Professional Documents
Culture Documents
January/February 2001 © 2001, Elsevier Science Inc., 1040-6190/01/$–see front matter PII S1040-6190(00)00180-9 89
Carl Weinberg paints the broad over the next three years by DG is Regulators should provide for DG
picture of distributed generation still small change. interconnection standards, assure
(DG):1 “Electric systems have Nonetheless, thanks to DG, we that the price of energy fed into the
altered the course of human his- can no longer take for granted that grid from DG is fair, and assure
tory. In this millennium, the distribution will always be the dis- that the price obtained from the
forces of competition, environ- tribution company’s monopoly. grid is also fair (i.e., free of exces-
mental need to limit emissions, Over time, DG will remove some sive fixed charges).
and the emergence of technology
tend to minimize the need for the
existing large-scale systems, and
of the need for new generation,
new transmission, and new distri-
bution. DG will enhance reliability,
O ther articles have spoken to
these needs for a level play-
ing field.4 Our task in this article is
develop a system in a more dis- and moderate load pockets caused to relate our energy efficiency pol-
tributed rather than centralized by transmission constraints. The icy experience to DG policy. Our
way. These changes not only hold timing and extent of this evolution premise is that all DG that meets
out the possibility to provide elec- minimal environmental stan-
tricity to people that are not con- dards should be free of inter-
nected to a grid but also threaten connection biases, but that
the neat compartments that the environmentally friendly DG
electricity system has evolved in
How big is this (photovoltaics, fuel cell, natural
the last 100 years. New organiza- revolution? It’s gas turbine, wind) should receive
tional entities will emerge to take an additional policy boost. These
advantage of the new technolo-
not much in the new incentives would encourage
gies.”2 At some point, buildings, near term, according environmentally friendly DG
entire blocks of buildings, and to Siemens’ deployment over heavily pollut-
downtown districts and neigh- ing DG—namely, diesel-fueled
borhoods could form their own Jan van Dokkum. reciprocating engines. This policy
power systems, either indepen- boost builds in societal benefits of
dent from the grid or feeding elec- carbon reductions and lowered
tric sales into it while assuring unhealthy emissions in general.
reliability from the grid. Whether will be determined by the march of Technology has reduced sharply
we become grid-free or not, it is technology and market forces, and the prices of many DG applica-
clear that we will become less hopefully not by excessive govern- tions, and will continue to find
grid-reliant over time. ment mandates. economic applications in the
90 © 2001, Elsevier Science Inc., 1040-6190/01/$–see front matter PII S1040-6190(00)00180-9 The Electricity Journal
trial park could be powered than customers can today obtain accelerated depreciation for DG
locally. The grid need not provide from grid power. Regardless of and tax credits for combined heat
back-up reliability, since reserve how precise standards become, and power systems.7 Several bills
capacity could be built into this DG can be expected to grow sub- would require FERC to establish
urban block’s power system. And stantially to meet the particular- DG safety, reliability, and power
then blocks could connect with ized needs of individual quality standards, to expedite DG
one another, and city sectors may customers—especially if regula- development. The Institute of
sever themselves from the grid. tors remove entry barriers. Electric and Electronic Engineers
Not everyone shares this vision. (IEEE) is developing DG technical
Some, like Gregory J. Yurek, Presi- interconnection standards which
I. Barriers to Entry
dent, CEO, and Chairman of may be issued by late 2001 or in
American Superconductor, believe The Federal Energy Regulatory 2002. In a July 2000 resolution, the
“the grid is here to stay.” Yurek Commission (FERC) stated in National Association of Regula-
believes that microturbines and tory Utility Commissioners
fuel cells can provide 1 to 2 per- (NARUC) supported adoption of
cent of energy needs in several national interconnection stan-
years, but sees that general level dards developed and adopted
as a ceiling, assuming the grid
Despite developments by IEEE.8
achieves 99.9 percent reliability. that should stimulate Despite all of these develop-
However, Clark Gellings, Electric ments, barriers to entry comprise
Power Research Institute Vice
distributed generation, the primary DG problem. For
President of Retail Energy, projects barriers to entry example, a New England fuel cell
