See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/228586297

Distributed generation: Current status and challenges

Article · January 2004

CITATIONS READS
64 5,684

3 authors, including:

Hamidreza Zareipour Kankar Bhattacharya

The University of Calgary University of Waterloo
179 PUBLICATIONS   8,597 CITATIONS    204 PUBLICATIONS   8,125 CITATIONS   

SEE PROFILE SEE PROFILE

Some of the authors of this publication are also working on these related projects:

On Capacity Value of Energy-Limited Resources in Capacity Markets View project

Center for Electricity Trade Research and Facilitation View project

All content following this page was uploaded by Hamidreza Zareipour on 12 May 2016.

The user has requested enhancement of the downloaded file.


Distributed Generation: Current Status and
Challenges
H. Zareipour, Student Member, IEEE, K. Bhattacharya, Senior Member, IEEE and C.A. Cañizares, Senior
Member, IEEE
Abstract— This paper is an up to date overview of some of the
main issues in distributed generation (DG). It discusses various
aspects of DG such as definitions, technologies, installed capacity,
economics, environmental performance, reliability issues, the role
of DG in the new market environment, and the fluctuations
in market sales of some of the commercially available DG
technologies. It also presents some of the challenges that DG
systems are confronting today. In this article, some benefits and
potential problems of DG systems are brought out, and the
current status of DG systems operation is presented.
Index Terms— Distributed generation review, technologies, eco-
nomics, environmental performance.
I. I NTRODUCTION
ONSIDERING the manner in which the very earliest
C power utilities were operating to produce and deliver
electricity, it is apparent that distributed generation (DG) is
not an entirely new concept. Utilities had their own assigned
geographical territories, producing and distributing electricity
locally. National grids then came along to form large inter-
connected systems that made power systems more economic
and reliable.
New concerns are emerging in the power industry today.
For example, although hydro power plants are recognized to
be environmentally friendly, it is difficult to find new sites
for hydro power plant installations in developed countries.
Furthermore, some countries such as Germany and Sweden
have enacted laws to decommission nuclear power plants, and
under public pressure, retired nuclear power plants would not
be replaced [1]. Additionally, in the deregulated power sector
of today, it is not easy to convince market players to invest in
multibillion dollar power generation and transmission projects
where the payback period may be very long [2].These issues,
and the decentralization of power systems and liberalization
of the electricity sector, along with dramatically growing
demand for electricity in developed countries has made DG
an attractive option that has been reconsidered by various
entities in the new electricity market such as customers, power
distributors, power producers, regulators and researchers.
A. DG Definitions
IEEE defines the generation of electricity by facilities
sufficiently smaller than central plants, usually 10 MW or
Manuscript submitted to NAPS 2004 in Feb. 2004;
The authors are with the Power and Energy Systems Group, Department of
Electrical and Computer Engineering, University of Waterloo, ON, N2L 3G1,
Canada; http://www.power.uwaterloo.ca/. (e-mail: hzareipo@uwaterloo.ca,
kankar@ece.uwaterloo.ca, c.canizares@ece.uwaterloo.ca )
1
less, so as to allow interconnection at nearly any point in the
power system, as Distributed Resources [3]. The US Depart-
ment of Energy (DOE) defines DG as follows: “Distributed
power is modular electric generation or storage located near
the point of use. Distributed systems include biomass-based
generators, combustion turbines, thermal solar power and
photovoltaic systems, fuel cells, wind turbines, microturbines,
engines/generator sets, and storage and control technologies.
Distributed resources can either be grid connected or inde-
pendent of the grid. Those connected to the grid are typically
interfaced at the distribution system” [4]. Nevertheless, the
following definition is generally agreed in the literature for
DG: “A generating plant connected directly to the grid at
distribution level voltage or on the customer side of the
meter” [5]. This definition usually considers DG technologies
such as: reciprocating engines, small and micro turbines, fuel
cells, concentrating solar power and photovoltaic. However, it
generally excludes wind technology, since it usually appears
as wind farms and acts as a centralized power plant. Further-
more, in the literature, terms such as embedded generation,
dispersed generation, distributed energy resources or DER
and decentralized generation, have also been used in the
context of DG. The term dispersed generation is usually
referred to a distributed power generation unit regardless of
the technology, and whether it is connected to the grid or
completely independent of the grid [6].
The above definitions do not specify any criterion or classi-
fication of DG based on their capacity. Although, there is no
generally accepted rule or standard, the following ratings are
used in different countries and situations:
1) The DOE considers distributed power systems to typi-
cally range from less than a kilowatt (kW) to tens of
megawatts (MW) in size as DG unit [4].
2) The Electric Power Research Institute (EPRI), con-
siders small generation units from a few kW up to
50 MW and/or energy storage devices typically sited
near customer loads or distribution and sub-transmission
substations as distributed energy resources [7].
3) According to the Gas Research Institute, typically be-
tween 25 kW to 25 MW generation units are considered
as DG [6].
4) Swedish legislation treats generating units under 1500
kW differently from those unit capacities higher than
1500 kW. Then, it can be considered that DG capacity
in Sweden is defined as those units under 1500 kW [8].
5) In the English and Welsh power markets, a power

