry players are positioning themselves to take advantage of a growing market.

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Ready or not, distributed generation (DG) is bearing down on the nation’s power grid. Industrial, commercial and residential end users are drawn by the possibility of clean, reasonably priced, reliable, high-quality power in their own backyards, while utilities are thinking ahead to the benefits of deferred T&D system upgrades, lower line losses, grid support for stressed distribution systems, reduced need for peaking capacity and improved system reliability. Those in between-energy service providers (ESPs), energy service companies (ESCOs) and equipment manufacturers-are eyeing DG as an opportunity for new product and service lines in deregulated markets. Admittedly, the details of DG still need to be worked out: developing technologies such as microturbines and fuel cells require time to prove themselves, distribution system stability and safety must be assured, interconnection standards have yet to be settled on, and contractual arrangements remain to be negotiated. But forward-thinking industry players are more than ready to meet DG halfway.

Plug Power’s 7 kW proton exchange membrane fuel cell will be tested at various residential locations. Photo courtesy of Plug Power.
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By most definitions, distributed generation means small generation- typically rated no larger than 10-30 MW, often much less-located conveniently close to where it’s used. But unlike the familiar emergency standby diesel generators at commercial and industrial facilities, DG is usually firmly connected to the utility distribution grid. Interconnection allows end users to generate dependable, high-quality power for sensitive digitized loads, with backup from the distribution grid as needed; it also enables end users to deploy DG to reduce energy costs via peak shaving or cogeneration, or even to generate power for sale elsewhere.

The Puzzle Pieces

“Distributed generation may be the cell phone of the power industry, a readily recognizable product with readily recognizable benefits,” ventures Merwin Brown, market sector manager for the U.S. Department of Energy’s National Renewable Energy Laboratory (NREL). DG technologies (Table) all have in common their relatively compact size, flexible modularity, potential for mass production and the promise of relatively low environmental impact. Many of the first DG installations will be reciprocating internal combustion engines and small combustion turbines, predicts Dan Kincaid, principal product manager for DG at the Gas Research Institute (GRI). Photovoltaic (PV) power cells, another established technology, may also see early DG use: small PV cells of just a few kilowatts have been commercial for several years now, although usually in remote, off-grid applications.

Close behind these established technologies are microturbines-compact, natural gas-fired turbines usually rated no higher than 25-300 kW, with efficiencies of 25-30 percent. The subject of vigorous development by such manufacturers as AlliedSignal Power Systems (now Honeywell Power Systems) and Capstone Turbine Corp., microturbines debuted in utility, commercial and light industrial installations several years ago. Fuel cell systems are jostling for a position next in line: 200 kW phosphoric acid fuel cells are commercially available from ONSI Corp., which has delivered some 170 units to customers to date. Higher-temperature molten carbonate and solid oxide fuel cells are being demonstrated by, respectively, Energy Research Corp. and Siemens Westinghouse Power Corp., while proton exchange membrane (PEM) fuel cells are under development by Plug Power, Ballard Power Systems and others. Fuel cells’ draw is their high efficiency-as much as 60 percent for molten carbonate fuel cells-and remarkably low emissions.

Assembly Required

Because application of distributed generation is so site-specific, it can be difficult to pin down where it will be economically competitive, and that may keep many potential players on the sidelines. “Power generation economics depend on first cost, running efficiencies, fuel cost and maintenance costs. Site suitability depends on size, weight, emissions, noise and other factors,” points out GRI’s Dan Kincaid. Even so, the GRI 2000 Baseline Projection foresees that by 2015, DG could account for some 51 GW of installed capacity, out of a projected national total of 1,075 GW, says Kincaid.