an “enormous bypass of the grid” comprise the primary plant promoter complained that
unless the grid can find a way to utilities do not want to operate
solve power quality problems. problem. fuel cell plants because state legis-
Practically speaking, Gellings lation does not allow distributed
says, such solutions are not likely, utilities to own generation. The
because it may cost $100,000 per DG developer thus sought help
kWh for the grid to assure the Order No. 2000 that regional from the New England power
power quality demands of many transmission organizations pool, but was rejected on the
customers, including the needs of (RTOs) must have ultimate grounds that a power pool cannot
Silicon Valley.6 responsibility for transmission reasonably be expected to dis-
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equivalent to 7.3 percent of the and California—have been pio- atmospheric concentrations for
total U.S. capacity.12 Diesel gener- neers in crafting DG interconnec- CO2 have increased from 278
ators have long been used to pro- tion policies.16 As Brent Alderfer parts per million in the pre-
vide backup power for hospitals pointed out: “We need an 888- industrial age to 356 ppm in 1992
or community centers as well as type order to promote an open (a 28 percent increase), and are
supply routine backup in many access distribution network sys- estimated to increase to 550 ppm
buildings where reliability is cru- tem.”17 Second, regulators can by 2050. It is unlikely that humans
cial. However, many of these units encourage clean DG. State “wires can play around with the compo-
can be quite polluting.13 Diesel charges” fund energy efficiency,18 sition of the air we breathe with-
generators produce large amounts but nonrenewable DG does not out dire consequences. The unrat-
of NOx and particulate emissions. necessarily have a supply-side ified Kyoto Protocol attempted to
The country’s annual NOx emis- funding source. As DG competes require reductions in greenhouse
sions could increase by nearly 5 with energy efficiency, clean DG gases to 7 percent below the 1990
percent if just 0.5 percent of the levels by 2012. The current policy
U.S. demand for electricity were level for carbon is 1,786 million
met by uncontrolled diesel metric tons (MtC) by 2010, a 43
engines.14 percent increase from 1990
Over the years, energy efficiency
Energy levels. This consumption level
and load management have signif- efficiency is would have to be reduced to 1,246
icantly shaved peak load and MtC by 2012 if adherence to the
enhanced reliability. Energy effi-
emission-free, Kyoto Protocol were to be
ciency is emission-free, but much but much achieved. Obviously, we are see-
DG is not. Taking societal needs distributed ing a huge policy gap between sci-
into consideration, regulation entists and politicians. Nonethe-
should selectively promote DG. generation is not. less, some sincere action will
Public policy should not encour- inevitably be required of the
age the highly polluting DG human race.
(chiefly diesel generators) simply
because it is DG. should receive incentives to level A mong distributed resources,
energy efficiency as well as
92 © 2001, Elsevier Science Inc., 1040-6190/01/$–see front matter PII S1040-6190(00)00180-9 The Electricity Journal
ing generation to the grid. Some that we now see, must be avail- sions is one option. In any event,
states such as California and New able to the microprocessor at least economic and environmental regu-
York have asked utilities to look at 99.99999999 percent of the time. lators must collaborate to maxi-
demand-side management (DSM) Exceptional power reliability and mize DG economic and environ-
and DG as alternatives to major quality are critical to our techno- mental benefits.
transmission and distribution logical future.25
E. Other DG Benefits
(T&D) upgrades. DG can postpone Capacity shortfalls, especially
new generation, transmission, and during summer temperature Other benefits of DG include
distribution, much of which would spikes, have resulted from delays providing ancillary services,28 add-
be uneconomic compared to DG. in adding generation, lack of ing self-generation to customer
Thus, DG can be a least-cost plan- incentives to build new transmis- options, reducing transmission
ning alternative.21 sion, and transmission siting diffi- line losses, as well as enhancing
culties, as well as insufficient DSM fuel diversity and fuel switching.
C. Transmission Congestion
DG also brings its owners a new
Relief
revenue source as electricity is sold
The benefits of DG vary with its to the grid.
location. Sometimes a few blocks
can make a huge least-cost plan-
ning difference. DG helps to
Benefits vary
with location.