plant with capacity less than 100 MW is not centrally
dispatched. Therefore, in this market DG is referred to
any generating unit under 100 MW [8].
6) In New Zealand, generating units of capacity less than
5 MW are usually considered DG [6].
7) In Australia, generating units under 30 MW are consid-
ered as DG [8].
8) The International Council on Large Electricity Systems
(CIGRE) considers a generation unit that is not centrally
planned, not centrally dispatched, connected to the dis-
tribution network and smaller than 100 MW as a DG
unit [9].
From the above discussion, it is evident that capacity
specification for DG units is not universally defined. Various
generating schemes under completely diverse rating, behavior,
regulation, purpose and locations are currently being consid-
ered as DG in the power industry.
B. DG Capacity and Future Horizons
The installed capacity of DG in the US was around 168 GW
in 2003, mainly comprising reciprocating engines for back up
power [10]. In Canada, there was about 7.7 GW industrial
cogeneration capacity but less than 500 MW of renewable
energy capacity (photovoltaic, wind, tidal) in 2000 [11]. In
Europe, the installed DG capacity is estimated to be about 50
GW, including small hydro units and wind turbines [12].
It is estimated that the global electricity generation capacity
was about 3365 GW in 2001, of which thermal units accounted
for nearly 67%, hydro plants for 21.2%, nuclear plants for
10.7% and other sources of generation for 1.1% [10]. This is
expected to increase and be about 4000 GW and 5000 GW by
the years 2010 and 2020 respectively [2]. The US and Canada
possessed 813 and 111 GW of electricity generation capacity
in 2001 which is estimated to grow to 1070 GW and 130
GW respectively by 2010 [10], [13], [14]. It is projected
that 3000 GW new generation capacity would be needed
worldwide by 2020 to meet the growing electricity demand and
decommissioning of old power plants. It is expected that 1500
GW would be contributed by DG [15]. The Distributed Power
Coalition of America (DPCA) indicates that 20% of all new
generating capacity in the US over the next two decades will be
in DG [5]. Major manufactures, market research organizations
and consulting companies believe that by year 2010, DG
market would be in the range of $10 to $30 billion in the
US and $75 billion world wide [14].
In Europe, the targets are to employ more renewable dis-
tributed power generation. For example, the planned contribu-
tion of renewable energy in electricity generation by 2010, in
UK is 9.3%, Germany 21.5% and Denmark 29%, all figures
exclude large hydro units [12]. According to The European
Wind Energy Association (EWEA), installed wind turbine
capacity in Europe was 26.9 GW in 2003 and the new target
for employing wind energy in Europe is 75 GW by 2010 [16].
In spite of the impreciseness in estimations for DG con-
tribution in the power sector, they all imply that DG will
doubtlessly play an important role in the future of power
2
TABLE I
G AS - FIRED ICE MARKET GROWTH , WORLDWIDE , [17].
Year Total ICE Orders Gas-fired ICE orders Percentage
2001 10795 989 9.1%
2002 6736 829 12.1%
2003 6589 942 14.3%
generation industry. The current main areas of interest in study
and research in distributed generation are DG technologies,
economics of DG, environmental performance and reliability
issues associated with DG, which this paper discusses in some
detail. Technical issues related to connecting DG units to
the transmission or distribution systems under IEEE P1547
standard series are not considered here.
II. DG TECHNOLOGIES
DG technologies are usually categorized as renewable or
non-renewable technologies. Renewable technologies com-
prise solar either thermal or photovoltaic, wind, geothermal
and ocean. Usually the location and size of wind power gen-
erators is suitable for connecting to the distribution network;
therefore it can be considered as DG. However, electricity
generation from wind usually takes place in wind farms,
owned by large power generation companies; hence these
types of generation are usually excluded from DG in the
literature and for the same reasons are also not considered
here. The internal combustion engines (ICE), combined cycles,
combustion turbines, microturbines and fuel cells are all exam-
ples of non-renewable DG technologies. Among all available
technologies, combustion engines and turbines, microturbines,
fuel cells and photovoltaics play an important role in DG
applications [1].
A. Combustion Engines
Power generation through Internal Combustion Engine
(ICE) is the most mature of the DG technologies around the
world. This technology is available in diesel and gas fired
types. Comparatively low installation costs, high efficiency
(36-43% diesel-fired, 28-42% gas-fired), low start up and shut
down time (as low as 10 seconds), suitability for combined
heat and power (CHP) production that increases the total
electric and thermal efficiency up to 90%, widely available sale
and support services, inexpensive and readily available parts
and the availability of experienced maintenance and repair staff
are the main advantages of the ICE generator sets [1].
ICE generation capacity ranges from a few kilowatts to
over 30 MW. In the US, about 70% of engine sets range
between 10 kW to 200 kW and the majority are under 1
MW of capacity. By 2000, in the US, ICE accounted for a
total installed capacity of 52 GW, i.e., the 7% of the country’s
total installed generation capacity. In other parts of the world,
for instance the Netherlands, China and Indonesia, more than
25% of the total power production capacity is accounted for
by ICE [5].
To date, diesel-fired ICE is the leading DG in this category.
However, the worldwide market for gas-fired ICE (1 to 30+
 3

TABLE II TABLE IV
1-2MW ICE UNITS MARKET, WORLDWIDE [17]. G AS TURBINE MARKET, WORLDWIDE [17].

