BUSINESS | 8/18/2013 @ 8:00AM |9.129 views
Distributed Generation Grabs Power From Centralized Utilities
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Like a lot of industrial sectors, American utilities are in the midst of re-thinking of their business model. Building centralized generation and then selling as many electrons as possible is now getting challenged by those who produce their own power, which enables them to “disconnect” from the grid.
A local microgrid in Sendai, Japan
A local microgrid in Sendai, Japan (Photo credit: Wikipedia)
The inherent conflicts are now surfacing because the utilities are still responsible for maintaining the wires and for supplying electricity when customers need it. As such, those entities using “distributed generation” that is based close to where the power is consumed are trying to work out a cost sharing arrangement with utilities. For example, rooftop solar panels may provide more than enough electricity for homeowners, who may then sell their excess back to the utility. Or, the sun may quit shining and homeowners would have to buy utility-produced power.
America's Energy Appetite Necessitates Widening Its Transmission Belt
Ken SilversteinKen Silverstein
Contributor
Enter another way of looking at things: Chip Bottone, chief executive of FuelCell Energy FCEL +0.88% in Danbury, Conn, explained to this reporter that utilities should embrace on site generation as the wave of the future. He points to Germany’s E.ON , which has created a separate distributed generation unit. How would that work?
In the case of FuelCell Energy, it segments the electricity load and then distributes that energy to where it is needed. Its fuel cells, which are a form of distributed generation, have an electrical efficiency rate around 47 percent, which is the amount of energy produced per unit of input. That rises to 80 percent if the heat is captured and re-used in some other capacity.
Consider: FuelCell Energy sold a 14.9 megawatt fuel cell to Dominion Resources D -0.81% last December. Connecticut Light & Power, whose parent is Northeast Utilities NU -1.36%, is buying the electricity under a 15-year energy purchase agreement. It’s all part of Connecticut’s renewable power generation goals. The fuel cell power plants will convert hydrogen from natural gas. Because the fuel is not combusted, it releases almost no harmful emissions during the process.
“Electricity efficiency is what drives the economics,” says Bottone. “And the ability to add heat creates additional value. Utilities need distributed generation and they must have a discussion as to how best to plan for it. They can’t be the victim. If there is a significant amount of wind and solar energy coming onto the grid that creates intermittency concerns, utilities must deal with this variability and ensure reliability. Fuel cells can solve these balancing and operational issues because they relieve power companies from having to put power on the grid.”
Right now, federal and state incentives are encouraging the escalated use of green energy. At the federal level, developers of fuel cells receive a credit of $3,000 per kilowatt generated or 30 percent of the capital cost, whichever is less. It is scheduled to expire at the end of 2016. Meantime, more than half of the states have some variation of renewable portfolio standards.
Some critical issues must be resolved: If the incentives and cost reductions cause more people to go off the grid, then the price of maintaining the distribution network falls on fewer people. Likewise, the utilities and the customers using on site generation must determine how they will allocate costs and configure prices. The states are devising so-called “net-metering” laws to work this out.
Distributed generation may reduce the need for an expanded distribution system. Minimizing those outlays would more than compensate utilities for lost electricity sales, say proponents of the technology.
However, the Edison Electric Institute says that even if customers generate their own juice and sell any excess electricity to the utility, power companies must maintain the network that makes those transactions possible — a $25 billion annual outlay. Meantime, if intermittency issues prevent self-sufficiency, then utilities are still required to provide the back-up power, all of which cost money.
The institute penned an analysis that says a rapid escalation of transformative technologies could “threaten the centralized utility model.” Fewer connected customers lead to higher costs for the vast majority who will fully utilize utility services as well as less revenues and greater borrowing costs, which enable both the expansion and improvement of the infrastructure.
