Ken Silverstein EnergyBiz Insider Editor-in-Chief

To the extent that businesses derive their power from such on-site generators, the wear and tear on the electric grid is diminished and reliability for customers is enhanced. Costs, technology and fuel supply are still hurdles, which is why customers with overriding power quality concerns will pave the way for others to benefit. Indeed, it appears that the emphasis on reliability will gain traction in certain circles, namely customers and regulators looking for unwavering reliability as well as environmentalists who see such projects as a way to cut harmful emissions.

Implementing distributed generation can be as simple as installing a small electric generator to provide backup power at an electricity consumer's site. Alternatively, it can be a more complex system, consisting of electricity generation, energy storage and demand management systems as well as rate designs to influence customer behavior. Distributed resources that run on fuel cells can be installed by utilities or customers.

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.

The larger industrial users that also recycle the byproduct steam to create heat can justify the investments. Others, such as those businesses that need a continuous supply of energy, must buy distributed generation because of its reliability. On-site power can be clean and efficient when compared to modern combined cycle power plants. Indeed, projects are in the works that are said to be 80 percent efficient compared to 40 percent and 50 percent for coal and modern combined cycle plants, respectively.

The Lawrence Livermore National Laboratory, for example, is working on a fuel cell that yields an 80 percent efficiency rate -- yet no burning of carbon takes place. "The conversion system must use a low-cost domestic resource, have comparable or lower capital and operating costs, achieve higher efficiency, and capture fuel oxidation products internally to achieve zero emissions of toxic and greenhouse gases," adds Lawrence Dubois, with SRI International, a research firm in Menlo Park, Calif.

Innovations Emerging

Residential fuel cells supply between 2-5 kilowatts of power and are mostly in the experimental stage. Meanwhile, those used for commercial enterprises can generate 200 kilowatts and are implemented if businesses need uninterruptible power or where access to the transmission grid is limited.

Practical applications are taking place. Dow Chemical and General Motors Corp. will integrate earlier fuel cell research and apply it to Dow's Texas operations in Freeport at its chemical and plastics production facility. The fuel cells will produce as much as one megawatt of electricity. If it works, Dow would pursue large-scale commercialization and use as many as 400 fuel cells to generate 35 megawatts of power. That would be enough to power 2 percent of Dow's Texas operations.

The obstacles to wider implementation, however, are high. For starters, many distributed generation technologies rely on natural gas, which is not only expensive but also limited in supply. Others also note that modern combined cycle natural gas plants that are centralized can burn electricity more efficiently than distributed resources.

Meanwhile, many large energy consumers find it less troublesome to buy bulk power from wholesale providers than to generate their own as well as interconnect to the incumbent's grid system. The interconnection issue is particularly problematic because utilities still have to charge customers that link with them, even though they may not be using their power.

At the same time, there is no accepted standard for how to interconnect with the grid -- a dilemma that the Federal Energy Regulatory Commission is trying to address. That quandary, however, has meant that equipment makers have no customary prototype from which to allow industrials to switch back and forth between power taken from the grid and power generated by on-site facilities. That has diminished the economies of scale that manufacturers might otherwise achieve.

"What is really needed before fuel cells can become economic and begin to have a significant impact is basic innovation in fuel cell materials and chemistry," says David Redstone, editor and publisher of a fuel cell newsletter. "In my view there is nothing 'inevitable' about the prospects for success for the fuel cell industry."

But, lots of research and development is underway. Vancouver, Canada-based Ballard Power Systems is now demonstrating a pre-commercial 1 kilowatt combined heat and power fuel cell generator to be used in the residential market in Japan. At 100 percent capacity, it has a 34 percent electricity efficiency rate, although that can be as high as 92 percent assuming the steam can be captured and re-used.

Along those lines, a recent report from Jackson Associates out of Durham, N.C. says that the Long Island Power Authority needs to increase generation by 100 megawatts per year through 2011. The study says that natural gas-fueled distributed generation could supply as much as 63 percent of that need.

The utility already uses 17 fuel cells at several commercial and municipal customer locations. The 5 kilowatt fuel cells are interconnected to the utility's grid and provide electricity and heat to those customers.

While the distributed generation market has promise, it will be limited for now to those businesses that need uninterruptible energy supplies and those that can re-use the steam to create additional energy. That's a small segment. But, costs are falling and new innovations are emerging. And, over time the use of such technology will play a bigger part in the global energy picture.

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