Year Total ICE orders 1-2 MW ICE orders Percentage Year Total GT orders 1-2 MW GT orders Percentage
2001 10795 8071 74.7% 2001 1534 126 8.1%
2002 6736 4091 74% 2002 841 110 13%
2003 6589 5241 79.5% 2003 597 163 27.3 %

TABLE III TABLE V

ICE MARKET, N ORTH A MERICA [17]. G AS TURBINE MARKET, N ORTH A MERICA [17].

Year Worldwide ICE Orders NA ICE orders Percentage Year Total GT orders 1-5 MW GT orders Percentage
2001 10795 5051 46.8% 2001 900 9 1%
2002 6736 2814 41.8% 2002 317 5 1.57%
2003 6589 2102 31.93% 2003 71 7 9.8%

MW) has grown significantly from 9.1% in 2001 to 14.3% range in CHP applications and are available up to 265 MW.
in 2003. Table I shows the growth of gas-fired ICE from For unit capacities less than 100 kW, the efficiency varies
2001 to 2003. Growth in gas-fired ICE sale markets can be between 15 to 17%, while for units larger than 30 MW, it is
attributed to improvements made in gas-fired engine emission as high as 45% for simple cycle turbines. Part load efficiency
and efficiency. of CT is lower than full load efficiency and their output
In 2002, the worldwide orders for ICE decreased by 37% in and consumption decreases in higher altitude regions [18].
comparison with 2001; however, the corresponding reduction Combined cycle turbines can reach efficiencies up to 55%, but
for small units (1-2 MW) was only 0.7%. Orders for ICE are usually used as central power plants and not as DG units.
further slowed down in 2003, decreasing by 2% from 2002, The typical efficiency is around 35% in the 5 MW range [2].
but orders for 1-2 MW units increased by more than 5% during Comparatively low capital cost, availability of natural gas
the same period (see Table II). North America’s overall ICE with low and fixed price in most countries, good efficiency
orders decreased 25% in 2003, and 45% in 2002 compared and low installation time are the advantages of gas turbines.
with previous years (see Table III) [17]. Furthermore, typical start up time to full output power is
The downward trend in power generation business in gen-
between 2-10 minutes, which makes gas turbines a good
eral, along with emission restrictions over ICE operation in
choice for reserve support. Although the CO2 emissions of
several countries is assumed to be the two main reasons for
gas turbines are nearly like engines (580-680 kg/MWh), they
the ICE market reduction. On the other hand, market for small
have significantly lower NOx emissions (0.3-0.5 kg/MWh) [5].
units especially gas-fired ICE illustrates the growing tendency
for distributed power generation.
The gas turbine sale market declined 29% in 2003 compared
Turnkey costs for diesel-fired engines are estimated to be
with 2002; however, orders for gas turbine with capacity of 1-2
around 350-500 US$/kW and 600-1000 US$/kW for gas-
MW increased from 110 units in 2002 to 163 in 2003. Table
fired ICE DG units, depending on the size [5]. Maintenance
IV shows the worldwide gas turbine market growth for 1-2
cost for diesel-fired ICE DG units ranges between 0.005-0.01
MW units from 2001 to 2003. In North America, total orders
US$/kWh and between 0.007-0.015 US$/kWh for gas-fired
decreased from 317 units in 2002 to 71 units in 2003, but units
ICE DG units [18]. The main users of the ICE DG units in
under 5MW of capacity accounted for 9.8% of the total orders
the US are gas, electric and water utilities. Other users include
in 2003, which is considerably higher than the 1.57% increase
manufacturing facilities, hospitals, educational facilities and
observed in (Table V) [17]. The promising developments in
office buildings.
small size gas turbines markets also represent the growing
The most serious barriers to ICE, which makes other
trends toward DG in the power generation business.
technologies competitive with them, are their highest NOx
Capital costs for installing a typical gas turbine is about 650-
(Nitrogen Oxides) emissions among DG technologies (diesel-
900 US$/kW, and with a heat recovery unit its costs are 1000-
fired:10 kg/MWh, gas-fired: 0.2-1 kg/MWh); high CO2 (Car-
1200 US$/kW. Average maintenance costs for combustion
bon Dioxide) emissions (diesel-fired: 650 kg/MWh, and gas-
turbines are estimates around 0.004-0.005 US$/kWh [18].
fired: 500-620 kg/MWh); short maintenance interval; operating
The US DOE Advanced Turbine Systems (ATS) is a
costs and high noise [5]. Advanced Reciprocating Engine
research program working to improve the performance of
Systems (ARES) and Advanced Reciprocating Internal Com-
turbines. The goal is to achieve higher efficiency for small
bustion Engines (ARICE) are two research programs in the US
size units, better emission performance and reduce operational
which are trying to improve efficiency of engines to 50% and
costs [4].
reduce NOx emissions levels to 0.134 kg/MWh by 2010 [18].

