Distributive Energy
Mar 13 - Montana Business Quarterly
Although Montana still boasts an abundance of both non-renewable and
renewable energy resources and is still a net exporter of generated energy,
skyrocketing costs demand reconsideration of Montana's traditional focus on
extracting and exporting natural resources and energy with little or no added
value. Montana's abundance of natural resources can no longer guarantee low
energy prices for its citizens. Only with innovative thinking and new
technologies can consumers again enjoy lower cost, reliable ) energy supplies.
Given its resource base and rural demographics, Montana is well positioned to
apply distributive generation technologies utilizing existing sources of energy.
Distributed generation (or DG) involves modular, selfcontained electric
generation located near the point of use. A number of technologies can (and are)
being used in the generation of distributed energy, including diesel generators,
wind turbines, and fuel cells. Many are available now and ready for use.
DG systems can be operated as independent, stand-alone sources of power, or
can be used in conjunction with established grid power. Montana can leverage
some of its nonrenewable resources in innovative ways to help bridge the gap
until other technologies and renewables become widely available and affordable.
Distributive energy technologies, combined with existing natural resources, can
be a major asset during this transition.
The debate over deregulation will certainly continue, but it is still an
opportune time to think creatively about how the energy future of this state
could evolve in a different way. Montana is blessed with vast quantities of
resources, including fossil fuels. There is considerable potential in terms of
some renewables - notably wind and solar. And Montana's rural, agriculture-based
population, particularly in eastern Montana, is not easily served by a
centralized energy infrastructure. Priority should be given to meeting the
energy needs of Montana businesses and residents in an efficient and cost
effective manner. Montanans should be the first to benefit from native natural
resources - not simply in the form of severance taxes - but also as a direct
source of energy for their own needs. This is not yet happening, nor will it, as
long as we continue to think only in terms of extracting and exporting energy
resources.
Montana's Changing Energy Landscape
Montana's energy landscape changed dramatically when energy deregulation
(Senate Bill 390) passed the Legislature in 1997. This legislation was written
by Montana Power Co. and introduced and passed at the very end of the
legislative session, arguably with little understanding of its implications.
Within a year, MPC began the process of getting out of the energy business. In
2002, the company ceased to exist. The breakup of MPC included the sale of its
energy-generating assets to Pennsylvania Power and Light (PPL) in 1999 and the
sale of its transmission and distribution infrastructure to NorthWestern Energy,
a subsidiary of North Western Corp. of South Dakota, in 2002.
A number of temporary conditions were attached to some of these transactions.
For example, as part of its acquisition, PPL agreed to sell power back to MPC at
a capped rate during a transition period intended to facilitate the move toward
deregulation. When a competitive energy market failed to develop, Montana's
Public Service Commission extended the transition period for another two years,
until 2004 In the end, however, both large and small energy consumers in Montana
were faced with buying energy at market rates - rates that began to soar in
2000.2
Meanwhile, the financial vulnerability of NorthWestern Corp. became evident.
By the beginning of 2003, the company's stock ratings were downgraded, earnings
had to be restated (to include losses of nearly $900 million in 2002), corporate
property tax payments were delayed because of cash flow problems, and a
subsidiary defaulted on its five-year contract to provide energy to cities,
counties, and schools at discount prices.3 NorthWestern declared bankruptcy in
September 2003.
Uncertainty over energy prices and even the reliability of energy supplies
has dramatically increased for Montana businesses and citizens.4 For example,
the Public Service Commission recently approved a 35 percent rate increase for
natural gas and 14 percent for electricity, affecting some 450,000 NorthWestern
customers.5 And given the company's precarious financial situation, there is
talk about leveraging the state's limited fiscal resources to try and guarantee
that Montanans will have sufficient energy supplies for the winter.
Figure 1
Cost Savings by Sample Technologies
Distributive Energy Generation
The existing power generation and transmission infrastructure relies upon
large, capital-intensive facilities giant ships in the ocean. And like ships,
they're hard to stop, hard to maneuver and vulnerable. For example, coal-fired
plants and the associated transmission and distribution infrastructure that were
built in the 1960s still burn coal by the unit train load (it's hard to stop);
the infrastructure is not conducive to fluctuating demand load changes (it's
hard to turn) ; and it is vulnerable - to unexpected interruptions (blackouts,
terrorist threats). In addition, its generation and distribution system is not
set up to easily integrate electricity generated from alternative sources.