Stan Blazewicz, a senior manager in Technology and Innovation Management Practice for Arthur D. Little Inc., adds, “DG will be most economically attractive to electric utilities in scenarios where they are faced with system constraints, particularly in transmission and distribution. For the end user, economics are improved if customers can capture additional benefits such as reduced fuel costs for steam and hot water through combined heat and power, increased power reliability, improved power quality and new sources of revenues from electricity sales to the grid.” The first DG applications will unquestionably be specialized niche applications, but NREL’s Merwin Brown suspects that when the benefits of DG on both sides of the meter can be thoroughly quantified, those benefits could be two or even three times higher in value than the benefits of power from central stations.

Not surprisingly, industry players all have their own perspectives on where they expect to see distributed generation plug into the distribution grid. Murray W. Davis, DTE Energy Technologies vice president, business strategy and technology, observes, “It’s very difficult to build new transmission today, especially in highly congested urban areas like Detroit. Utilities have only a couple of options: upgrade lines to carry higher voltages, or increase line capacity with phase shifters and unified controllers. These options will only get you up to a certain point, and then you still need more transmission.” Davis estimates the cost of new transmission and distribution capacity in the Detroit area at about $400/kW. “We believe it will be easier to build new generation close to load, and that’s DG’s huge advantage over central stations.” Because residential and small commercial customers are generally located further from transmission lines than industrial customers, and so pay more for their electricity, Davis expects DG will have its major impact in these two markets rather than industrial markets. Fuel cells, especially suitable for residential and small commercial applications, are of particular interest to DTE Energy. In 1997, the company helped form Plug Power Inc., a joint venture to develop 7 kW, dishwasher-size PEM fuel cells for residential customers; prototypes will soon be tested at actual residences.

Unicom Distributed Energy, part of Unicom Corp., has also been quick to recognize DG’s potential. “DG is an integral part of Unicom Corp.’s growth plans,” affirms Bill Clark, technical manager. “There will be a reduction in utility revenues due to deregulation, and you can either accept it or grow a new business. Growing new business is what Unicom chose to do.” Unicom Distributed Energy has set its sights on DG for large midwestern industrial and commercial customers up to 5 MW. “No one DG technology fits all needs, and so we’ve always intended to have a multiple-product portfolio. We’re looking at reciprocating engines, microturbines and fuel cells,” says Clark. Microturbines were the first technology in Unicom’s portfolio, aimed at end users requiring 200-600 kW of power. A joint venture with Honeywell/AlliedSignal resulted in successful demonstration of a 75-kW microturbine at a McDonald’s in Bensenville, Illinois, last fall, followed closely by pilots at a Walgreen’s, a bakery and several manufacturing plants. A number of these pilots have recently been upgraded to commercial operation. Unicom Distributed Energy also has projects afoot with two manufacturers to develop and demonstrate small, pre-packaged reciprocating engines no larger than 100 kW and 1 MW in size. Clark sees reciprocating engines as “a good choice for customers who want low-risk technology.”

In Texas, Austin Energy has its eye on distributed generation from the perspective of a municipal utility that not only provides all its own power but is also keenly attuned to environmental issues. “We are an environmental leader in the energy industry and we see DG, particularly fuel cells, as a way to meet future power demand in an environmentally friendly manner,” says Roger Duncan, vice president, Austin Energy Services. “Austin is one of the biggest high-tech centers in the United States, with a heavy computer base, and power quality and reliability are big concerns for these customers. We expect increased customer demand for DG products and we want to be in a position to meet that demand, as a city and as a utility.” Duncan expects DG to really hit its stride in Austin in 5-10 years.

Further afield, rural G&T cooperatives have their own reasons for getting involved in distributed generation. Co-op customers are few and far between: customer density is about 5-7 customers per mile, even as low as 1 per mile, according to Ed Torrero, program manager for the National Rural Electric Cooperative Association’s power supply program. Long distribution feeders are the rule, and co-ops see DG as a welcome alternative to building or upgrading already-stretched T&D facilities. DG will also provide a way to help ensure reliable power for far-flung customers. NRECA has been studying DG from every angle since the 1980s, says Torrero, and new projects by NRECA’s Cooperative Research Network include an evaluation of AlliedSignal, Capstone, Elliott/GE, and Northern Research Engineering Corp./Ingersoll-Rand microturbines ranging from 28-75 kW at nine co-ops nationwide, and what may be the world’s largest fuel cell demonstration, totaling 1 MW of capacity from five 200-kW ONSI Corp. phosphoric acid fuel cells, at a post office in Anchorage, Alaska.

