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There is a growing trend in the United States for self generation of electric power. In past decades, very few people thought seriously about having their own generating capacity, either as emergency power or to provide for their basic needs. The Northeast Blackout of 2003, this winter's storms throughout the West and Mid-west, the hurricane season of 2005 and our changing society are all driving the trend towards self-generation. Of all the shifting factors that are driving Americans to embrace on-site generation economics are perhaps the easiest to quantify.
If the economic argument is not compelling, then the independence and reliability concerns usually are. Electricity has come to be viewed as necessary for life, and while this is rarely the actual case, it is the perception that is important. The reliability of the electric supply in the U.S. is extraordinarily impressive, but ironically this is the very reason that any interruption has become so important. We have structured our lifestyle and our businesses around a reliable electric supply to the point where we have become unwilling to endure even short and infrequent outages.
Rising Prices are Influencing The Demand
Electricity prices are rising fast, as are energy prices in general, which strongly encourages the most complete usage possible of every BTU in the fuel. The average retail price of electricity in the U.S. rose by 9.2 percent in 2006, a trend which will likely continue for the next several years. The national average masks some much more volatile regional prices where certain locations have seen price increases as high as 30 percent. It is inevitable that electric prices rise as the older power plants with higher emissions are forced into retirement and replaced by newer and cleaner plants. These older plants are fully depreciated and supplied with fuel under long term agreements that typically are priced considerably below current market prices for fuel. Any new power plant built today, regardless of technology, will have a cost of generation at least 30 percent higher than the current average cost of generation.
At the same time prices for the fuel which homes and business use for space heating and material processing have experienced even steeper increases. To stretch their energy budget further, more homes and businesses can be expected to turn to cogeneration. Cogeneration is the process whereby fuel is used first to produce electricity, and secondly to provide heat. Reality dictates that cogeneration is best applied near the point of use; it is not practical to transport thermal energy very far. The potential for small-scale cogeneration sited at the point of use is absolutely staggering. In 2005, approximately 5.5 billion gallons of fuel oil and 7.9077 TCF (tera cubic feet) of natural gas were used for space, water and process heating. Had this fuel been consumed in on-site cogeneration systems to produce some electricity as well as heat, approximately 12 percent of the nation’s electricity needs would have been met by these systems.
For larger systems, the heat rejected from the engine can be used to supply air conditioning via absorption chillers when space heating is not required, increasing the benefits derived from the system. This type of system is becoming popular for hotels, hospitals, large commercial buildings and universities. The amount of electricity currently generated and used on-site is not necessarily reported to the U.S.Department of Energy, as is the amount of electricity generated for sale, so comprehensive data is not available. Large cogeneration systems providing heat to industrial processes or commercial users and who sell the electricity they produce, do report data to DOE and currently account for 8 percent of the electricity produced in the U.S. A survey was conducted by DOE of the owners of smaller systems who are not obligated to report their data, and of the respondents, most indicated that they use their generators only in emergencies, indicating a large untapped potential.
Cogeneration is not the only option for on-site generation. Small scale wind turbines are also very popular in favorable locations, and photovoltaic panels are currently enjoying very strong demand. While popular opinion holds photovoltaic electric generation to be too expensive, a perusal of PV manufacturer press releases tells a different story. There is currently a major expansion of PV manufacturing capacity underway, with six companies announcing plans for new plants or expansions totaling 900 megawatts, just since the beginning of the year. The recently announced expansions, together with those currently underway will double the worldwide PV manufacturing capacity in the next few years. Unquestionably, some part of this very strong demand is due to the steep tax credits and other incentives, but many other factors are at work as well. Concern for the environment, energy independence, and pure economics are the principle drivers behind this trend. As electric rates continue to rise, costs for on-site generation are falling. For the past few years the prices of PV panels have stayed relatively constant, after having steadily declined for decades. The costs to manufacture the panels however, are still falling, which indicates that the very strong demand is pushing manufacturer profit margins higher.
Grid Interconnections are Critical
In the past, the largest hurdle to self-generation was connecting it in parallel with the utility, and stand-by systems avoided this with a transfer switch which allowed power to be supplied either by the utility or the generator but not both. This is not a very convenient arrangement. In most cases, the on-site generation will produce either more or less power than the home or business is using and it would be ideal for the utility to make up the difference. The majority of states have now passed legislation which makes this net-metering concept obligatory for utilities and eliminates their most powerful tool for preventing self-generation. Another major obstacle has been lack of uniform interconnect requirements. Each utility has had the freedom to decide what protective relaying, metering, switchgear and system stability analysis would be required for interconnection, which meant that interconnection requirements varied from one utility to another and sometimes from one project to another. Many states have now also adopted uniform interconnect requirements so everybody knows beforehand exactly what will be required for interconnection.