Distributive energy generation encompasses a broad range of technologies that
are capable of producing energy on a small scale and without the extensive
infrastructure typical of conventional energy distribution systems.
Micro-turbines, fuel cells, gas combustion turbines, and Stirling engines would
all perform extraordinarily well and could potentially be used as local energy
resources. Some of these technologies are available literally "off the
shelf." For example, microturbines can be acquired locally and generate up
to 75kw of electricity. In addition, many of these technologies are economically
competitive.
By way of illustration we estimated the potential cost savings using two DG
technologies. Our analysis shows a fairly consistent payback period for
micro-turbines and larger gas combustion turbines of 2 to 3 years. The smaller
the scale of the application, the longer the payback period. However, with
micro-turbines, you can readily add combined heat and power (CHP) which will
shorten the payback period. More exotic distributed generation devices, such as
fuel cells, are not yet attractive in terms of payback and are usually
subsidized.
An important attribute of distributed energy is that it can complement the
existing generation and distribution system. Distributed energy generators are
relatively low cost capital investments that can augment existing electrical
supplies to help meet fluctuations in power demand and supply. With an
appropriate interconnection agreement in place, distributed generation (DG) can
serve as a source of power for the grid. It can also buy time for a utility to
replace or upgrade infrastructure. This is important for many rural utilities in
Montana that will have to spend millions of dollars in the coming years to
replace lines and poles that serve relatively few consumers.
A common thread among many of the DG technologies is the utilization of
natural gas as a fuel stock. While in other sections of the country this means
running these units off purchased, processed natural gas, Montana has the
capability of operating these technologies directly from local natural gas
resources. Research has estimated that a number of Montana well sites are
capable of producing methane with upwards of 95 percent purity. That approaches
the characteristics of a "laboratory grade" fuel stock. In short, in
the right locations, it could be feasible to install distributive generation
units, tap existing methane reserves, and generate electricity using a virtually
inexhaustible supply of high-grade fuel. What is the right location? That is
defined, in large part, by the geologic conditions that control where natural
gas forms.
Montana is fortunate to have a considerable amount of land that has the
geologic potential of offering good locations for distributive generation
technologies. Conventional natural gas development has been ongoing in central
and eastern Montana for decades. More recently, coal bed methane in the low-rank
coals found in the Powder River Basin in southeastern Montana is being
recognized as an additional source of natural gas. Both of these resources can
be considered candidates for local development for the purpose of powering
distributive generation units.
The town of Saco, population 229, provides a good example of how natural gas
resources can be developed in eastern Montana to fulfill local energy needs
before being sold on the open market. Saco owns seven natural gas wells. About
20 percent of the gas is used locally, while the remainder is sold to outside
intere\sts when market prices are at levels that will insure reasonable profits/
While Saco is already directly benefiting from local natural gas resources,
additional benefits could be realized if distributive generation technologies
were employed to generate electricity. DG combined with natural gas reserves
offer Saco and other communities with a similar resource base and an equally
progressive resource development plan, the means to diversify and profit from
their energy resources.
By conventional standards, the volume of coal bed methane considered
recoverable from the Powder River Basin in Montana is about 860 billion cubic
feet.8 This will supply the current U.S. demand of 20 trillion cubic feet per
year for about 16 days and represents less than 3 percent of the technically
recoverable coal bed methane available in the entire basin. Therefore, in spite
of considerable rhetoric surrounding the planned extraction of this resource in
Montana, there is actually only a relatively small volume of coal bed methane,
and economic benefits of conventional development methods to Montana are likely
to be considerably less than many estimates.9
Rather than adopting a traditional development mode with coal bed methane,
distributive generation offers an alternative. In essence, it can use the
methane in place to generate electricity. This could reduce many of the concerns
about traditional methane extraction practices, particularly in relation to
produced water, and it could help maximize the life of the coal bed methane
field as it extracts the resource at slower rates. DG could position Montana as
a leader in the application of these new technologies and promote a more
sustainable approach to development. It could also directly benefit regional
residents and businesses.