D G could prove invaluable to
developing nations as well.
Plug Power’s Gary Mittleman
resolve load pocket problems reckons that it would cost between
when load grows but transmission
Sometimes a few
$1,000 and $1,500 per kW to build
lines cannot feasibly be added. blocks can make a or replace electricity grids in devel-
DG’s benefits are maximized if DG huge least-cost oping countries. Thus, micropower
is located in congested areas to is an attractive option in these
relieve congestion.22 Of course, if planning difference. countries. “Microfinance” thus
we use DG as must-run units, looms on the World Bank agenda.29
these DG may have market power, DG such as grid-free renewables
and thus must abide by ISO rules may be particularly suitable for
for must-run units. programs. DG’s peak shaving remote areas. For example, the
function enhances reliability. Oregon and District of Columbia
D. Increased Reliability
According to Sarah McKinley, Public Utility Commissions and
Oregon PUC Chair Ron Eachus “Investment in control equipment the Zambia Energy Regulatory
indicates, “In five years, I see reli- is necessary to reconfigure backup Board have established a partner-
ability as a consumer product.”23 equipment into peak shaving ship through the U.S. Energy
Customers will pay for the reli- capability. This control equip- Association. Although Zambia
ability level they need. The First ment, costing between $30 and has photovoltaic pilot programs
National Bank of Omaha, for $120 per kW, may have a three- operated by energy service com-
example, responded to a costly year payback.”26 Aside from cost panies in three rural districts,
computer system crash in 1997 by factors, states may limit the use of many other remote villages are
hooking its processing center up on-site diesel generation, because yet to be electrified.30 Zambia
to two fuel cells that provide diesels are heavily polluting. Cali- expects a total of 400 photovoltaic
99.9999 percent reliability.24 fornia, for example, limits back-up applications by 2003. In urban
Today, Silicon Valley is calling for generators to specified hours of and rural areas in the United
“10-nines” reliability. This means operation because of air quality States and around the world,
that electricity, at full quality and rules.27 Retrofitting these diesel DG’s future seems limited only by
without a variety of disturbances generators to achieve lower emis- our imaginations.
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IV. National DG Policies national standards are not ment Conference held in St. Louis
adopted, then states and regions in September 2000, participants
Several policy reforms would
could step into the void and adopt agreed to form a DG task force.
welcome DG to the power commu-
clean air standards for DG along Representatives from several agen-
nity and achieve DG’s potential.
with their state and regional inter- cies strongly support a collabora-
connection standards.34 tive approach to resolve regulatory
A. Uniform National
Interconnection Standards and environmental issues for DG.36
C. R&D Funding for
for DG Such integrated efforts are neces-
DG Applications
sary to balance the goals of reliabil-
Standardized DG interconnec- Additional R&D funding is ity, energy efficiency, and clean
tions enable DG to join the grid. needed to improve clean DG tech- environment.
National standards will avoid the nologies (fuel cells, photovoltaic
situation where DG must accom- A. State “Wires Charge”
modate a maze of state-by-state Policies
standards.31 States should allow some of
their wires charge funds to
B. National Energy Efficiency
encourage clean DG technologies.
