Ken Silverstein EnergyBiz Insider Editor-in-Chief

Distributed generation is all about creating an uninterruptible flow of power. If businesses derive their energy from such power sources, traffic along the transmission lines would go down and reliability would go up. Costs, technology and fuel supply are still hurdles to development, which is why customers with overriding power quality concerns will pave the way for others to benefit. Certainly, external factors such as hurricanes and blackouts have placed a new-found emphasis on reliability that will likely encourage the development of on-site generation.

"As part of the President's plan to modernize the electric grid, it is critical to demonstrate technologies which add reliability and resiliency to the grid," says Kevin Kolevar, director of Department of Energy's Office of Electricity Reliability and Energy Security. "The same is true of our telecommunications infrastructure. Upgrading both systems concurrently can mean efficiency gains for both business and the consumer."

Consider Verizon, which has installed outside its building in Garden City, N.J. a distributed generation unit that runs on seven fuel cells. Each of those fuel cells is capable of generating 200 kilowatts of electrical power. By using electricity from the fuel cells and reclaiming the heat and water they produce to help heat and cool the building, Verizon says that it is eliminating some 11.1 million pounds of carbon dioxide that would have been emitted into the atmosphere by a similar-sized fossil-fuel based power plant during one year.

Distributed generation refers to generating units serving relatively small power loads such as shopping centers, hospitals, office buildings and even individual homes. By producing their own on-site power, those users can avoid widespread blackouts resulting from central power stations. Distributed resources, which reduce electricity distribution costs, can use renewable energy sources such as wind power and solar panels, or natural gas-fueled generators such as micro-turbines or fuel cells. The units can be interconnected to existing electric distribution systems to sell power to a utility.

According to energy educator Enerdynamics, about 550,000 small distributed generation units now exist in the United States. Of those, roughly 25,000 are operational all the time. By 2020, the American Gas Association has forecast that such facilities will account for 20 percent of all new capacity in this country, or 5 percent of all electricity generated. Some say that will not make enough of a difference on overall grid reliability, and emphasize that building new central generation and transmission is still essential.

About 100 utilities are making use of distributed resources. They are generally using such technology in tandem with demand-side management that focuses on conservation.

"While we now use fuel cells to supply much of the power we need here, we remain connected to the commercial power grid supplied by project partner Long Island Power Authority, and our existing mix of generators and battery backups also remains on standby for periods of peak demand as well as outages," says Adolfo Reyes, Verizon's real estate executive director.

Increasing Production

The Long Island Power Authority is one of the most progressive utilities in the field of fuel cell innovation. It's in the process of selecting a technology to use at its West Babylon substation that when operational will produce 10-megawatts of electricity. That would make it the biggest fuel cell-powered project in the world, and all done under New York State's goal of producing a quarter of its power from green energy sources. The utility furthermore says that such an installation would dramatically cut the level of all harmful emissions.

To be sure, fuel cell technologies are not a panacea to the nation's energy woes. Many distributed generation technologies run on natural gas that is expensive and in short supply. And combined cycle natural gas plants that are centralized are said to produce electricity more efficiently than distributed resources. And, finally, large users that must still connect with utilities' grid systems complain. That's because the utilities still have to charge customers that link with them, even though they may not be using their power.

Some of the obstacles can be overcome. The industry needs to build economies of scale that create economic efficiencies and drive down consumer costs, fuel cell executives said at an industry conference in Connecticut. Ever-increasing energy prices are raising awareness, they say. And that bodes well for innovations such as fuel cells.

"There are no technical barriers to deploying fuel cells into the marketplace," says Jan van Dokkum, president of Connecticut-based UTC Power, at the fuel cell conference. The industry needs new orders and greater production to bring the technology into the mainstream, he adds. Jerry Leitman, chair of FuelCell Energy in Connecticut and in an interview, adds that distributed resources are not just more reliable but also far more palatable than central generation. They are therefore easier to site and build.

Indeed, one of the conclusions of the book Small is Profitable authored by Amory Lovins maintains that uncertain demand as well as inflexible and slow-to-build plants has created a financial risk well beyond what the capital markets can stomach. And when coupled with long-standing concerns about giant plants, investors have begun to look for other alternatives. At the same time, both state and federal governments are getting involved.

With some federal backing, the Southern California Gas Co. is working on a large-scale combined heat and power demonstration project. Meantime, Salt River Project in Phoenix is looking into the economics and reliability of using distributed generation more effectively in the semiconductor industry.

The recent hurricanes have put the spotlight on alternative means to generate electricity. While central power stations may be more than 99 percent effective, the digital age requires even better. But if distributed generation is to expand beyond those enterprises that cannot afford even a momentary power loss, prices must come down. A desire for more power quality and less traffic along the lines may very well necessitate it.