Assessing Market Barriers Assessing Market Barriers to Distributed Generationto Distributed Generation
Backup Rates and other Misleading Backup Rates and other Misleading QuestionsQuestions
Thomas R. Casten Chairman Thomas R. Casten Chairman World Alliance For Decentralized EnergyWorld Alliance For Decentralized Energy630-371-0505, [email protected], [email protected]
March 28, 2003March 28, 2003
Presentation OutlinePresentation Outline The essential question – What is optimal way The essential question – What is optimal way
to provide expected electrical load growth?to provide expected electrical load growth? Describe expected results of meeting load Describe expected results of meeting load
growth with100% new GG, 100% new DG, and growth with100% new GG, 100% new DG, and various mixtures of CG and DGvarious mixtures of CG and DG
Meeting all load growth with DG reduces capital Meeting all load growth with DG reduces capital expenditures, power costs, emissions, CO2 and expenditures, power costs, emissions, CO2 and vulnerabilityvulnerability
Explore why power markets don’t optimizeExplore why power markets don’t optimize Explore locational benefits and costs, how Explore locational benefits and costs, how
new rules could reward incumbent utilities for new rules could reward incumbent utilities for encouraging optimal path of DG?encouraging optimal path of DG?
What are “Correct” Standby What are “Correct” Standby rates is a misleading questionrates is a misleading question Question assumes DG has a net cost to Question assumes DG has a net cost to
societysociety Assumes no load growth, or no cost to meet Assumes no load growth, or no cost to meet
expected load growth with new central generationexpected load growth with new central generation Assumes transmission is adequate for load growth, Assumes transmission is adequate for load growth, Assumes central generation is efficient and cleanAssumes central generation is efficient and clean Assumes CG and transmission is cheaper than DGAssumes CG and transmission is cheaper than DG
Assumes what is good for DISCO’s is good for Assumes what is good for DISCO’s is good for society, or stated another way,society, or stated another way,
Assumes regulatory rules reward DISCO Assumes regulatory rules reward DISCO behavior that is beneficial to societybehavior that is beneficial to society
Each Assumption is FalseEach Assumption is False DOE projected 20 year load growth:DOE projected 20 year load growth:
US = 44%US = 44% New England 28%New England 28%
US transmission is badly congestedUS transmission is badly congested Likely mix of new DG is more fossil efficient Likely mix of new DG is more fossil efficient
and less polluting than likely mix of new CGand less polluting than likely mix of new CG
Capital Cost, CG versus DGCapital Cost, CG versus DGItemItem NEW CGNEW CG NEW DGNEW DG
Average cost Average cost per kWper kW
$700$700 $1200$1200
Average trans. Average trans. cost per kWcost per kW
$1200$1200 NoneNone
Total Capital Total Capital cost per kWcost per kW
$1800$1800 $1200$1200
Is DISCO and Society Benefit the Same?Is DISCO and Society Benefit the Same?Perspective on Govt. RulesPerspective on Govt. Rules
““A history of American government limited to A history of American government limited to those laws which sprang pure from the brains those laws which sprang pure from the brains of the nation’s politicians with no special of the nation’s politicians with no special interests as their objects would be a very interests as their objects would be a very short history indeed.” short history indeed.” Jonathan R. T. Hughes, The Government Jonathan R. T. Hughes, The Government Habit, Basic Books Inc., 1977Habit, Basic Books Inc., 1977
Incumbents vastly better financed to promote Incumbents vastly better financed to promote protective rules than insurgent companies protective rules than insurgent companies blocked by current rulesblocked by current rules
Regulation always flawed, filled with Regulation always flawed, filled with unintended consequencesunintended consequences
Perspective on Electric RegulationPerspective on Electric Regulation
Ninety year history, sub-optimal Ninety year history, sub-optimal regulations reward capital investment, regulations reward capital investment, create throughput bias, ignore or create throughput bias, ignore or penalize efficiency gains and block DG penalize efficiency gains and block DG worldwideworldwide Utility efficiency stagnant at 33% for 42 Utility efficiency stagnant at 33% for 42
years and countingyears and counting Looming problems of COLooming problems of CO22 and criteria and criteria
pollution, fossil fuel dependency, balance of pollution, fossil fuel dependency, balance of payments, and vulnerability all exacerbated by payments, and vulnerability all exacerbated by bad regulation that promotes CGbad regulation that promotes CG
What are Societies Goals for What are Societies Goals for the Heat & Power System?the Heat & Power System?