and Emission Standards for DG
Clean DG is competing with
There are no energy efficiency energy efficiency for the same pot
standards for DG.32 We have of money, so a public utility regu-
national fuel efficiency standards latory commission should per-
for cars and federal energy effi- form a cost-benefit analysis to
ciency standards for refrigerators, help determine what projects
freezers, clothes washers, clothes deserve the wires charge funds
dryers, dishwashers, ranges and and determine funding levels by
ovens, room air conditioners, cen- comparing DG and energy effi-
tral air conditioners and heat ciency costs and benefits.37
pumps, furnaces and boilers,
water heaters, direct-fired space B. Stranded Cost Policies
cells, wind, and natural gas tur-
heaters, pool heaters, fluorescent bines) technologies. For example, Another issue that influences
lamps, incandescent reflector federal or state research funding can customers’ decisions to own DG
lamps, electric motors, commer- be channeled into DG emission con- is whether DG can bypass
cial air conditioners and heat trol technologies.35 Moreover, R&D stranded costs in the form of com-
pumps, commercial furnaces and would be helpful for DG aggrega- petitive transition charges (CTC)
boilers, commercial water heaters, tion, communication, metering, and or exit fees. For example, Califor-
showerheads, faucets and faucet control, so that DG can send and nia does not impose CTC charges
aerators, toilets, and distribution receive price signals from ISOs and on new loads served by self-
transformers. We should add DG regional transmission organizations. generation. In Arizona, CTCs are
to the list. not imposed on self-generation
94 © 2001, Elsevier Science Inc., 1040-6190/01/$–see front matter PII S1040-6190(00)00180-9 The Electricity Journal
tric public utility.38 Many based high customer charge or could be exempted from the dis-
stranded costs policies are still standby charge. This policy tribution company’s generation
fluid at this stage. We suggest that would coordinate economic ownership prohibition. Utilities
“clean DG” receive favorable incentives with environmental could also be allowed to contract
CTC treatment over unclean DG, objectives. Currently, standby with a third party to obtain
although again, cost-benefit anal- charges vary considerably from clean DG.
yses are needed. utility to utility.42 In summary,
E. Net Metering Rules and
standby rates should be fair for all
C. Rate Design Incentives Buy-Back Rates
forms of DG, while credits on
Many utilities do not favor DG, standby charges (flowing from a Thus far, 30 states and the Dis-
since DG cuts into utility sales. As wires charge) can be offered to trict of Columbia have legislated
pointed out by Brent Alderfer et clean DG (i.e., DG that meets or ordered net metering. With a
al., many DG developers believe two-way meter, customers own-
that some utilities use “unreason- ing an on-site generator can sell
able terms, excessive costs, and back extra energy to the grid. Net
inappropriate delays to either metering policies for 14 of the 30
gain utility advantage or impede states cover only renewable
the market for distributed resources, not including benefi-
power.”39 Utilities may also offer cial nonrenewables such as fuel
special discounts to customers cells and microturbines. To
who are considering the DG accommodate relatively clean
option so utilities may outcom- nonrenewable DG, state legisla-
pete DG promoters.40 Some utili- tors or public utility commis-
ties are proposing large fixed sioners should incorporate clean
charges (a large standby, cus- DG requirements into their net
tomer, or backup fee) and reduced metering policies. Commissions
energy charges.41 Such a policy or legislators can further facilitate
may be cost-based, however, utility purchases from clean DG
when a company supplies its own national or state environmental by assuring profitable buy-back
energy via DG and merely uses standards established for DG). rates. For example, research may
the grid for reliability. In these show that retail price would pro-
D. State Legislation
cases, if these sporadic loads on vide a more attractive buy-back
the grid occur during peak load, Some states’ deregulation laws rate than would avoided cost.
perhaps such a company should do not allow distribution utilities With an attractive buy-back rate,
pay a high customer charge or to own generation, including DG. an owner of clean DG is more
standby charge. Backup power This policy fuels the competitive likely to size the plant so that it
during grid low-demand periods fires between DG and distribu- provides energy beyond the DG
probably would not impose large tion utilities. In fact, distribution owner’s own needs. Moreover,
costs or warrant large charges. utilities are most familiar with net metering policies in 14 states
One policy response is that if a their distribution network and only cover small DG—equal to or
DG provider meets clean air stan- can identify optimal locations for less than 25 kW.43 The size of gen-
dards, then it would have its large DG. Distribution utilities can use erators qualifying for net meter-
fixed charge partially or fully DG to help reduce capacity prob- ing should be reviewed, so that
waived (e.g., by means of a sub- lems and to help reduce or elimi- larger clean DG can benefit from
sidy from a wires charge). If not, nate load pocket (transmission such policies. In addition, state
the customer would pay the cost- constraint) problems. Clean DG permit programs could stream-
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line their permit processes for because ISOs cannot now recog- side bidding provide these mini-
clean DG. nize where DG is located, much mal entry steps.
