Win/Win Business Model Needed to Advance DG

Issue 6 and Volume 106.

By Ross E. Dueber, Ph.D., Emerson Network Power

The future looks bright for distributed generation. The need is there, the technology is maturing, and the costs are coming down. The next big challenge is for the development of business models that enable DG to deliver real value to end-users, an opportunity for utilities, ESCOs, aggregators, and entrepreneurs alike.

Emerson’s experience and observations as an equipment supplier to OEMs serving the DG market, and as a DG user itself, have led to five core conclusions regarding the nature of the those markets and what is needed to advance them.

  1. End-users don’t want to be in the power generation business unless they have to. In today’s model, end-users outsource power generation, transmission, and distribution to utilities and other third parties. They pay for service, support, and upgrade of the whole system via their rates. End-users want reliable power at the lowest price with the least amount of harm to the environment, and they generally don’t know or care where it comes from. If DG is to play a greater role in our future, someone other than end-users will have to take ownership and responsibility for these assets.
  2. Utilities will play a key role if DG is to succeed in the near term. Under today’s model from an end-user’s perspective, utilities are the most logical owners and operators of DG equipment. Utilities have choices going forward as they expand their systems in order to meet our nation’s power needs, which are projected to grow at 2 percent per year. In addition to investing in more central plants, wires, and substations, they can also invest in microturbines and gensets that are linked and controlled centrally. DG offers utilities greater flexibility in addressing customer needs, like additional power in T&D constrained areas. Utilities also have the proper long-term investment perspective to make DG a success for all stakeholders.

  1. Distributed generation’s greatest benefit is cogeneration. DG is the best way to use the waste heat that is currently an underused byproduct of central power plants. It is also the most practical way to make DG projects financially attractive. By boosting overall efficiencies from 25-40 percent to 70-80 percent, cogeneration enables DG to economically compete against the grid as waste heat now becomes a valuable asset that can be sold along with the electricity. First-generation fuel cells and microturbines were electricity-only machines, but now we’re beginning to see CHP integrated with the packaging. Accessories like absorption chillers and desiccant coolers in smaller sizes are also being developed to enable year round use of the heat. All of this adds to capital cost, making it all the more difficult for end-users to fit such projects into their budgets. If only a third-party would assume the risk and sell end-users the power and heat.
  2. Markets beyond DG are a key for the new technologies in terms of lowering capital costs. Automotive’s keen interest in fuel cells is what really excites the market. DG will greatly benefit when automakers deploy fuel cells in volume.
  3. The existing installed capacity of DG is grossly underutilized. The primary use for DG today is emergency and standby power when the grid goes down. Permits on these predominantly diesel gensets limit operation to generally less than 200 hours annually. A logical step would be to “green-up” and interconnect these idle assets and put them to use beyond just waiting for a blackout. Some ISOs and utilities are offering incentives to customers to shed load and turn on their gensets under special curtailment programs. At 6-8 percent of our nation’s power capacity, we should not overlook further enabling this sizable investment.

  1. Government sponsorship will continue to be important in seeding DG. Look no further than California to understand the importance of governmental support. The state government has several major program underway and pending to support PV, fuel cells, microturbines, natural gas gensets, and cogeneration. The California Energy Commission has one program that provides significant co-funding for qualified DG projects over the next several years. Given such financial incentives, California represents DG’s best chance to gain a significant foothold.