Distributed generation gives building owners the option to generate their own energy in one form or another. Utilities can maintain the system when the building owners do not want to manage it.

Safety In Numbers: Distributed Generation's

Atakan Ozbek | ABI Research

Distributed generation gives bui

 

By Atakan Ozbek

Director of Energy Research

ABI Research, Oyster Bay, New York

 

 "And distribution was made unto every man according as he had need."
Acts of the Apostles, 4:35

 

In New York's Central Park there is a police station. When the lights went out all over the city in the giant power failure of August 14, 2003, they stayed on for the Central Park police. Why? The station had an alternative source of electricity, in the form of a fuel-cell power plant.

 

A small example, but indicative of a larger truth: that with an ever-increasing demand for power and often an antiquated power distribution grid, the electricity supply of the industrial world - and the U.S. in particular -- is vulnerable to an unacceptable degree.

 

Let's take a look at where distributed generation could have helped during recent blackouts, specifically in the summer of 2003:

  • August 14: United States and Canada (>50 million lost power)

  • August 28: London, England

  • September 23: Copenhagen, Denmark, Southern Sweden

  • September 28: Italy (> 50 million lost power)

One of the trends that may help reduce that vulnerability is "distributed generation." In the simplest terms, distributed generation means moving electricity production away from centralized locations, out to - or near -- the end-user.

 

The benefits aren't confined to lighting up a blackout. Many countries' national grids, especially in North America, are basically unchanged since their construction in the 1940-1950s, and badly in need of an expensive update. But they're unlikely to get it any time soon. Fully maintaining the United States' transmission network would cost more than $60 billion, yet only half of this investment is available, due to low ROIs on transmission investments. As the networks further decay over time, we can expect their reliability to fall.

 

For many large businesses operating 24/7 today - think of a multinational bank -- a power outage is simply not an option. (The August 14 blackout is estimated to have cost the U.S. economy $5 to 6 billion.) We will always need large, central generating plants and grid, but to the extent that they can be bypassed, the reliability of electricity distribution will increase. And given the age of much of the power infrastructure, modern distributed generation can actually improve overall efficiency by a factor of 2x to 3x, with corresponding cost savings to the consumer.

 

Then there's national security. The power system is frequently mentioned as a juicy target for sabotage or terrorist attack. And to the extent that a nation is dependent on fuel imports - in Japan the figure is 99% -- its power may also be subject to the whims of world geopolitics. Decentralizing power generation and using alternative technologies are seen as among the most effective preventive measures available.

 

Distributed Generation Technology Analysis

 

Transmission and distribution losses are between 7% and 8% from a central power plant to the end-user.  On the other hand, distributed-generation-related losses are 3% or lower, even less when fuel cells are used.

 

From the technological point of view, reciprocating engines and natural gas engines will maintain their dominance in different areas.  Generator set (genset) companies have been focusing on increasing power density in the gensets while decreasing the size of components in order to realize overall system cost reduction.  Higher efficiency (40%) and lower emission products will be the trend for the foreseeable future in generator sets.

 

Reliability, efficiency, and durability will be three constant performance features for products, as they have been in the past.  The trend in the engine and genset industry is to develop electronically controlled engines, and the standard of integrated controls is getting better.  The design and manufacture of electronically controlled engines and gensets will be seen more often in their customization in the coming years than in today's models.

 

Electronic controls will be used more and more both to increase system efficiency and to decrease emissions.

 

Planet-friendly? Show Us the Money

 

Whether it be an offshore wind farm supplying a coastal region of Denmark, hectares of photovoltaic cells in provincial Germany or an ordinary diesel generator in rural Alaska, distributed generation is a matter of matching the technology to the locality and circumstances of the region to be served.

 

Luckily for us, many of the power-generating technologies most favored for DG are also the most environmentally sustainable. The highest-profile eco-friendly power technologies are wind and solar, but many other techniques are available: fuel cells, hydroelectric, small gas turbines, biomass and more.

 

With so much apparently in its favor, why haven't DG and alternative technologies grown explosively, and started to replace the incumbent centralized systems?

 

Not surprisingly, it's about the money. Like most fledgling industries, sustainable power generation needs to reach a certain critical mass before it takes off and becomes self-sufficient and profitable. Emerging technologies are expensive, costing on average nearly three times more than incumbent energy production methods. The most common DG installations now need, on average, five or six years to recover their intial costs.

 

That's too long for most investors to wait, and what is needed, if DG is really to catch on in a big way, is temporary government support. This can take the form of tax support for manufacturers, and rebates or depreciation allowances to consumers.