less provide real-time monitoring. Other policies require more pol-
VI. Regional DG Policies Small DG is currently invisible to icy initiative. DG should be sub-
ISOs. The communication infra- ject to performance standards for
A. ISO Demand-Side Bidding
structure is not completely devel- emissions and efficiency. The stan-
Clean DG may be considered as oped for DG. DG should be able dards should be set high enough,
either a supply-side or demand- to participate in energy markets to in our view, that many of today’s
side resource, and can create obtain spot market prices, or in diesel generators cannot qualify.
either kWs or “negawatts.” FERC the capacity market to boost reve- Since DG is a building-specific
should encourage RTOs or ISOs nues, and aggregation could help application, building codes
to conduct demand-side bidding. achieve such DG recognition. should be revised to accommo-
Demand-side bidding enables DG date clean, efficient DG and pro-
owners to receive a credit (the hibit DG that does not meet per-
lowest bid wins) to get off the formance standards.
grid during certain peak load
times. Demand-side bidding not
only enhances reliability, it also
W e have wires charges for
energy efficiency and
DSM, and we need wires charge
reduces the potential of genera- support for clean DG, too. R&D
tors to exercise market power should include substantial fund-
during the peak hours. DG’s peak ing for clean DG, as a least-cost
shaving potential equates it to a alternative to more onerous car-
demand-side tool. Moreover, like bon reduction policies. FERC and
DSM, DG defers transmission state utility commissions can
and distribution expenditures. encourage DG aggregation and
Thus, DG should be part of a ISO recognition of aggregated DG
demand-side bidding policy for dispatching and load shaving
along with traditional load man- purposes. Regional collaboratives
agement tools such as curtailable ISOs can work with DG coalitions can plan for clean DG and encour-
load programs. The Pennsylvania- to help stimulate aggregation. To age incentives through state wires
New Jersey-Maryland (PJM) stimulate aggregation for rela- charges. Energy service compa-
ISO has established a DG work- tively clean DG, a national policy nies will increasingly include
ing group to implement demand- for aggregation and interconnec- clean DG as part of their own cus-
side bidding in the near future. In tion could include a portfolio tomized least-cost plans that they
either demand-side or supply- requirement for aggregated DG, offer clients, especially if incen-
side applications, DG should be where aggregated DG would tives encourage them to do so.
able to inform the ISOs about meet environmental standards. These policies are necessary for
their operations and, similarly, clean DG to be able to compete in
ISOs must send DG price signals the energy marketplace. Several of
VII. Conclusions: Clean
to facilitate DG decision-making. these policies may seem a little
and Competitive DG
Thus, communication between interventionist. Keep in mind,
DG and the ISO is indispensable. Many of the policies discussed though, that we have not seen true
above simply enable clean DG to free enterprise since the days of
B. DG Aggregation Adam Smith. Everyone is trying to
join the regional energy supply
Aggregation of DG supply may systems. Interconnection stan- influence the marketplace: govern-
be needed at the ISO level, dards, net metering, and demand- ment, corporations, consumers,
96 © 2001, Elsevier Science Inc., 1040-6190/01/$–see front matter PII S1040-6190(00)00180-9 The Electricity Journal
and a variety of special interest 3. Authors’ conversation with Mr. van Distributed Generation Workshop in
groups, which is why our laws are Dokkum, at Electric Power Research Philadelphia, April 15–16, 2000.
Institute Summer Seminar, Aug. 7, 2000.
often hundreds of pages long. 10. R. Brent Alderfer, M. Monika El-
Mr. van Dokkum is President and Chief
dridge, and Thomas J. Starrs, Making
January/February 2001 © 2001, Elsevier Science Inc., 1040-6190/01/$–see front matter PII S1040-6190(00)00180-9 97
emissions, while the emission perfor- Report, draft proposal, R. 99-10-025, States, National Association of State
mance for microturbines in SO2 and NOx March 24, 2000, at 38. Energy Officials, DOE, EPA, State and
is about equal to a combined cycle gas Territorial Air Pollution Program
29. Supra note 7.
turbine. Supra note 4, at 54–55. Administrators/Association of Local
30. Meeting with the Zambian Energy Pollution Control Officials (STAPPA/
20. Energy Information Administra-
Regulatory Board staff, in Lusaka, ALAPCO), and National Council on
tion, Financial Statistics of Major
Zambia, Oct. 26, 2000. Competition and the Electric Industry.