“The threat to the centralized utility service model is likely to come from the new technologies or customer behavioral changes that reduce load,” says the institute’s study. “Any recovery paradigms that force cost of service to be spread over fewer units of sales … enhance the ongoing competitive threat of disruptive alternatives … Customers are not precluded from leaving the system entirely if a more cost competitive alternative is available.”
On site power generation will gradually gain marketshare, necessitating that the current utility model make adaptations. Financial considerations are one issue. Operational matters are another. In the final analysis, though, reliability standards must keep pace with green energy advances, meaning that the two business structures must be reconciled.
Twitter: @Ken_Silverstein
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NortheasternEE NortheasternEE 16 hours ago
The key phrase is “disconnect” from the grid. I assume that the reason the word is in quotes is because what is disconnected is the cost of grid upkeep, and not a physical disconnect. This gives those who produce their own power a free ride on the grid.
Since we all know that there is no such thing as a free ride in the real world, the net result will be a huge increase in the cost of electricity because the power that is produced locally by renewable mandates has no value on the grid.
Those producing their own power while still physically connected to the grid are robbing power from the rest of us.
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Alan Johnson Alan Johnson 16 hours ago
This is a one-sided and misleading article. It would have you think that power companies are about to go down the toilet and THAT is far from the truth. In the upper plains states there is only 1 area in which distributed generation is very common and THAT is because they are forced to use distributed generation. That is the oil boom area of N. Dak and there you will find lots of building and installations using their own distributed generation because the power companies in the area can’t begin to build new power lines fast enough to handle all the applications for power they have even though they are using 100′s of workers from power line contractors in addition to their own employees. As soon as a power line is built the distributed generation is shut down as the electricity coming over the power lines is far cheaper than what it costs to generate their own with distributed generation.
On the net-metering issue, as it stands in it’s most common form net-metering is great for the person who can afford to put up wind generators or solar arrays but it also hurts every one of that persons neighbors who can’t afford it. That is because a power company has to make X number of dollars to pay for their operating and maintainence expenses. When distributed generation goes in along with net-metering that person stops paying their fair share of what it costs to maintain the power line that still has to be connected to where they live and dumps all those maintainence costs onto their neighbors without distributed generation. There are more fair ways of selling excess generation from distributed generation back to the power company other than net-metering.
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Fake Fakefake Fake Fakefake 16 hours ago
“There are more fair ways of selling excess generation from distributed generation back to the power company other than net-metering.”
Yes, but those require the producers to adhere to environmental regulations and pay taxes on earnings, which solar proponents absolutely hate (since their systems would not be up to code and never be able to pay themselves off)
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large bunny large bunny 14 hours ago
Decide on a fair price per KWH that the power company will pay for power they are forced to buy…..perhaps a percentage of whatever they charge that will cover all their distribution costs.
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Fake Fakefake Fake Fakefake 16 hours ago
The author made many mistakes in the article as a whole, but here’s a few : ” The fuel cell power plants will convert hydrogen from natural gas. Because the fuel is not combusted, it releases almost no harmful emissions during the process.”
1) Fuel cells from that company convert natural gas to water and CO2 using high temperature processes. A 47% efficient (base electrical efficiency) stack produces about 400kg/MWh, which is equivalent to a gas turbine running the same natural gas and efficiency rating. “ Almost no” CO2 should be “standard amount of” CO2
2) The process creates heat though the process of combining a fuel (methane) with an oxidizer (oxygen), so even without a flame this is unquestionably a combustion reaction.
3) Hydrogen conversion plants are entirely different, this company specializes in direct fuel use fuel cells.
“Distributed generation may reduce the need for an expanded distribution system. Minimizing those outlays would more than compensate utilities for lost electricity sales, say proponents of the technology.”
1) Distributed generation only reduces the need if the generator is almost 100% reliable at all times of use.
2) The proponents mentioned are SOLAR power proponents, which has far less than 100% reliability, generally far less than 20%. That means the company must have enough power to offset the distributed losses at the tune of 100% of capacity.