CAPSTONE MICROTURBINES
Methane-fired microturbine
perhaps the most unconventional, yet interesting, implication of this
approach to coal bed methane development is the idea of sustainability. coal bed
methane in the powder river basin is the result of microbial (biogenic)
processes; many believe that ongoing biogenic methane generation may contribute
in real time to commercial gas production.10 while the relationship between
microbes, coal, groundwater and methane is complex and the knowledge in this
area is small, there is a real possibility that the biogenic nature of coal bed
methane in the powder river basin makes it a potentially sustainable resource if
developed appropriately.
NATIONAL RENEWABLE ENERGY LAB
Solar collector and inverter.
Distributive Energy Technologies: Montana Applications
In the next five years, two emerging distributive energy technologies are
worth watching. One has significant, immediate potential in Montana, while the
other will likely take longer to become feasible. The former is the Stirling
Cycle engine; the latter is fuel cells.
Stirling Cycle engines are designed around external combustion, as opposed to
the traditional internal combustion engine. Researchers know the engine can
operate a minimum of 10,000 hours with minimal maintenance, and it boasts a 31
percent net electrical efficiency. That compares with a typical centralized
power generator, which might realize 20 percent net electrical efficiency before
transmission and distribution losses. Stirling generators also meet the 2003
California Air Resources Board regulations for NOx emissions, one of the
toughest air quality standards in the nation. At least one company, STM Power of
Ann Arbor, Mich., is field-testing a 55KW model around the country. So the
technology is here. Montana would be an ideal place to further field-test this
generator, especially because of the quantity and quality of our methane
reserves.
Fuel cells are also, clearly, a technology to watch. The federal government
is investing billions of dollars in this technology with the hope that technical
and economic obstacles can be overcome. The largest thrust of funding is in
transportation applications, but there is significant interest in the use of
fuel cells as stationary power generators. Newer fuel cell technologies are
emerging, such as direct methanol and solid oxide, which hold great potential
from both technical and economic perspectives. While there are challenges to
overcome in bringing fuel cells to market, it is in Montana's interest to
continue to bring this technology to the state for "real life"
applications. In fact, some companies are interested in field- testing fuel
cells here, in part because of the high quality of the undeveloped methane
reserves."
In sum, Montana has the opportunity to look forward and establish itself as a
significant participant in the application of fuel cell technologies in the area
of stationary generation of electricity. Or we can continue to look back and
think about business - and methane development - as usual. In the spirit of
looking ahead, in the next 24 months, Montana will host fuel cell demonstration
sites in Bozeman, Billings, and Miles City.
There are many examples of distributed generation technologies being used to
generate power and save money.12 One regional example is Magnesium Corporation
of America (Magcorp). Located 65 miles from Salt Lake City, it is the world's
third largest supplier of magnesium and the only production plant in the United
States. It uses 24MW of gas turbine power for plant operations, and captures and
uses the waste heat. Energy costs for this firm are 40 percent of production
costs; the new system will save $10,724,763 a year.13 Consider the savings if
the cost of the fuel stock was cut by 95 percent.
In the long term, Montana is also well positioned to take advantage of
renewable energy resources. The state generates a small percentage of its
electricity from renewables (total installed renewable capacity of 16 MW), but
has tremendous potential for future wind, solar, and even biomass development.
According to one estimate, eastern Montana has some key locations for
large-scale wind installations close to the transmission grid, and wind alone
could provide enough power for the entire state more than 70 times over.14
Clearly, wind, geothermal, and/or solar energy sources could play a larger
role in Montana's energy future as technologies evolve and become more feasible.
Meanwhile, existing non-renewable (or less renewable) resources can be leveraged
more effectively through distributive technologies to provide a bridge to the
future.
Into A New Era
For better or worse, Montana has entered a new era of energy generation and
distribution. In the long term, it is likely that alternative energy resources,
including solar, geothermal, and wind, will be developed to augment energy
supplies. In the short term, however, the state is faced with increased
uncertainty and rising costs. The energy crisis offers an opportunity - indeed,
an imperative - to look forward and think creatively about our energy future.
There are exciting ideas to consider, notably in the area of distributive energy
generation.
Montana has a unique combination of characteristics that make it well suited
for distributive energy field tests. First, it has an abundance of potentially
high-quality fuel stock natural gas - to power these technologies. Montana's
reserves of natural gas (coal bed methane and other sources) are not as
extensive as those found in other regions, notably the Wyoming portion of the
Powder River Basin. But they are more than sufficient for running distributive
energy technologies in a long-term, sustainable manner. In addition, Montana's
rural landscape lends itself to developing and utilizing this resource in place
to make electricity more accessible and affordable for rural communities and
businesses.