 

Take the case of Germany, which several years ago began providing tax-relief subsidies to large solar power projects. Today, the industry is booming. Denmark supported construction of large wind farms, and today they generate nearly 20% of the country's electricity. In the U.S., the wind-farm industry has also begun to enjoy some government support and has begun to grow rapidly as a result. General Electric - now one of the largest companies in the wind-generating field - has seen its recent business expanding at 20% a year.

 

The UK wasn't known, previously, as a big supporter of distributed generation. But now the government has changed its attitude, and as a result we are starting to see offshore wind farms. This trend will increase in the next 5-10 years.

 

Why, in a period of supposed fiscal conservatism, would mainstream governments give serious consideration to subsidizing the early stages of a DG industry? One good reason has already been mentioned: security. Following 9/11, everything is tied to security. And if you can increase the sources of generation, you reduce vulnerability. You are hedging your bets; and if you're doing it in an environmentally responsible way you're also getting cleaner air, soil and water.

 

Without government encouragement, DG may well continue to grow. But it will do so much more slowly than if governments lend a hand.

 

Therefore, the distributed generation sector has to convince policy makers around the world now to increase market growth rates in the coming decade.  Technology market analyst ABI Research has, in its studies, used scenarios that factor the regulatory landscape into their growth estimates for the industry. ABI Research's recent forecasts indicate a total of 200,000 megawatts of distributed generation by 2011 -- more than three times amount in 2003.

 

The Developing World

 

The arguments for DG in the industrialized world are multiplied when it comes to the "third world". Because of their huge and insatiable demand for power, countries at the top of the industrial league rankings simply don't have the luxury of converting all their power generation to DG systems, even if they wanted to. But countries that lack any serious industrial infrastructure altogether are, in a sense, ideally placed to reap its benefits. Without a legacy investment in conventional generating systems or a highly developed infrastructure, such nations must choose distributed generation if they're to have much electricity at all.

 

The arguments for government support apply, of course, no less in the third world than in the first. Many governments in poorer countries are more amenable to the idea of massive governmental economic stimulus than those of the G8.

 

The problem is, they don't have much money. So there is an opportunity here for rich nations, in their foreign aid programs, to contribute to forms of development that will make a huge difference to peoples' lives in the developing world, while helping them avoid the kind of environmental nightmares that occurred in parts of the old "socialist bloc". The problem is, little is so far being done in this way by developed countries; and the little there is, takes the form of small World Bank and IMF loans.

 

And what about the big power utilities? Electricity is, after all, their business. Traditionally their attitude towards the concepts and technologies of DG has been one of resistance or derision; but lately some of them have quite correctly started to see DG applications not as competitors but as future revenue streams.

 

Distributed generation gives building owners the option to generate their own energy in one form or another. Utilities can maintain the system when the building owners do not want to manage it. Such companies generate in "grid-parallel" mode: internal generation takes over when the grid goes down (as the Central Park police station took over when Con Edison's grid failed during the blackout).

 

How long might government support be necessary, before distributed generation can stand profitably on its own feet? That depends on the technology in each case, but generally five to ten years of encouragement should see viable DG industries develop.

 

NIMBY?

 

Ironically, it's in some of the most environmentally-enlightened regions of the West that the first grass-roots opposition to distributed alternative energy production is arising. Germany, that bastion of everything green, saw protests last year at the opening of the world's largest "solar park", which decked vast swathes of landscape with solar collectors.

 

In other cases, opposition has arisen when wind farms bordered the playgrounds of the rich and famous, as in the recent furor on the New England coast of the U.S., when an offshore wind farm was opposed by locals basically because they felt it spoiled the view from their yachts.

 

Some more legitimate concerns about wind farms center on their noise, not only that of the wind on their blades, but of the generators within them. However engineers have been working overtime to solve these problems, and are making astonishingly rapid progress. Similarly, solar units are now being camouflaged into buildings in such a way that you would have a hard time finding them.

 

The future of distributed generation really depends on the convergence of many seemingly disparate forces. Will existing power infrastructure be allowed to degrade still further? Will there be frequent widespread failures of the system? Will terrorists attack the grid? Will the alternative technologies at the heart of DG develop quickly enough to provide viable and cost-effective solutions? Will governments help more than they now do, for long enough to see the results? We'll have to wait for the answers. "Watch this space."

 

About the author: Atakan Ozbek is Principal Analyst of Energy Research at ABI Research, a technology markets analyst firm based in Oyster Bay, NY, with offices in London and Hong Kong. ABI Research provides market-based intelligence across a range of technologies: energy, wireless, broadband and residential entertainment technologies, semiconductors and automotive electronics/telematics. Information about ABI Research's current study on distributed generation may be found at www.abiresearch.com/reports/dgn. To find out more, visit www.abiresearch.com, or phone (516) 642-2528.


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