If the economic argument is not compelling, then the independence and reliability concerns usually are. Electricity has come to be viewed as necessary for life, and while this is rarely the actual case, it is the perception that is important. The reliability of the electric supply in the U.S. is extraordinarily impressive, but ironically this is the very reason that any interruption has become so important. We have structured our lifestyle and our businesses around a reliable electric supply to the point where we have become unwilling to endure even short and infrequent outages.
Rising Prices are Influencing The Demand
Electricity prices are rising fast, as are energy prices in general, which strongly encourages the most complete usage possible of every BTU in the fuel. The average retail price of electricity in the U.S. rose by 9.2 percent in 2006, a trend which will likely continue for the next several years. The national average masks some much more volatile regional prices where certain locations have seen price increases as high as 30 percent. It is inevitable that electric prices rise as the older power plants with higher emissions are forced into retirement and replaced by newer and cleaner plants. These older plants are fully depreciated and supplied with fuel under long term agreements that typically are priced considerably below current market prices for fuel. Any new power plant built today, regardless of technology, will have a cost of generation at least 30 percent higher than the current average cost of generation.
At the same time prices for the fuel which homes and business use for space heating and material processing have experienced even steeper increases. To stretch their energy budget further, more homes and businesses can be expected to turn to cogeneration. Cogeneration is the process whereby fuel is used first to produce electricity, and secondly to provide heat. Reality dictates that cogeneration is best applied near the point of use; it is not practical to transport thermal energy very far. The potential for small-scale cogeneration sited at the point of use is absolutely staggering. In 2005, approximately 5.5 billion gallons of fuel oil and 7.9077 TCF (tera cubic feet) of natural gas were used for space, water and process heating. Had this fuel been consumed in on-site cogeneration systems to produce some electricity as well as heat, approximately 12 percent of the nation’s electricity needs would have been met by these systems.
For larger systems, the heat rejected from the engine can be used to supply air conditioning via absorption chillers when space heating is not required, increasing the benefits derived from the system. This type of system is becoming popular for hotels, hospitals, large commercial buildings and universities. The amount of electricity currently generated and used on-site is not necessarily reported to the U.S. Department of Energy, as is the amount of electricity generated for sale, so comprehensive data is not available. Large cogeneration systems providing heat to industrial processes or commercial users and who sell the electricity they produce, do report data to DOE and currently account for 8 percent of the electricity produced in the U.S. A survey was conducted by DOE of the owners of smaller systems who are not obligated to report their data, and of the respondents, most indicated that they use their generators only in emergencies, indicating a large untapped potential.
Cogeneration is not the only option for on-site generation. Small scale wind turbines are also very popular in favorable locations, and photovoltaic panels are currently enjoying very strong demand. While popular opinion holds photovoltaic electric generation to be too expensive, a perusal of PV manufacturer press releases tells a different story. There is currently a major expansion of PV manufacturing capacity underway, with six companies announcing plans for new plants or expansions totaling 900 megawatts, just since the beginning of the year. The recently announced expansions, together with those currently underway will double the worldwide PV manufacturing capacity in the next few years. Unquestionably, some part of this very strong demand is due to the steep tax credits and other incentives, but many other factors are at work as well. Concern for the environment, energy independence, and pure economics are the principle drivers behind this trend. As electric rates continue to rise, costs for on-site generation are falling. For the past few years the prices of PV panels have stayed relatively constant, after having steadily declined for decades. The costs to manufacture the panels however, are still falling, which indicates that the very strong demand is pushing manufacturer profit margins higher.
Grid Interconnections are Critical
In the past, the largest hurdle to self-generation was connecting it in parallel with the utility, and stand-by systems avoided this with a transfer switch which allowed power to be supplied either by the utility or the generator but not both. This is not a very convenient arrangement. In most cases, the on-site generation will produce either more or less power than the home or business is using and it would be ideal for the utility to make up the difference. The majority of states have now passed legislation which makes this net-metering concept obligatory for utilities and eliminates their most powerful tool for preventing self-generation. Another major obstacle has been lack of uniform interconnect requirements. Each utility has had the freedom to decide what protective relaying, metering, switchgear and system stability analysis would be required for interconnection, which meant that interconnection requirements varied from one utility to another and sometimes from one project to another. Many states have now also adopted uniform interconnect requirements so everybody knows beforehand exactly what will be required for interconnection.
While net-metering and uniform interconnect standards are intended primarily to benefit producers of renewable energy, it actually makes all on-site generation easier to implement. In many cases the problems existed simply because the utility did not have a program or procedure in place to facilitate self-generation by its customers, and it had nobody who was familiar with the issues and empowered to make decisions in the utilities behalf. After being required to implement net-metering and adopt uniform interconnect requirements for renewable energy, these resources are now in place for all types of self-generation. Further, the standard requirements for interconnection can be incorporated into mass-produced devices making them cost-effective and readily available.
The net result of all these trends will be that the demand for grid-supplied electricity will not grow as fast as many expect. Certainly the rising electric rates will inspire some amount of conservation, but even more will it encourage alternate sources of supply. The grid will increasingly become viewed as a large "storage" and trading system rather than as the supplier of electric power. As consumers are becoming increasingly aware of the wide difference in prices between peak and off-peak power there will be a desire to capitalize on that by using their generating assets for peak shaving. Larger users who can take advantage of time-of-day pricing and discounts for interruptible power are presently the ones who are benefiting the most and it can be expected that smaller users will demand the same benefits. For many years proponents of distributed generation have been advertising its advantages, now we are witnessing the application of the most distributed form of generation known.
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