Montana residents could directly benefit from this development, while excess
power could still be available for the wider market. And the state would be
developing expertise, businesses, and experience in a niche market that has huge
potential in other regions - particularly in emerging economies. What this
scenario requires is a different way of thinking. It means overcoming the status
quo, the tendency to look back at how things have been done in the past.
Many states around the nation are attempting to spur integration of
distributive energy as part of their energy portfolio. Tax incentives, rebates
for certain technologies, lower rate schedules for natural gas used to fuel such
devices and direct subsidies are all being employed in other states. Montana
consumers and public officials have to demonstrate an interest in working with
utilities and the Public Service Commission to realize the benefits that
distributive energy has to offer and to make it happen. In other words, it will
require political will and investment. It will also involve extensive public
education to increase awareness about these technologies, their reliability, and
the important niche they can fill in our new energy environment.
Is Montana's current energy situation a crisis or an opportunity? As with
most complex issues, the answer is probably both. Skyrocketing energy costs are
unacceptable for a state as energy- rich as Montana. Technological developments
together with an abundance of natural resources provide Montana with a chance to
look forward and develop a conscious strategy for how to proceed in utilizing
its energy resources. Exciting, viable technologies are available to help
Montanans improve their energy and economic outlook. It is up to us to take
advantage of the opportunity.
References
1 Billings Gazette, "NWE Rates Some of the Highest," 7/14/03.
2 Federal Energy Regulatory Commission Report, March 2003, as cited in
Billings Gazette editorial, "Energy News Goes from Bad to Worse,"
7/8/03.
killings Gazette, "Here is a Chronology of Montana Power Co. and its
High Tech Successor," 6/19/03.
4 Michael Jamison, "Keeping the Lights On," Montana Business
Quarterly, vol. 39, No. 2 (Summer 2001).
5 Witlings Gazett\e, "NWE Allowed to Raise Power Rate 14%," 7/8/
03.
6 MSU-Billings Center for Economic Research. Analysis conducted by Energy
Labs, Billings, MT and well chemistry reports from various private sector
production wells, 2002-2003.
7 Dallas Waters, Gas Superintendent, City of Saco, personal communication,
2003.
8 U.S. Department of Energy, "Power River Basin Coalbed Methane
Development and Produced Water Management Study," prepared by Advanced
Resources International, Inc., 2002, p.3-3.
9 McNaIIy & Gurney, "Coal Bed Methane: Considerations for Developing
a Montana Resource," Montana Business Quarterly, Vol. 39, No. 2, Summer
2001, p. 12.
10 see, for example, Scott, A.R., "Application of Microbially Enhanced
Coalbed Methane to Stimulate Coal-gas Production," in Cardott, BJ. (ed),
Revisiting Old and Assessing New Petroleum Plays in the Southern Midcontinent,
2001 Symposium: Oklahoma Geological Survey Circular 107, p. 181; and Budwill, K.
et al, "Biogenic Methane Production from Coal, with Implications for Carbon
Dioxide Sequestration," Canadian Society of Petroleum Geologists
Proceedings, 2001 Convention, p. 149-1.
11 Fuel stock quality was one reason why a Canadian firm entered into a
contract with Montana State University to demonstrate Solid Oxide Fuel Cells.
Global ThermoElectric of Calgary, AB, Montana- Dakota Utilities and Montana
State University-Billings have established an agreement whereby Montana will
serve as a demonstration site for Solid Oxide fuel cell technology.
12 See, for example, WaU Street Journal, "Energizing Off-Grid
Power," 8/18/03; Gose, Joe, "Lean Machines," Barron's Online,
11/3/ 02.
13 Roger Swenson et al, "Magnesium Producer Relies on Distributed
Generation with Combined Heat and Power," Distributed Generation/ Combined
Heat and Power: A Special Supplement to Energy Matters, n.d.
14 www.energyatlas.org.
Brian Gumey is the energy program manager at the Center for Applied Economic
Research at Montana State University-Billings. Mary McNaIIy is a professor of
management in the College of Business at MSU-Billings. Monte Smith is a
hydrogeologist with the Montana Bureau of Mines and Geology in Billings.
Copyright Bureau of Business and Economic Research Winter 2003