Consensus goals are to minimize:Consensus goals are to minimize: Capital expendituresCapital expenditures Cost per kWh to usersCost per kWh to users Criteria pollutant emissionsCriteria pollutant emissions Fossil derived CO2 emissionsFossil derived CO2 emissions Vulnerability to storms and terroristsVulnerability to storms and terrorists Power failuresPower failures
The ProcessThe Process We modeled each generation technology We modeled each generation technology
– capital cost, performance, emissions– capital cost, performance, emissions We checked impact on each of societies We checked impact on each of societies
goals from meeting all load growth with goals from meeting all load growth with new CG, with all new DG, and with new CG, with all new DG, and with various mixturesvarious mixtures
We summed up all societal benefits and We summed up all societal benefits and costs for each approach to satisfying costs for each approach to satisfying load growthload growth
Inputs included:Inputs included: Baseline data for existing generationBaseline data for existing generation Average line losses for CG power – 9%Average line losses for CG power – 9% Load factors for each technologyLoad factors for each technology Line losses at peak load – 15%Line losses at peak load – 15% Progress expected on cost and Progress expected on cost and
performance for each technologyperformance for each technology DOE projected 44% load growth through DOE projected 44% load growth through
20202020 Nine mixtures of CG and DGNine mixtures of CG and DG
Results – Optimizing Results – Optimizing Generation of Incremental Generation of Incremental
Heat and PowerHeat and Power
DG as % of Total US Generation
Impact of Generating 2020 Load Growth with Central or Decentralized Generation
100% CG 100% DG Savings % Change
Total Capital Cost(Capacity + T&D)Billions of Dollars
2020 Incremental Power CostBillions of Dollars
2020 Incremental Power CostCents / KWh
Emissions from New Load Thousand Metric Tonnes
NOx 255 80 175 68%SO2 175 16 159 91%
PM10 155 146 9 5%Million Metric Tonnes CO2 720 387 332 46%
34%
35%
35%
$853 $562
$149 $97
$291
$52
3.118.89 5.78
Capital Cost to Supply 2020 Electric Load Growth
0100200300400500600700800900
6.11% 8% 10% 15% 20% 25% 30% 35% 39.38%
% DG of Total US Generation
$ B
illio
ns
Inv. In New Cent. Gen. Inv. In new Dist. Gen. Inv. In T&D
Total Costs for Incremental Electricity Purchases in 2020
020406080
100120140160
6.11% 8% 10% 15% 20% 25% 30% 35% 39.38%
% DG of Total US Generation
$ B
illio
ns
O&M Fuel Capital Amorization + Profit T&D Amorization
Retail Costs per KWh for Incremental 2020 Load
02468
10
6.11% 8% 10% 15% 20% 25% 30% 35% 39.38%
% DG of Total US Generation
Cen
ts /
KW
h
O&M of New Capacity FuelCapital Amorization + Profit On New Capacity T&D Amorization on New T&D
Average 2000 Retail Price- 6.9 cents / KWh
Added Annual Fossil Fuel Use for Incremental 2020 Load
0
2
4
6
8
10
12
6.11% 8% 10% 15% 20% 25% 30% 35% 39.38%
% DG of Total US Generation
Qua
ds o
f Fos
sil F
uel /
Y
r
Total "New" Distributed Generation Fuel Use Total "New" Central Generation Fuel Use
Emissions from Generating Incremental 2020 Electric Load
0100200300400500600700
6.11% 8% 10% 15% 20% 25% 30% 35% 39.38%
% DG of Total US Generation
Thou
sand
Met
ric
Tonn
es /
Yea
r
SO2 Emissions NOx Emissions PM10 Emissions
Added Annual CO2 Emissions for Incremental 2020 Load
0100200300400500600700800
6.11% 8% 10% 15% 20% 25% 30% 35% 39.38%
% DG of Total US Generation
Mill
ion
Met
ric
Ton
nes
/ Y
ear
CO2 emitted for added Cent Gen. CO2 emitted for added Dist. Gen.