U.S. Investor-Owned Electric Utili-
ties, 1996. (DOE/EIA-0437/96)/1 31. NARUC supports the establishment 37. In our view, a cost-effectiveness test
(Dec. 1997). by Congress of national interconnection which considers environmental impact
and power quality standards. Letter needs to be developed. Regulatory com-
21. DG is especially cost-effective in large
cities with underground systems. DG can from NARUC Executive Director missions used various tools in evaluat-
cost far less to serve a neighborhood’s Charles Gray to Sens. Frank H. ing or screening DSM; however, an eval-
load growth than it would cost to upgrade Murkowski and Jeff Bingaman, June 19, uation test for the cost-effectiveness of
the distribution system to import the same 2000. DG has not been fully researched. Even
power. Jay Morrison, Distributed Genera- though many grid-side benefits are hard
tion, National Rural Electric Cooper- to quantify (such as providing ancillary
ative Association, February 2000, at 3. service, reduction of line losses, and
relief of transmission congestion), lack-
22. Areas of high locational marginal
ing such a test to confirm the value of a
price often reflect transmission con-
specific DG project constitutes another
straint, and thus, the value of using DG
entry barrier. Nonetheless, states may
to relieve constraint will also be rela-
conduct cost-benefit analyses to the
tively high. For example, New York
extent feasible.
State’s Orange and Rockland Utilities,
Inc., provided capacity payments to DG 38. Review of Utility Interconnection,
owners during summer months at speci- Tariff and Contract Provisions for Dis-
fied locations to secure additional tributed Generation, NARUC report pre-
needed capacity. Supra note 10, at 17. pared by R.W. Beck and Distributed Util-
23. Authors’ conversation with Ron ities Associates, Jan. 2000, at 4–9.
Eachus, May 25, 2000.
39. Supra note 10, at 12.
24. Worldwatch Institute, http://
www.worldwatch.org (Sept. 2000). 40. Id., at 27.
26. Sarah McKinley, Executive Director 33. Supra note 4, at 51. 42. For example, standby charges range
of Distributed Power Coalition of Amer- from $52/kW per year to $200/kW per
ica (DPCA), comments filed by DPCA in 34. For example, California has passed year among several DG projects located
response to FERC Notice of Interim Pro- legislation to support an emission stan- in the state of New York. Supra note 10,
cedures to Support Industry Reliability dard for DG. Presentation by Eric Crotty
at 21.
Efforts and Request for Comments, of Plug Power at Energy and the Envi-
Docket EL00-75-000, June 2, 2000, at 5. ronment: The Second National Confer- 43. Computed from supra note 21,
ence of Policy Makers Working Together, Appendix A.
27. Comments filed by NARUC in
St. Louis, Sept. 24–27, 2000.
response to FERC Notice, Notice of 44. North America Electric Reliability
Interim Procedures to Support Industry 35. The state wires charge is a likely Council, Reliability Assessment 1999–2008
Reliability Efforts and Request for Com- R&D funding source for clean DG, as are (2000).
ments, issued May 17, 2000, Docket DOE grants.
EL00-75-000. 45. American Council for an Energy-
36. Energy and the Environment: The Efficient Economy, Electric System Reli-
28. DG can provide distribution level Second National Conference of Policy ability and the Critical Role of Energy Effi-
ancillary services such as voltage sup- Makers Working Together, St. Louis, ciency, July 2000, at 5.
port, reactive power, and emergency Missouri, Sept. 24–27, 2000. These partic-
back-up. California Distribution System ipants include representatives from 46. Conference presentation by Dan
Planning and Operations Workshop NARUC, Environmental Council of the Reicher. Supra note 34.
98 © 2001, Elsevier Science Inc., 1040-6190/01/$–see front matter PII S1040-6190(00)00180-9 The Electricity Journal