|By Russell Ray, Managing Editor|
Distributed generation – power produced by homes and businesses using batteries, solar panels, reciprocating engines and small wind turbines – is, without question, a burgeoning market in power generation and a “disruptive force” for the developers and operators of large central power stations.
Distributed generation, or on-site power, has become a central focus for many engineering firms and technology companies. In February, GE launched a new Distributed Generation business to capitalize on what it described as a “$100 billion opportunity.” www.ge-distributedpower.com/news-media/distributed-power-launch?slide=1“>According to GE, distributed power will grow 40 percent faster than global electricity demand between now and 2020.
The surge in distributed energy resources (DER) is significant, and some utilities and states are making progress in modifying their business models to reflect the increasing use of DER. But claims that DER will lead to the death of centralized power are gross exaggerations, to say the least. Jon Wellinghoff, former chairman of the Federal Energy Regulatory Commission, told reporters last year that, “Solar is growing so fast it is going to overtake everything.”
Reports like these distort the true state of the U.S. power generation market and the direction it’s headed. Distributed solar capacity in the U.S. grew to nearly 10 GW last year. That’s less than 2 percent of the nation’s total generation capacity. What’s more, the cost of rooftop solar is still much higher than power produced from coal, gas, nuclear, wind and utility-scale solar.
The growth of distributed generation will be measured in very small increments. According to one analysis, distributed generation capacity in the U.S. is expected to grow to 20 GW by 2020.
A new report from the Electric Power Research Institute highlights the dangers of deploying large amounts of DER without planning for its integration. The report, The Integrated Grid: Realizing the Full Value of Central and Distributed Energy Resources, pointed to the rapid deployment of DER in Germany and the problems it caused for the nation’s grid and its utilities.
The large and rapid deployment of DER in Germany created large spikes in electricity rates, reliability issues, and significant financial losses for electric utilities. German utility RWE reported a $3.8 billion loss in 2013 because they failed to recognize the effects of a disruptive technology.
“German policymakers and utilities now are changing interconnection rules, grid expansion plans, DER connectivity requirements, wind and PV incentives, and operation to integrate distributed resources,” the report said. A successful integration of DER should recognize that “the best solutions vary with local circumstances, goals and interconnections.”
Distributed solar isn’t the only DER making serious moves in the power generation market. Many industries are turning to combined heat and power projects (CHP), also known as cogeneration, to power their businesses. The number of CHP projects powered by gas turbines and gas-fired reciprocating engines is on the rise.
In North America, CHP capacity is projected to grow from 93,500 MW now to nearly 116,000 MW in 2020, according to GlobalData, a research and consulting firm. Cheap natural gas, new incentives for CHP projects and a public demand for greater efficiency and reduced emissions are driving the development of CHP projects across the nation.
“They make great economic sense and the environmental impact is also quite unique,” said Scott Parent, Engineering Leader for GE’s new Distributed Generation business. “What we’re seeing is really good economics with specialized factories and processing plants that make great sense.”
Last year, David Crane, chief executive officer of NRG Energy, described the shift to distributed generation as a “mortal threat” to utilities. In his latest conference call with investors, Crane reiterated DG’s threat to the century-old business model used by utilities.
“Our industry is on the cusp of disruptive change,” he said. “New energy technologies now cost effective and available to be deployed at scale will transform the traditional power sector and the vertically integrated utilities that have dominated it since the 1930s.
“Think of 50 million American homes, each with a distributed solar system at $20,000 a pop on average,” Crane said. “That represents a trillion dollar market opportunity.”
Crane has a different vision for utilities. He sees a world where utilities own and operate DER. In his call with investors, he said the grid is becoming “increasingly obsolete and unreliable” for a population that is reducing its reliance on centralized power every day.
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