Big is out, small is in

By Staff -- Purchasing, 3/11/1999

Q Evolution toward deregulation and full competition in electric power has led to a substantial broadening of customer choice. A wide variety of new products, services, and technologies are being offered by just as wide a variety of marketers. From the end user's perspective, what will separate the good providers from the bad?

A Successful providers will need to have the best, most economical, efficient, and reliable sources of electricity for sale to all potential customers. All the value-added goods, services, and/or gimmicks being offered by power marketers are not anywhere near as important as reliable, inexpensive electricity.

Q Since marketers typically buy wholesale electricity from big utility and merchant plant generators, how can they offer cheaper, more reliable power than their competitors?

A The answer may very well lie in taking a different path--away from the big boys. Big is on the way out. With micro and mini-turbines leading the way and rewriting competitive equations, changes in the very nature of generating, transmitting, distributing, and selling power offer strategic opportunities galore. In fact, by dispersing generation sources and siting them closer to loads, power developers can provide relatively cheap electricity in high-load growth areas, and areas where good distribution is lacking and the voltage delivered is low. Energy costs, along with costs of transmission and distribution and associated electrical losses can be substantially reduced while still maintaining a high degree of efficiency and reliability.

Q Are you talking about distributed generation?

A New times call for new buzz words, and distributed generation (DG) is now upon us big time. The term refers to the stand alone or system-integrated generation of electricity in smaller, modular plants, ranging from a few hundred kilowatts to 80 or more megawatts. These systems can be owned "inside the fence" by a commercial or industrial company, a substation owner or lessor, a third-party developer (such as my company, Powerline Controls), or even by a local utility. They are operated and maintained by any of the above.

Q Why is DG getting so much attention at the moment?

A The beauty of DG plants lies in their ability to compete favorably with bigger plants not only because of lower capital costs, operating costs, and emissions, but also because they can send out efficient cost-effective power at any time--peak demand time, average demand time, or low demand time. They can run at reduced load efficiently--something the big boys can't do. They can also sell power more cheaply because of their ability to capture and sell thermal recovery to host thermal companies, something the utilities and merchant plants don't do. Throw in the savings on transmission and distribution, and you should have a much better financial scenario than the big boys can give you.

DG plants can also match their generating profiles and portfolios to any specific demand profile in an efficient and economical manner. They compare favorably to large utility and merchant generating facilities in just about every category. DG electricity can be dispatched, cycling on and off based on any criteria, usual or unusual. When utilities can't sell in low demand times, and are in "must run" situations, DG plants can be shut down entirely and electricity can be purchased from the grid at very deep discounts. DG can respond to base load, intermediate load, and peak load demand automatically via a programmed controller, or can be run manually on override.

Q Where are DG facilities most likely to be located?

A DG can be located on a site outside but in proximity to a commercial or industrial complex where thermal hosts are available to reduce overall costs. More important, a DG developer can create within its plant a cogeneration scenario which will allow a host company with foresight to receive its total electric and thermal loads at deep discount, while excess power is sold for additional profit. The many companies that do not wish to be in the power business can obtain all benefits while allowing the developer to own and operate their plant located inside the fence or anywhere.

Q What types of end users should be investigating DG?

A Whether you're a small or large industrial or commercial, a truly dispatchable strategy offering excellent efficiency can be developed through DG. The ability to shut down and start up multiple engines depending on the load will create substantial savings, especially if you throw in heat, hot water, industrial thermal load supplement, and storage capabilities. Adding to the obvious savings, the stranded and transitional costs and exit fees of deregulation appear to favor the DG plant in several states including Massachusetts.