B. Combustion Turbines (CT) C. Microturbines

Gas-fired turbines have been adopted world wide for power Microturbines were initially developed for the transportation
generation. They are usually used in the 500 kW to 30 MW sector and more recently have found a place in the power

TABLE VI
F UEL CELLS MARKET BY TECHNOLOGY, WORLDWIDE [23].
Year(s) PAFC MCFC PEMFC Others
1970-2003 80% 10% 6% 4%
2002 55% 25% 18% 2%
2003 40% 35% 19% 6%
generation sector. These units can use a wide range of fuels
such as natural gas, hydrogen, propane and diesel to produce
electricity. Microturbines can be used for base load power,
stand-by power, peak shaving and cogeneration applications
and well-suited for small commercial buildings [1]. The capac-
ity of microturbines range from 25 kW to 500 kW and have an
electrical efficiency of about 15% for unrecuperated type and
between 20% and 30% for recuperated types, which recover
exhaust heat to boost the temperature of combustion. When
a CHP process is employed, the efficiency can be increased
to 85%. The start up time for commercial microturbines has
been reported to be up to 120 seconds [19]. Microturbine DG
units have a good NOx emissions performance (0.1 kg/MWh);
however, their CO2 emissions are sometimes more than ICE
DG units (720 kg/MWh) [5].
The capital costs of installing microturbines are estimated to
be between 700 and 1100 US$/kW and the maintenance costs
is between 0.005 and 0.016 US$/kW [18]. In comparison
with ICE engines, microturbines still have high capital costs
and since this technology has recently been commercialized,
it has fewer performance records and support services.
The main advantages of microturbines are low noise, small
size, small number of moving parts, long maintenance intervals
and ability to use waste fuels. Availability of natural gas in
most countries is the other point that may help the microtur-
bine market. A comprehensive market assessment for micro-
turbines is presented by Energy and Environmental Analysis
Inc. in [20]; this survey estimates the market for microturbines
in the US to be more than 1.86 GW. Using power electronics
and control systems for power conversion, microturbines can
work in grid-connected or off-grid modes [20], [21].
The US DOE set up the Advanced Microtubines Systems
Program in 2000; the projected funding for this program is
$63 million plus another $63 million expected in cost sharing
through 2006. The targets are at least 40% fuel to electricity
efficiency, NOx emissions lower than 7 ppm, 11000 hours of
operation and system costs lower than $500/kW [22].
D. Fuel Cells
Fuel cells can convert chemical energy to electricity without
combustion. Fuel cell technologies were initially developed for
space applications, and then the transportation sector found it
to be a promising technology. Since this technology has good
efficiency, compact size, very low noise, negligible NOx , SO,
CO and reliable operation, it has found its market in the power
industry as well [1].
There are five fuel cells types based on the following
electrolyte material, which are different in several aspects:
Alkaline (AFC), Molten Carbonate (MCFC), Phosphoric Acid
4
Fig. 1. Governmental support for fuel cells research [23].
(PAFC), Proton Exchange Membrane (PEMFC) and Solid Ox-
ide (SOFC) [14]. From these types, the most commercialized
technology in power producing application is PAFC. From
1970 to 2003, PAFC accounted for about 80% of installed
fuel cells capacity; however, in 2002 and 2003, MCFC and
PEMFC were likely to supersede PAFC [23] (see Table. VI).
PAFC generation units are now available in small sizes for
residential powering purposes (3-5 kW), and large size for
commercial power generation (100-250 kW). Several 200 kW
units has been installed in the US, Europe and Japan [24].
The electrical efficiency of fuel cells ranges from 30 to
55 percent and between 36% and 42% for PAFC. PAFC can
produce hot water and heat as its operation temperature is
about 200 ◦ C. The CO2 emissions are associated with the
type of fuel cells; for PAFC, it ranges from about 430 to 490
kg/MWh. The main fuel used in fuel cells is hydrogen which
is usually derived from natural gas; the other fuels such as
diesel and landfill gas can also be used [5]. PAFC has proved
highly reliable performance, but it needs 1-4 hours to start up
and, therefore, it is not suitable for fast start up purposes. It
is well suited for base load applications where the reliability
of power is critically important.
Although the capital costs per kilowatt of fuel cells plants
is now about 8-11 times that of the engines, which is around
4000 US$/kW for a 25 kW unit and 5500 US$/kW for
a 200 kW unit, various companies are making substantial
investment in research and development of fuel cells to be
able to commercialize a fuel cell for residential applications
in the near future. Maintenance costs of fuel cells is expected
to range from 0.005-0.01 US$/kW [5], [18]. The US, Japan,
the European Union and Canada have approved more financial
support in 2003 than ever to help research programs in fuel
cells (see Fig. 1).
The output current of a fuel cells is dc and hence can be
used directly for dc applications. For ac applications, it needs
power electronics controllers to convert the output power to
ac form. Fuel cells can operate in various modes such as grid
independent operating mode when the output tracks the load
(not all types of fuel cells have this capability [25]), grid
connected operating mode with constant output power and
grid-connected/grid-independent parallel operating mode as a
backup system. To date, the most common application is the
last one.

