Distributed Energy: What
Lies Ahead?
ROBERT W. GEE
PRESIDENT
GEE STRATEGIES GROUP LLC
PILLSBURY WINTHROP LLP
2004 GLOBAL ENERGY CONFERENCE
SAN ANTONIO, TEXAS
JUNE 12, 2004
What is Distributed Energy (DE)?
• Distributed generation (DG):
– Small electricity generation facilities: < 50 MW
– Located on the distribution system close to the point of
consumption
– Includes: micro-turbines, fuel cells, internal combustion
engines and small gas turbines
– Combined heat and power facilities & emergency back-up =
95 percent of customer-owned generation in U.S. today
• But also will include:
– End use enabling technologies
– Load management applications
– Sensors/nodes to “smarten” grid intelligence
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Driving Forces Behind DE/DG
• Decline in cost of renewable & high-efficiency
technologies suited for households & small businesses
• Competition for wholesale power opened possibility for
sales of customer-owned power during peak periods in
real-time markets
• Commercial & Industrial customers placing increased
reliance on high-quality power
• Opposition to siting of new transmission capacity
drives search for alternatives
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Benefits of Distributed
Energy/Generation
• In real-time markets, could be more cost effective in
meeting peak demand than additional central station
power
• If operating costs lower than central station power,
could reduce wholesale prices
• Enhanced system flexibility could increase reliability
• If supply increased and customer demand more
flexible, power price volatility could be reduced
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Risks of Distributed
Energy/Generation
• Reliability could decrease if system operators unable to manage
greater number of generation inputs
• Retail power price could increase if ratepayer-funded
investments required to maintain power quality
• Proliferation of fossil-fired DG potentially poses threat to air
quality
• Migration of customers off grid poses threat of embedded cost
shift to remaining utility customers
• Escalating fuel costs of fossil-fired generation, reducing “spark
spread for DG”
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The Story Thus Far. . .
• DG deployment has been halting owing to barriers &
failure to meet financial expectations (insufficient pay
back rates)
• Market support nosedived following “dot com” bust
• DG has struggled to find successful business models
• Market penetration impeded by slowed or regressive
restructuring policies
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Major Barriers to Distributed
Generation
• Contractual & technical interconnection requirements
for equipment protection and safety to ensure power
quality
• Utility tariffs requiring surcharges for standby service
• Environmental & permitting requirements of local
governments restricting installation and operation of
generating equipment
• Average cost pricing of utility services
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Contractual and Technical
Interconnection Issues
• DG developers claim contractual issues used to
impede interconnection
• Lack of common technical interconnection standards
raises cost of manufacturing
• Progress on developing some technical standards
(i.e., IEEE 1547) helpful but not sufficient
• FERC proposal to mandate national standards for
small DG (<20 MW) spawns opposition from certain
states and co-ops, and concerns about state air
quality standards
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The “Standby Charge” Tariff
Debate
• Utilities seek to recover fixed costs associated with continued
obligation to serve
• DG-owning customers seek to avoid charges, and want credit
for benefits they provide to system (enhanced reliability,
transmission capacity avoidance)
• Larger issue: pace and scope of industry restructuring
• DG deployment looks to success of competitive markets and
ability of customers to purchase in real-time power markets
• Will regulators be willing to unbundle services further and
expose customers to actual costs through deaveraging?
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Is There a New Dawn for
Distributed Energy?
• DG’s enhanced security & reliability advantages now spotlighted
following NE-MW power blackout
• Since August 14, DG market has rebounded (so far)
• Development of new energy control technologies and “smart”
management systems likely to benefit DG deployment
• Vision: “Plug and Play” DG a key part of a seamless “Smart
Grid” energy load management system
• “Smart Grid” touted by foundation-funded think tanks, but vision
needs embrace of federal and state policymakers
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A Non-central Station Perspective of
the Future
Source: CA Energy Commission
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An Even More Aggressive View
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Robert W. Gee
President
Gee Strategies Group LLC
7609 Brittany Parc Court
Falls Church, VA 22304
703.593.0116
703.698.2033 (fax)
rwgee@geestrategies.com
www.geestrategies.com
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