3) The cost of a thermal power plant to offset poorly managed distributed systems is in the millions or even tens of millions. As base load plants can’t be used when considering distributed systems, the new plants must all be peaking energy type plants, which are even more expensive.
4) Plant costs aside, the network isn’t set up for distributed energy. For that to work, upgrades would need to be made, at the tune of over a trillion dollars in new technologies and management.
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James Wilson James Wilson 15 hours ago
Itemized billing shows we are charged a Meter Fee and a Account Fee just to have the Power Companys Equipment and an Account in their Computer. We are billed $22.50 each month if we don’t use any electric at all.
The Water Company bill $7.50 a month for the meter.
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buckbonzai8 buckbonzai8 15 hours ago
I do not know about the rest of the country, but in NorCal there is a seperate line item for power line maintenance and access fees on your monthly statement that pays for the powerline maintenance.
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Sam Hall Sam Hall 13 hours ago
Distributed generation only makes sense when somebody else is footing the bill. Central generation and the “grid” developed over many years because it was the best answer for cost and reliability. Now the power market has been distorted by people eager to get that “free” government money.
Here in Texas, our electric rates have about doubled because we are forced to buy wind power and the grid reliability has gone down.
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Gordon Ross Gordon Ross 12 hours ago
NortheasterEE -
The sky is NOT falling, although anytime big business sees anything that isn’t within their profit model, they call it out. The trucking industry, the airline industry – all scream the sky is falling when regulators try to keep them in check. More BS from business.
The simple solution to a net metering scheme and any maintenance payback is NOT raising everyone’s rates (ROBBING POWER FROM US? THE SKY IS FALLING), but to apportion costs of line maintenance to the net meters. Simple solution. They sell back to the grid, but they still use the services when they aren’t selling back – so, come up with an apportioned amount that allows them to dip in and out of the grid and still pay their apportioned share of costs. Simple solution to this ridiculous notion of ROBBING THE GRID. Come on man, get real.
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Larry Foard Larry Foard 10 hours ago
Fuel cells still require natural gas to run, better than a coal plant, but not a long term solution. We need to start looking at utilities as facilities to move and store power, rather than primarily produce it.
Utility scale batteries, fly wheels, reverse-able hydro, pressurized air storage, etc.
Solar is becoming amazingly cheap, easily competitive with the fuel cell prices quoted here and that is before paying for natural gas to power them. Solar with storage is a solution good for the next billion years. Cheap natural gas will likely not even last a decade.
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Fake Fakefake Fake Fakefake 46 minutes ago
“Utility scale batteries, fly wheels, reverse-able hydro, pressurized air storage, etc.”
Item by item:
1) Utility grade batteries require massive amounts of lead and acid. Waste disposal becomes an ecological nightmare.
2) Flywheels have been proposed for a century now, and there has yet to be a company with the right breakthroughs. Self discharge is too large, and wear is incredibly fast with current designs.
3) Pumped hydro is feasible only with nuclear due to very high energy losses involved in pumping. For a solar system to work with pumped hydro, you would have to have about two-three days worth of capacity in the hydro station, in addition to 3-4 times the capacity just to provide excess energy for pumping during solar peak.
4) Compressed air is basically pumped hydro (and all it’s issues) with the added danger of massive quantities of air pumped into very high pressure containers. The risks of explosion far outweigh any benefits.
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Stan Thompson Stan Thompson 7 hours ago
“Because the fuel is not combusted, it releases almost no harmful emissions during the process.” Where does the carbon from CH4 go after the H is stripped off?
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(contributor_data.name)!?html Ken Silverstein
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I am editor-in-chief for Energy Central's EnergyBiz Insider. With a background in economics and public policy, I've spent two decades writing about the issues that touch the energy and financial sectors. My EnergyBiz column has twice been named Best Online Column by two different media organizations. Twitter: @Ken_Silverstein
The author is a Forbes contributor. The opinions expressed are those of the writer.
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