E. Photovoltaic (PV)
Since PV systems convert sunlight to electricity directly
without combustion or any other fuel consumption, this tech-
nology is emission free and has very little operation costs and
maintenance. PV technology has been used mostly in remote
buildings and communication systems, space applications as
well as megawatt-scale power plants [1]. PV can be consid-
ered to be the best DG technology for household and small
commercial applications.
PV systems are now commercially available in rooftop
small sizes (less than 10 kW), medium size (10-100 kW) and
large systems above 100 kW connected to distribution system
feeders. To date, the main barriers to its market development
are its highest total per kilowatt turnkey costs among DG
technologies (6000-10000 US$/kW, installed), storage system
requirements and lack of finalized standards for grid con-
nection. Besides, its operation is vulnerable due to weather
conditions and requires higher area for installation [5]. Annual
maintenance costs for a PV system are estimated around 1%
of the first investment.
The price of power produced by PV systems could be as
high as 0.30 US$/kWh [18]. This high price is justifiable when
grid extension is required to deliver electricity to remote sites
or rural areas. In [26], a detailed evaluation of various aspects
of the electrification of rural regions in northern Ghana using
PV systems is discussed; this paper addresses how regional
circumstances can affect the competitiveness of PV systems
versus grid expansion.
PV can be economically favorable when their power avail-
ability during the peak load periods and reliability is an impor-
tant factor in the system. PV is also an efficient DG technology
when environmental issues are considered. PV systems can op-
erate grid connected or independent of the grid, and since they
use power storage systems and power electronics converters,
they can respond to dispatching commands quickly. Most grid
connected PV power plants enjoy investment subsidies and
financial incentives or favorable prices for the electricity they
produce.
Table VII summarizes the main features of DG technologies
presented in this section for comparison purposes.
III. E CONOMIC BENEFITS OF DG AND CHALLENGES
The potential economic benefits from DG systems, usually
cited in the literature, are impact on electricity prices, deferral
of upgrades of the T&D system, utilization of waste energy
resources and fuel flexibility, improvement in power quality,
provision of ancillary services, combined heat and power
generation, providing reliable power, off-grid applications, and
microgrid benefits. However a full evaluation of the economics
of DG needs more attention considering the challenges that
DG is facing in power markets.
A. DG Potential Benefits
1) Impact on electricity price: In deregulated electricity
markets, the Independent System Operator (ISO) charges
markets customers with an uplift to energy prices according to
5
all services it procures to keep the system running in a reliable
manner. For instance, in the Ontario electricity market, this
uplift is a combination of the cost of ancillary services, op-
erating reserve, losses, congestion, transmission services and
market administration, and it sometimes amounts to about 20%
of energy market price [27]. These uplifts make the actually
charged electricity tariffs higher than actual electricity market
prices. Therefore, distribution companies and large customers
buying electricity directly from the markets may consider
implementing DG systems to meet part of their electricity
demand internally. This will allow them to purchase less power
from the grid and hence reduce their costs. Furthermore, by
having DG units installed, market participants have the power
to cope with the price fluctuations particularly during peak
demand times. The market price is affected by the ability of
customers to choose between power from the grid or from
their own DG units, resulting in a reduction of market power
by generation companies.
2) Investment deferral: Appropriately located DG system
can be considered an important factor in transmission system
planning. For transmission corridors, specifically with low
congestion growth, DG systems can defer investments in
transmission system expansion. This is a somewhat contro-
versial issue because, once the investment is made and the
new transmission line is in service, the DG system may not
be as useful as it was envisaged at the outset. However,
firstly, flexible portable DG units such as mobile gas turbine
units with short installation time are a viable option to avoid
this risk. Secondly, in restructured power systems where an
investment in power generation plants expansion is not so
forthcoming from market players, DG systems may be used as
local generation units, with the ability to participate in energy
and reserve markets. Finally, in distribution system planning
and expansion, especially where demand growth is low and the
system is operating at its marginal resources, DG installations
can be a practicable solution to defer upgrades as well.
3) Utilization of wasted energy sources and fuel flexibility:
DG technologies have the capability to use energy resources
that are not economical or feasible to transport or convert.
Some oil fields have low quality gas that is not economic
to transport and is ignited in order to dispose of it; another
example of energy resource from waste is biomass gas from
waste water treatment, landfills and farms. Gas turbines and
microturbines can be readily employed to use these resources.
DG technologies have also the potential to improve the
security of energy supply and reliability of the power system.
DG technologies can diversify the energy resources for power
production, from sunlight by PV systems to landfill gas by
microturbines. However, to date, most commercialized DG
technologies use oil or natural gas, and the majority of the
investment in research has been directed toward fuel cells
and gas turbines which use natural gas [5]. This can limit
the advantage of DG systems due to their fuel flexibility.
4) Power quality and ancillary services: Installation of DG
can regulate the voltage at some buses. In areas where main-
taining the voltage within the specified standards is difficult,
DG may be able to improve the quality of power. Also, most
DG systems are capable of providing reactive power support
 6