While net-metering and uniform interconnect standards are intended primarily to benefit producers of renewable energy, it actually makes all on-site generation easier to implement. In many cases the problems existed simply because the utility did not have a program or procedure in place to facilitate self-generation by its customers, and it had nobody who was familiar with the issues and empowered to make decisions in the utilities behalf. After being required to implement net-metering and adopt uniform interconnect requirements for renewable energy, these resources are now in place for all types of self-generation. Further, the standard requirements for interconnection can be incorporated into mass-produced devices making them cost-effective and readily available.
The net result of all these trends will be that the demand for grid-supplied electricity will not grow as fast as many expect. Certainly the rising electric rates will inspire some amount of conservation, but even more will it encourage alternate sources of supply. The grid will increasingly become viewed as a large "storage" and trading system rather than as the supplier of electric power. As consumers are becoming increasingly aware of the wide difference in prices between peak and off-peak power there will be a desire to capitalize on that by using their generating assets for peak shaving. Larger users who can take advantage of time-of-day pricing and discounts for interruptible power are presently the ones who are benefiting the most and it can be expected that smaller users will demand the same benefits. For many years proponents of distributed generation have been advertising its advantages, now we are witnessing the application of the most distributed form of generation known.
For information on purchasing reprints of this article, contact Tim Tobeck ttobeck@energycentral.com. Copyright 2010 CyberTech, Inc.
Congratulations Don for publicly bringing out the real path to start down. These are steps that can intelligently be used today. The great part is that they also easily work into future systems where the 'fuel' requirements are nill. Can anyone say self sufficient?
Roger Arnold 3.20.07
It's hard to speak against co-generation with its intrinsic efficiency, but as a compulsive contrarian, I feel obligated to find something bad to say. I suppose I can content myself with a few caveats and "on the other hands" to rain on the DG parade.
The DG / CHP concept has been around for a long time. One certainly hears claims by its proponents that it's an increasing trend, but I'm not sure I've ever seen the claim backed by substantive evidence. Obviously, there is a growing installed base of wind power, if one wants to count that as DG, but in practice wind power typically relies more heavily on the grid than conventional "central" generation. Wind farms are, on average, more distant from their power consumers than even coal plants--much less gas.
There is, as well, a growing base of residential PV systems. Those do count as DG, but they're still a drop in the bucket, and they're not CHP systems. They owe their existence entirely to tax credits and subsidies direct and indirect. The fact is that the installed base for the type of CHP / DG system that people like to talk about is nearly100% largish gas-turbine systems, and located in big commercial, industrial, or college campuses. And they've mostly been where they are for thirty years or more.
An "inconvenient truth" about CHP is that, under the prevailing economic regime, it just isn't cost-effective. Yes, your electricity bill will be lower, but if you're using gas to fire your co-generation, your gas bill will be higher. In any case, your net savings generally won't be enough to pay the interest on the cost of the system. Individuals may be OK with that, and willing to eat the capital cost because reducing their carbon footprint is "the right thing to do", or because they put a high value on having their own power source independent of the grid. But don't expect it to become a major trend until something happens to change the economic equation.
So what could happen to change it? A carbon tax is one obvious possibility. Len and Todd may have other possibilities to suggest. But I'd like to throw in a more radical suggestion. It's not my idea, but I've corresponded with the guy who's promoting it, and he's almost managed to convince me. Take a gander at http://www.americanenergyindependence.com/zif.html and let me know what you think.
(Fred Banks: this especially means you. The subject, zero interest financing for energy projects, involves monitary policy.)
Todd McKissick 3.20.07
Roger, Neat site and an interesting idea. I see that as sort of like the old G.I. bills that used to be around. Could make those loans available to anyone meeting or exceeding certain limits, regardless of who or how.
He's also got some good knowledge listed on renewables. Good find!
You are correct that DG and/or home CHP hasn't taken off in a big way yet. As I see it, there's a few reasons for this and cost effectiveness is about third from the top of the list.
First is the investment market for the development. A truly home based DG system is in direct competition with the energy and transmission companies so any investors (including most government entities) are summarily swayed agaist it.
Second is the interconnection regulations and fees. It is advertised that 38 (or more now) states have net metering laws on the books, but in reality, the hoops that have to be jumped through can only be done by those with strong stomachs. Any excess electricity generated isn't really of much value unless you can use it onsite because of the discounts on selling it back. This puts an extra burden on these systems to be designed to not waste dollars by making this 'wasteful' excess.
If these problems were somehow overcome, these systems would make more major news and thusly start selling to the early adopters. As it stands, the market is waiting until prices come down before the masses start buying. The only way to break this chicken-n-egg situation is with more startup money but we're still stuck with reason one above.