Fitting It Together

Even the most enthusiastic observers concede that there are tough issues to be addressed before DG is firmly plugged into the national power grid. Many of these issues have to do with the interconnection of DG with the existing distribution system. System stability is on the mind of Ken Hall, manager of distribution activities at Edison Electric Institute (EEI): “Historically, electricity in distribution systems has flowed one way only, from utility to customer. But when there’s DG in every garage, that will make the distribution system a very dynamic system, and that makes it very hard for those who manage the system.” While efforts are being made to predict the behavior of the electric distribution system with DG in place, Hall says much more modeling and analysis will be needed.

System safety is also an overriding issue. Utilities are justifiably concerned about islanding, which occurs when personnel working on a presumably isolated distribution line could suddenly encounter power from a DG source on the same line. Responsible DG system developers are incorporating protective electronic circuitry into their offerings, but utilities remain skeptical. “Utilities are reluctant to rely on unfamiliar, customer-supplied protective relaying schemes,” says Richard DeBlasio, NREL program manager for DOE’s Distributed Power Program, “and integrated interconnection packages are not generally accepted and known.” Utility-accessible, lockable disconnect switches on DG systems is one approach being investigated to ensure personnel safety.

Interconnection standards must be sorted out as well. Under PURPA, each utility was required to establish interconnection guidelines to facilitate power sales into the grid, but these guidelines varied from utility to utility, reflecting local variations in distribution systems. Recently, public utility commissions in New York, Texas, Arizona and California have moved to develop statewide interconnection standards to simplify interconnection. But with DG bearing down on the industry, it’s apparent that a single national interconnection standard is the way to go. “No one wants 50 different standards for 50 different states,” says NREL’s DeBlasio. A national standard would enable manufacturers to simplify DG systems and reduce costs, an especially important consideration for smaller systems. The Institute of Electrical and Electronics Engineers (IEEE) seems to be the logical arbiter of national standards, and since last year more than 200 members of IEEE’s Standards Coordinating Committee, have been hard at work developing a national interconnection standard, which is expected to be finalized in early 2001.

Also still to be nailed down are what NREL’s Merwin Brown calls “the rules of engagement,” those contractual issues that will govern interconnection agreements. Ake Almgren, Capstone Turbine president, reports that most recent utility standby tariffs have been reasonable, but in a few cases, tariff proposals have been chillingly high. “Percentages in the high double or even triple digits may encourage end users to disconnect from the grid,” Almgren says. He urges establishment of viable tariffs because it’s unlikely that even 10 percent of distributed generators could simultaneously go down and call on line capacity.

Distributed generation proponents are also thinking ahead to issues that may not be of concern until sometime after DG becomes commonplace. EEI’s Hall notes that a given distribution system has only so much electrical capacity, and if DG installations are feeding significant amounts of power into the grid for sale, it won’t take long to use up that capacity. “You’ll reach the limit quickly with a few big DG units-or a lot of little ones,” foresees Hall. This also raises the sticky issue of who gets first rights to send power onto a maxed-out grid for sale elsewhere.

Without question, important issues affecting distributed generation are still up in the air. These issues-technology, economics and system interconnection-are real, and those in the industry are right to circle them cautiously. But it’s also true that ready or not, distributed generation is arriving, swept forward by a real need for reliable, on-site power.


Nadine Lihach is a Bellingham, Wash.-based engineering writer specializing in the power industry. She has more than 20 years of experience covering all aspects of power generation, writing articles for EPRI’s Fossil Plant News and Hydro Plant News and for Independent Energy magazine.