TABLE VII
S UMMARY OF THE REVIEWED DG TECHNOLOGIES .
Technology Capital O&M NOx CO2 Efficiency Available Start up Main features Applications
costs costs kg/MWh kg/MWh size time
US$/kW US$/MWh
ICE *Mature industry *Emergency
Diesel 350-500 5-10 10 650 36-43% *Fast start and stop power
A few 10 s *Low costs *Peak shaving
kW to to *High efficiency *Load following
ICE 30 MW 15 min *CHP capability *Reserve support
Gas-fired 600-1000 7-15 0.2-1 500-620 28-42 % *High emissions *Grid On & Off
20-45% *Well established *CHP
Combustion 650-900 4-5 0.3-0.5 580-680 (up to 500 kW 2-10 market and service *Base load
Turbine 55% in to min *Readily available *Portable units
(Size combined 265 MW *Low costs *Reserve support
dependent) cycle) *Good efficiency *Grid On & Off
*Low Noise *CHP
Microurbine 700-1100 5-16 0.1 720 20-30% 25-500 Up to *Small Size *Peak Shaving
Up to kW 120 s *Long Maintenance *Stand-by power
85% Intervals *Grid On & Off
In CHP *Flexibility in Fuel
*Very Low Noise *CHP
Fuel Cell 4000 - 5-10 0.005 430-490 36-42% 5-250 1-4 h *Good efficiency *DC applications
(PAFC) 5500 to kW *Compact size *Base load
0.01 *Negligible *Grid On & Off
NOx emissions *Back up systems
*Reliable operation
*Clean energy *Communication
6000 - 1% of 0 0 A few kW *Negligible noise systems
Photovoltaics 10000 first NAa to more Quickb *High costs *Remote buildings
investment than *Environmental *Household
annually 100 kW Dependant powering
*No emissions *Grid On & Off
a Not Applicable.
b As fast as the system’s DC/AC converter stabilizes.

at distribution system level.
Some DG systems with fast start up and shut down time
are suitable for ancillary services such as supplemental re-
serve, congestion management and can also be used in load
management programs. In the summer of 2001, the New York
ISO paid $4-5 M in four days at a rate of $500 /MWhr to
some customers who chose to participate in load curtailment
program [28]. These types of programs give positive signals to
large customers to consider investing in DG units. Moreover,
some DG systems have the capability to enter the regulation,
load following and balance service markets.
5) Combined heat and power (CHP): CHP can increase
the overall efficiency in electricity production to more than
90% (heat and electricity combined) [5]. Since the produced
heat must be used on-site, usage of DG technologies with
CHP capability can be an attractive option. As CHP usually
involves a proportionally small increase in the total capital
cost of the unit (less than 10% for industrial applications),
it is economically attractive too. However, this application is
customer dependent and is useful only when the need for heat
is considerable.
6) Reliable power: It is estimated that the average cost of
one hour power outage in the United States is $7795, while
it is as high as $6.48 M for brokerage operations or $2.58 M
for credit card operations (year 2001 [4]). The overall cost of
power outage is even higher for companies with continuous
manufacturing process or that provide essential services when
considering social costs. A potential market for DG is these
types of companies, where a 99.9999% reliability is required,
i.e. 30 seconds outage a year. A wide range of available
DG technologies such as Fuel Cell systems and Gas Engine
backup systems, combined with a flywheel uninterruptible
power supply can provide this service [29].
The stand-by power capacity from DG units amounts to
more than 100 GW in the US alone (year 2001 [10]). This
potential is recently considered to be used in peak demand
hours in some states such as California, Oregon and New
Mexico [5]. Additionally, using mobile or stationary DG
systems help distribution companies supply customers that
need higher reliable power during critical times and increase
the capacity margin in the distribution system.
7) Remote areas electrification: The other cited potential
application of DG is providing electricity to customers who
are located far from the grid and usually do not have enough
demand to justify expanding the grid economically. However,
this is a debated subject and completely depends on the type
and the size of the customer. This issue needs comprehensive
economical considerations for making the right decision [26].
Nevertheless, the only possible way to energize customers in
some cases such as remote communication sites is through
DG, mostly using PV systems.
8) Microgrid: Microgrid is a new concept in which a
cluster of loads and DG systems operate to improve the
reliability and quality of the power system in a controlled