Why Don’t Markets Move to Why Don’t Markets Move to Optimal Solutions?Optimal Solutions?
Power is not a free marketPower is not a free market Optimization requires on-site generation to Optimization requires on-site generation to
utilize waste heatutilize waste heat 90 year old laws and regulations are barriers 90 year old laws and regulations are barriers
to efficiencyto efficiency DISCO’s are rewarded for capital investment, DISCO’s are rewarded for capital investment,
penalized for loss of throughput, given no penalized for loss of throughput, given no rewards for improving efficiency or cutting rewards for improving efficiency or cutting costs to consumerscosts to consumers
Observations on Locational Observations on Locational Benefits/Costs of DG?Benefits/Costs of DG?
Net of costs and benefits dramatically Net of costs and benefits dramatically favors using DG to meet future load favors using DG to meet future load growthgrowth
Need 13,000 MW of new generation Need 13,000 MW of new generation every year for US, 282 MW every year for every year for US, 282 MW every year for New EnglandNew England
If CG, must build 118% more generation If CG, must build 118% more generation and 118% of load growth in new T&Dand 118% of load growth in new T&D
Emissions and vulnerability concerns Emissions and vulnerability concerns favor DG as wellfavor DG as well
What are True Standby CostsWhat are True Standby Costs Typical DG has 96% availability, i.e., 4% Typical DG has 96% availability, i.e., 4%
probability of outage.probability of outage. 1000 DG units of 1 MW average capacity 1000 DG units of 1 MW average capacity
have actuarial need for 40 MW backup, if have actuarial need for 40 MW backup, if all were fully utilized at peak hour.all were fully utilized at peak hour.
Utilities have been unable to invest in Utilities have been unable to invest in adequate T&D, congestion increasingadequate T&D, congestion increasing
T&D is aging, book value is shrinking T&D is aging, book value is shrinking DG saves new T&D and holds down DG saves new T&D and holds down
costs of future powercosts of future power
Impact of Standby ChargesImpact of Standby Charges Any standby charge serves to Any standby charge serves to
discourage DG, and will thus raise future discourage DG, and will thus raise future costs of electric power and pollution costs of electric power and pollution associated with that generationassociated with that generation
Future generation will not be optimal Future generation will not be optimal unless locational value of generation is unless locational value of generation is recognized and rewarded, i.e. a DG recognized and rewarded, i.e. a DG payment.payment.
Other Rule Changes NeededOther Rule Changes Needed Reward DISCO’s for encouraging DG Reward DISCO’s for encouraging DG
and avoiding more CG and more T&Dand avoiding more CG and more T&D Allow wires utilities to invest in DG, Allow wires utilities to invest in DG,
providing they give equal treatment to third providing they give equal treatment to third party DGparty DG
Increase DISCO allowed rates of return Increase DISCO allowed rates of return based on T&D avoided, line losses, and based on T&D avoided, line losses, and efficiency gainsefficiency gains
Refuse to authorize T&D investment until Refuse to authorize T&D investment until DG opportunities have been exhaustedDG opportunities have been exhausted
ConclusionsConclusions DG has significant net benefits in DG has significant net benefits in
economics, emissions and vulnerabilityeconomics, emissions and vulnerability DG should receive significant locational DG should receive significant locational
benefits for net value it provides to other benefits for net value it provides to other usersusers
Utilities are rewarded for blocking DG, Utilities are rewarded for blocking DG, even though more DG will dramatically even though more DG will dramatically benefit societybenefit society
Any backup charges will make the future Any backup charges will make the future cost of heat and power highercost of heat and power higher
Thanks for ListeningThanks for Listening
For more detail, go to For more detail, go to www.privatepower.netwww.privatepower.net or to or to
www.localpower.orgwww.localpower.org