I think we only need to legislate caps (carefully, but without trades) and universal net metering standards at the federal level. This will let everyone know what the playing field will be like in the coming years so they can better read their risk. Any taxes or subsidies just take money out of the industry which could be used to foster R&D in the solutions that the market deems most viable. If there's one thing the government doesn't do efficiently, it's deal with money.
Len Gould 3.22.07
Roger: The equation on small DG is deceptively simple at base. eg. DG should "take off" once the market offers a unit whose efficiency is higher than the ratio of fuel price-per-kw / retail electricity price-per-kw, adjusted by a required factor to increase the return sufficiently to repay capital and operation costs. Eventually it comes down to a relatiopnship between the above ratio for large central generation vs. DG units, adjusted for transmission losses and costs. It appears to me that the required small-unit efficiency is somewhat above 33% with a unit which will run cheaply for 20+ years, something which appears to be neither impossible nor likely very far off. Of course, solar units with their free fuel, have only the capital cost / unit efficiency to deal with, which should also not be very far off.
The biggest risk for develoipers of these systems is the possibility of another plummet in fuel prices, such as killed initiatives in the late 20th century. Rather than "interest free money", an initiative which will simply encounter the resistance of too many powerful lobbies (someone's collecting that 400 billion interest), governments should simply proclaim a guaranteed minimum price on imported fuel energy, which would just a effectively, and more efficiently "defang" eg. OPEC.
Gregory Stangl 3.27.07
Roger,
I've never actually bloged before so appologies in advance if I miss some protocol. I run a biomass company where DG is quite competitive today. We sell on-site powerplants in the 300KW+ range, given the size our market is commercial only, mostly manufacturers and ag processors.
We're focused on commercial systems where people generate wood waste (and now ag waste) that they pay to get rid of. What we've found is that the systems generate low 20's IRR's before any governemnt subsidies making them entierly cost competitive. In fact, since the subsidies mostly apply to 3rd party sales it doesn't make sense, given the capital costs, to make them much bigger than the client's energy consumption. In this instance, interconnect is moot. If you're overproducing you just flare syngas. The essential element is having a big power bill. The key to the economics is avoiding the retail cost of energy (say 7.5-11 cents/KW) v being paid for selling to the grid (3.5 cents). Once you start trying to sell back, I agree, you can't make the numbers work.
We've found our customers care about the green credientials & back-up power more then we thought they would. But the truth is at the end of the day the numbers have to work at your cost of capital.
If it were up to me, I just as soon see all the subsidies start to go away. We don't need them (or rather can't really use them since best ones (IRC 45) apply only to 3rd party sales only) and the ethanol ones are allowing a non-cost competitive system to entice biomass genorators to sell their feed stock instead of using it for DG. The EU on the other hand has some decent programs which have helped us target the manufacturing community out there with interest free loans. Very helpful to us as a small manufacturer.
Edward Gasior 3.27.07
I have worked with companies and looked at DG. There are sites where it makes sense. It is not a universal solution. If you already value backup generation then you have justified the capital cost. Industrial and commercial companies can use this capacity for peak shaving or running intermitent machinery on a seperate off line grid in the plant. The value of cogen can further enhance the payback. Peak power is the most costly and has the greatest impact on system reliability and reduction of brownouts.
barry hanson 3.27.07
I'm curous as to why there is no mention of SOFCs specifically, much less DCFCs which operate at over 80% fuel to electric efficiencies. SOFCs now being commercialized by Haldor-Topsoe, Rolls, Siemens, CeramicFuelCells, and others will be on the market for $400 per KW once they get to only about 50MW in sales. $800 per KW covers installation and O&M for twenty years giving a cost of about half a cent per kWh before the value of recoverable heat and CO2 is subtracted.
As for the input energy; biomethane (or syngas) is being produced for under $3 per million BTUs with several different technologies, giving a fuel cost of 1.7 cents per kWh at 60% efficiency for the fuel cell.
So with high temp fuel cells you have elect for under 3 cents, free heat since the generation is at the location where the heat can be used, better quality elect, more reliable elect, more secure power, CO2 already under pressure and pure, quiet and pollution free... and No grid which is now costing well over $100 billion to operate and maintain, not counting outages which cost another 100+ billion.
Bruce Cavender 3.27.07
Mr. Stangl,
Bravo! You are actually generating green energy 'at a worthwhile profit' in the marketplace against true market competition. Bravo! You are far ahead of the PeterToPaul subsidizers. We need another 3,000 like you in this country.
Mr. Hanson.... The $800/KW covering both capital and O&M for 20 years looks exceptionally attractive for a fuel cell.
How much of the $800 is allocated to 20 year O&M and at what rate are you discounting future expenses?