manner. For customers, microgrids provide the need for power
and heat in a reliable way. For the whole system, microgrids
are dispatchable cells which can respond to the signals from
the system operator very fast. Information technology achieve-
ments along with new DG systems with intelligent control
systems allow system operators and microgrid operators to
interact in an optimal manner [30], [31].
B. Some challenges and debates
1) Power price competition: The per unit cost of power
generated from a DG system is still higher than that from
the grid. Moreover, the efficiency of DG systems is lower
than centralized generation units unless the CHP mode of
operating is included. Furthermore, competitive DG systems
can use a limited selection of fuels (mainly oil and natural
gas). Consequently, the cost of electricity produced from DG
is directly connected to the price of electricity from the grid
and fuel prices. For example, in Japan where electricity and
gas are expensive, the oil-fired DG system can be an attractive
option [5]. In contrast, in some other countries where gas is
inexpensive (e.g. the US), gas fired DG systems can be a viable
option.
2) DG vis-à-vis large power producers in new markets:
Liberalization of electricity market has provided DG systems
with access to open markets in which they have the opportunity
to sell power to a wider range of customers. However, in
this wider scope of trading power, they have to compete in a
larger market where bulk power providers have a large share
of the total production, this may affect the viability of DG
systems. For example, the distribution system is traditionally
designed to deliver power from the transmission system to
the end user customer; hence, connection of DG systems in
the distribution network in an open market where in DG is
eligible to export power to the grid, requires the distribution
system to be upgraded, as protection systems may no longer
operate as designed [32]. The costs of these upgrades make
the economics of DG more complicated; if the upgrade costs
incurred by the local grid is to be paid by the DG owner,
while large power producers do not have to pay such charges,
the competitiveness of DG will be affected. Effective policies
should be designed to cope with these problems [33].
The structure of deregulated electricity markets has been
designed with large power producers in mind. Consequently,
participating in the new markets is sometimes more challeng-
ing for DG units than bulk power producers. For instance, in
new markets, generators, including the DG units participating
in the markets, are committed to the amount of energy they
have declared to export to the grid. In case of any failure,
they have to enter and follow balance and spot markets prices
and purchase backup power at high prices. This can affect
small units with limited resources more than large ones, in
particular PV systems since they are more dependent on
weather conditions than other players. [5]
3) Reduction of congestion and losses in T&D systems:
It is technically accepted that power production close to
demand center has the potential to reduce the burden on the
T&D system in vertically integrated power systems. However,
7
this cannot be automatically presumed in open access power
markets. For example, Non-utility generators (NUG) have the
right to sell power to customers not necessarily close enough
to the production location. This may lead to more to increase
losses and congestion in T&D systems rather than alleviating
them.
Another important point which determines performance of
DG is the network configuration and the resulting power flow
in the whole system. Power injection by a DG unit at a specific
bus affects the transmission of power on each line differently.
This means that under certain circumstances, a specific DG
unit may not be able to relieve transmission congestion [32].
IV. E NVIRONMENTAL PERFORMANCE OF DG SYSTEMS
The main environmental concern of electricity production is
the effect on local and regional air quality from emissions of
NOx and green-house gases, in particular CO2 . This concern
is largely associated with nonrenewable power generating
technologies such as coal-fired generation.
Diesel-fired ICE has the highest NOx emissions and, con-
sequently, in most regions diesel engines can not operate for
more than a limited time (usually 150 hours per year in most
states in the USA). In regions with a large share of coal-
fired generation, installing low emission DG units such as gas
turbines and engines, microturbines and fuel cells can reduce
the amount of NOx emissions. However, apart from PAFC,
none of the DG technologies can compete in this category
with the new combined-cycle large power plants equipped with
Selective Catalytic Reduction (SCR) control systems [34].
CO2 emissions from nonrenewable DG technologies are
in no better situation as well. PAFC with typically 430-490
kg/MWh and microturbines with 720 kg/MWh have the lowest
and highest CO2 emissions respectively among nonrenewable
DG technologies. All nonrenewable DG technologies without
heat recovery have higher CO2 emissions than combined-cycle
plants and not significantly lower emissions than coal-fired
plants. Therefore, displacement of coal plants only with DG
technologies equipped with CHP system can actually reduce
CO2 emissions [5].
Apart from wind and PV systems, the lowest emitting
DG technologies with heat recovery systems can marginally
compete with combined-cycle power plants when the envi-
ronmental issues are considered. Commercially available DG
systems at reasonable costs have still a long way to go to be
significantly helpful in emission reduction programs.
V. C ONCLUSION
The wide range of potential applications for distribution
generation (DG), decentralization of power system and the
trend to use renewable energies in most developed countries
suggest that DG may have a large share in power generation
in the future. Nevertheless, more research and development
is required to overcome the barriers that DG systems are
currently confronting. Higher efficiency, lower emissions and
lower capital costs are the main goals these DG systems need
to accomplish. On the other hand, electricity market regulatory
authorities and government policy makers should consider the
 8