Best Regards,
Bruce
paul wilkins 3.27.07
I have had around 500 watts of PV running most of 3 different houses since 1980. We are battery based and use the grid for backup battery charging, backup water heating and a furnace motor. If I were starting with PV now, I think I would go grid connect, BUT if the grid goes down so would I.
Paul Wilkins former publisher The PV Network News
barry hanson 3.27.07
Mr Cavender $400 per KW allows for two stack changes, one every seven years. $400/KW is the total installed cost including balance of system. Actually the stack costs are projected to be below $400.
No cost for financing is considered...but with minimal storage for peak loads and an inverter all a typical home needs is one KW. Otherwise I think that there should be interest free loans, i.e. subsidies, for this type of development since it has such a good short term payback...as well as providing a true public good...which is what subsidies are supposed to be for.
Len Gould 3.28.07
barry: Last time I checked on SOFC, the glass seals couldn't withstand any cycling, eg. the unit has to run hot 24 x 7 x 365.25 . Has someone overcome this isssue yet, or is it still necessary to use them baseload only?
barry hanson 3.28.07
Len Gould It's a good question and I'll be checking on it, I follow nine or ten different manufacturers. Although I'd guess that they have made significant progress toward solving that problem since Topsoe has started on a production facility in Denmark and Osaka Gas now has quite a few very small units in the field in residences in Japan and plan on full commercialization next year.
When did you last check, and with who?
Len Gould 3.28.07
barry: This 2003 discussion indicates clearly still a problem at that time.
I was hoping to be able to include some "real data" to back up my contention that this is a growing trend, but couldn't get my hands on anything reliable in time. Diesel Progress publishes such data, but their 2006 numbers don't seem to be available yet. But the key point is as Mr. Gasior observed "If you already value backup generation then you have justified the capital cost." As far as fuel cells go, they make sense for base loaded generation and not intermittent duty. They are very expensive and very efficient, and they take a long time to start and they don't follow load well. Stand-by, or emergency power, or intermittent duty equipment needs to be low-cost, with fast start-up and good load following ability. Efficiency is not important for the "typical" cogen application since the heat load is usually so much greater than the electrical load. Even at 10% efficiency you will generate as much electricity as you need, so why pay a premium in capital cost to generate more electricity that you will lose money trying to sell? Some day what I hope to see is a little 200 watt SOFC which can run on pipeline natural gas that I can hook up to my hot water heater and just let it sit there and cook 24/7. If I could get one for $500 ($2500 / kw) it would be very cost effective. Ultimately I think we are worrying too much about concepts such as "high efficiency" and "low cost electricity" when the real goal is to save money. Mr. Stangl is proving every day that under the right circumstance you really can save money and save energy at the same time.
Thanks for all your comments.
Brendan Eagleton 4.13.07
I liked your article and think I may have a solution to some of the issues concerning “off-grid” electrification. My name is Brendan Eagleton and I am the director of marketing for Nextec Energy out of Houston Texas. We are the soul distributors of the Ortronic system in the U.S. and Latin America. The Ortronic system is a revolutionary technology in the area of energy savings and boasts the ability to cut homeowner and business energy usage by 40-70% without the consumer changing any of their usage habits. With full scale integration this will reduce the U.S. Carbon emissions significantly and help to curb the effects of global warming. While the range of savings seems substantial it is so because the savings determined depends largely on the types of lights, appliances, air conditioning used and other factors such as the need for backup power by the consumer. The system works by capturing reactive energy previously wasted, and considered unusable, and converting it into usable active AC current. The technology is particularly effective when used with photo voltaic solar panels and can reduce the amount of panels needed by 70%, a considerable cost savings to consumers and solar leasing providers. Uses with wind turbines offer similar results without the need of panels comprised of environmentally hazardous chemical products. I assure you that this technology is real and ready for installation now. This is not something that needs development or financial support for such development, but merely exposure. In addition to the impressive abilities of the current system, the implication for future use in hybrid cars poses the possibility for a 400-500mpg hybrid, as well as a larger unit for use in power plants. You can contact me by e-mail at beagleton@nextecenergy.com or by phone in Austin at 512.733.4537. Thank you for your time and I hope this information finds you well. For more information on reactive energy visit http://www.pserc.wisc.edu/Sauer_Reactive%20Power_Sep%202003.pdf
Dave Smith 6.17.07
I'm doing some research for a potential CleanTech funded software company on the extent to which higher education is invested in cogen facilities. I am having some difficulty finding data on which colleges and universities (a population of around 2,000 in the US) actually do have cogen facilities. Also, what are the key organizations and/or forums in which Energy Management Lab people participate - online, national, etc. Does Power Magazine feature any stories and/or research on powergeneration/management in higher education?