worth of DG systems andstatsmodify the structure, operation and

View publication [29] R. Lawrence, K. Craven, and G. Nichols, “Flywheel ups,” Industry
pricing mechanisms of the open markets to help their viability Applications Magazine, IEEE, vol. 9, pp. 44–50, May-June 2003.
[30] R. Lasseter, “Microgrids,” in Proc. Power Engineering Society Winter
and development. Meeting, IEEE, vol. 1, January 2002, pp. 27–31.
[31] G. Venkataramanan and M. Illindala, “Microgrids and sensitive loads,”
in Proc. Power Engineering Society Winter Meeting, IEEE, vol. 1, 27-31
R EFERENCES Jan. 2002, pp. 315 –322.
[32] R. Dugan and S. Price, “Issues for distributed generation in the us,” in
[1] A. M. Borbely and J. F. Kreider, Distributed Generation The Power Proc. Power Engineering Society Winter Meeting, IEEE, vol. 1, January
Paradigm for the New Millennium. CRC Press, 2001. 2002, pp. 121–126.
[2] H. B. Putegen, P. R. Macgregor, and F. C. Lambert, “Distributed [33] N. Strachen and H. Dowlatabadi, “Distributed generation and distributed
generation: Semantic hype or the dawn of a new era?” IEEE Power utilities,” Energy Policy, vol. 30, pp. 649–661, 2002.
& Energy Magazine, pp. 22–29, January/February 2003. [34] J. E. Allison and J. Lents, “Encouraging distributed generation of power
[3] “P1547 standard series for interconnecting distributed resources with that improves air quality: can we have our cake and eat it too?” Energy
electric power systems,” IEEE, 1547 Work Group, Tech. Rep., 2003. Policy, vol. 30, pp. 737–752, 2002.
[4] The US Department of Energy, Office of Distributed Energy Resources,
online publications available at: http://www.eere.energy.gov/der/, 2003.
[5] Distributed Generation in Liberalised Electricity Markets. International
Energy Agency, 2002.
[6] T. Ackerman, G. Anderson, and L. Soder, “Distributed generation: a
definition,” Electric Power System Research, vol. 57, pp. 195–204, 2001. Hamidreza Zareipour received his Bachelor (1995) and Master (1997)
[7] The Electric Power Research Institute, online publications available degree in Electrical Engineering from K. N. Toosi University of Technology,
at: http://www.epri.com/, 2002. and Tabriz University in Iran. He worked as a lecturer at Persian Gulf
University, Bushehr, Iran, from 1997 to Dec. 2002. Currently, he is a Ph. D
[8] B. M. Balmat and A. M. Dicaprio, “Electricity market regulations and
candidate in the Department of Electrical & Computer Engineering at the
their impact on distributed generation,” in Proc. Conf. on Electric Utility
University of Waterloo, ON, Canada, and doing research on distributed
Deregulation and Restructuring and Power Technologies (DRPT 2000),
generation systems and price forecasting in deregulated electricity markets.
London, 2000, pp. 608–613.
[9] “Impact of increasing contribution of dispersed generation on the power
system,” CIGRE study Committee no 37, Final Report, Tech. Rep., 2003.
[10] The US Energy Information Administration, online publications
available at: http://www.eia.doe.gov/fuelelectric.html, 2003.
Kankar Bhattacharya received the Ph.D. degree in electrical engineering
[11] “Renewable energy in canada, status report,” Stelios Pneumaticos Or-
from Indian Institute of Technology, New Delhi, in 1993. He was on
thologic Consulting, Tech. Rep., 2002.
the faculty of Indira Gandhi Institute of Development Research, Bombay,
[12] P. Dondi, D. Bayoumi, C. Haederli, D. Julian, and M. Suter, “Network
India, during 1993-1998 and the Department of Electric Power Engineering,
integration of distributed power generation,” Journal of Power Sources,
Chalmers University of Technology, Gothenburg, Sweden, during 1998-2002.
vol. 106, pp. 1–9, 2002.
Since January 2003, he has been with the Department of Electrical and
[13] The North America Energy Working Group, online publications
Computer Engineering, University of Waterloo, ON, Canada, as an Associate
available at: http://www.eia.doe.gov/emeu/northamerica/, 2002.
Professor. His research interests are in power system dynamics, stability and
[14] A. Baueu, D. Hart, and A. Chase, “Fuel cells for distributed generation
control, economic operations planning, electricity pricing, and electric utility
in developing countries- an analysis,” International Journal of Hydrogen
deregulation.
Energy, vol. 28, pp. 695–701, 2003.
[15] K. Huhn, “Market opportunities for distributed generation systems,” in
Proc. of the Seminar on Distributed Energy Systems, vol. 1. Frost &
Sullivan Inc., Jan. 2003.
[16] The European Wind Energy Association (EWEA), online publications
available at: http://www.ewea.org/, Oct. 2003.
[17] M. McNeely, “Power generation order survey, the coaster ride continues
downhill,” Diesel and Gas Turbine Worldwide, Oct. 2003.
[18] The California Energy Commission, Distributed Energy Resources
Guide, Available at: http://www.energy.ca.gov/, 2003.
[19] Capstone Turbine Corporation, online publications available at:
http://www.capstoneturbine.com/, 2003.
[20] “Advanced microturbine system: Market assessment,” Oak Ridge Na-
tional Laboratory, Washington, DC, Final Report, Tech. Rep., May 2003.
[21] R. H. Staunton and B. Ozpineci, “Microturbine power conversion
technology review,” Oak Ridge National Laboratory, Washington, DC,
Tech. Rep., 2003.
[22] “Advanced microturbine systems program plan for fiscal years 2000
through 2006,” U.S. Department of Energy, Office of Energy Efficiency
and Renewable Energy, Office of Power Technologies, Tech. Rep., 2000.
[23] M. Cropper, S. Geiger, and D. Jollie, “Fuel cell systems:
A survey of worldwide activity,” Fuel Cell Today, Online at:
www.fuelcelltoday.com/surveys, Tech. Rep., Nov. 2003.
[24] UTC Fuel Cells, online publications available at:
http://www.utcfuelcells.com, 2004.
[25] V. Knyazkin, L. Sder, and C. Caizares, “Control challenges of fuel cell-
driven distributed generation,” in Proc. IEEE PowerTech Conf., June
2003, p. 6 pages.
[26] J. Nassen and et al, “Distribution power generation versus grid extension:
an assessment of solar photovoltaics for rural electrification in northern Claudio A. Cañizares received in April 1984 the Electrical Engineer diploma
ghana,” Progress in photovoltaics: research and applications, vol. 10, from the Escuela Politecnica Nacional (EPN), Quito-Ecuador, where he held
pp. 496–510, 2002. different teaching and administrative positions from 1983 to 1993. His MS
[27] Ontario Independent Electricity Markets Operator(IMO) Manuals, (1988) and PhD (1991) degrees in Electrical Engineering are from the
Online at: http://www.theimo.com/, 2004. University of Wisconsin-Madison. Dr. Cañizares is currently a Professor and
[28] D. Lawrence, “2001 performance of the New York ISO demand response Deputy Chair at the E&CE Department of the University of Waterloo, and his
programs,” in Proc. Power Engineering Society Winter Meeting, IEEE, research activities concentrate in the study of stability, modeling, simulation,
vol. 2, 27-31 Jan. 2002, pp. 995 –998. control and computational issues in ac/dc/FACTS systems.