DISTRIBUTIVE GENERATION

REDUCING GREENHOUSE GAS EMISSIONS

AuthorPrepared for Energy Law with Professor Fred

Bosselman at Chicago-Kent College of Law, Spring 2005, by Adam Nodzenski

anodzens@iit.edu

WHAT IS DG?Varying DefinitionsGenerally Characterized by:

Generation located at or near point of consumption

Production range from 5kW to 30+MW From any variety of sources

ELECTRICITY DEMANDS OF TOMORROWEIA (US) predicts 1.8% per year growth

in US demand until 2025. Capacity will need to increase by 281 GW.

IEA (OECD) predicts 2.2% per year growth in world demand until 2030. Global capacity will need to increase by

4,800 GW.

US DEMAND

Source: EIA Annual Energy Outlook 2005

FUTURE GHG EMISSIONSOnly measuring Carbon Dioxide…

IEA estimates between 50% and 91% growth in CO2 emissions until 2030.

These numbers all suppose central generation (“CG”) as a primary source of electricity.

PROBLEMS WITH CENTRAL GENERATION

InefficientTransmission and Distribution Costs

(“T&D”)Regulatory HurdlesVulnerableDirty

INEFFICIENTThe best CG plants today achieve 50%

efficiency. This is before line losses 9% in 2002 Average efficiency between 30% and 40%

T&D COSTSEvery new CG plant built will require

new T&DNew T&D estimated at $1260 per kW1

Old T&D requires maintenance, repair, upgrade.

1. Optimising Power, Thomas R. Casten and Brennan Downes, Cogeneration and Onsite Power Production, March 12, 2004.

REGULATORY HURDLESPermitting a CG plant is:

A) Time consuming B) Expensive C) Unpredictable D) All of the above

VULNERABILITYFailure of base load plant or its

supporting T&D system can cause brownouts and blackouts.

Domino EffectTempting Targets for Terrorists?

DIRTYCG is responsible for at least half of

GHG emissions in the USPlants are poorly managedBecause CG design is so varied, it is

hard to find the perfect pollution control solution

DG: BENEFITS AND SOLUTIONSCan be more efficientLower T&D costsFewer regulatory hurdlesLess vulnerableCan be less polluting InterconnectionReliability

MORE EFFICIENT?Efficiency will depend on the type of DG

employedThe most efficient DG type is Combined

Heat and Power (“CHP”) More than 65% efficient This is more than twice as efficient as the

average CG plant today.

Advantages of CHP Well suited to commercial and industrial

applications Already 72GW online Market forecasts 20GW to 40GW of added

CHP capacity over next 10 years2

Eliminates the inefficiency of a separate boiler system.

Ideal for high-rises

2.. High Natural Gas Prices and the Updated Market for CHP, Resource Dynamics Corporation, September 23, 2004.

Efficiency of Zero or Low Emission Sources

Fuel cells are more efficient than the average (36% to 40%)

Solar technologies are still very inefficient (15% to 25%), but the fuel is free

Wind generators can be very efficient, but this depends on the wind

Efficiency of Other Sources

Micro-turbines (27%)Advanced Turbine System (36%)Gas ICE (35%)Diesel ICE (44%) In general these technologies are either

dirtier and/or less efficient than a CG natural gas plant

LOWER T&D COSTS10% of traditional T&D costs (backup

power from grid in the case of unplanned outages)

If all 281 GW of new capacity in US were to come from DG, that would be over $300 billion in avoided T&D costs3

Savings to the rest of the world could be in the trillions

3. Optimising Power

A Note on Cost to Generate Costs to generate are still high for solar and

fuel cells (around 20 cents/kWh) Projected 5 cents/kWh in 2035)

Micro-turbines utilizing CHP are nearing competitive costs but still have a little way to go (10-15 cents/kWh)

Wind is very competitive (3-6 cents/kWh), but not a source of continuous power

Other Cost Savings

Option value (option of rapidly building capacity)

Deferral value (not having to make T&D investment)

FEWER REGULATORY HURDLES

For many smaller DG applications there is no permit system in place This is not necessarily good However, capacity can be brought online

as it is needed

Hurdling Cont.Regulations aren’t so necessary when

we are talking about low or no emission sources.

For all other DG technology forcing permits should be required. We’ll get into this later.

LESS VULNERABLEDG is grid independentThe grid, because it is set up around

base load CG, is not terribly dependent on interconnected DG.

Decentralized nature of DG makes it terror proof

POLLUTION SAVINGSCHP DG that is fueled by natural gas

offers low pollution with high efficiencyCHP fueled by diesel or gas may still

cause less pollution if high-efficiencies are realized

Renewable and fuel cell sources are frequently best implemented as DG

Pollution Costs for CGMeasured as externalitiesBetween 2 and 4 cents/kWh for fossil

fuelsLess for renewables If DG promotes use of CHP and

renewables, we will realize significant savings

DG Specific Pollution ProblemsShorter/no stacksLittle/no dispersionMay get resultant hotspots

INTERCONNECTION Interconnection offers prospect of

cheaper, more reliable electricity If managed properly, electricity will only be

produced where it is cheapest to do so. Electricity can be moved around easily as

demand increases/decreases THE VIRTUAL POWERPLANT

RELIABILITYDG provides high quality, mission

critical electricity.The grid can’t get it done.DG has a reliability value measured in $

$$ to consumers

Some Other Thoughts on DG Price spikes for Natural Gas may drive

market to CHP Price drops for NG would make DG very

competitive Renewable fuel costs are stable at 0

cents/kWh Existing T&D capacity shortages may mean

its cheaper to add capacity at end user

Cont.Even with NG price spikes we may not

be driven into the waiting arms of coal/nuclear

Coal mining can be terribly destructiveDifficult to get nuclear up and

running/sitedDifficulty siting new T&D

HOW DO WE GET THE RIGHT SORT OF DG?

The point is to reduce GHG emissionsDG that doesn’t meet this goal should

not be encouragedTo that end we can employ a carrot (tax

incentive) and stick (permitting) policyFacilitate interconnection

Power of Favorable RegulationsRegulations and protections resulted in

CG In the beginning electricity was

generated close to end use and recycled waste heat

Result: Even with some gains in efficiency, plants today are hardly more efficient than they were 60 years ago

TAX INCENTIVESA tax structure that encourages clean

DG might include: No tax on zero/low emission generation

equipment sales No tax on electricity generated from

zero/low emission sources Tax breaks on CHP equipment and

electricity sales

PERMITTINGTechnology forcing permitting for DG is

clearly the way to goUnder such a regime, DG equipment

would be treated like cars An emission standard is set Before the generator can leave the factory,

it must comply

Elements of a Permit Program

Set emission limits at or below those for the cleanest CG

Implement a certification program to ensure the equipment will meet standards

Randomly test in-use systemsReadjust limits as technology matures

California’s DG Permit Regime

Distributed Generation Certification Program (eff. 1/1/2003)

DG units manufactured, sold or leased in CA must comply Covers only DG that isn’t otherwise

permitted Does not cover zero emission DG Does not cover DG used for emergency

CA Cont.

Sets two standardsThe first is for DG not integrated with

CHPThe second is for DG integrated with

CHP

CA Cont.

CA Cont. Limits Tighten in 2007

CA Cont.How CA Certifies

Manufacturer submits: Description of DG unit Maximum output rating Fuel type Description of emission control equipment Emissions test data, supporting

calculations, qualitycontrol/assurance information, and all other information needed to demonstrate compliance

CA Cont.How CA Certifies

Lays out testing procedures Certification valid for four years Fee of $2,500 per certificate Doesn’t provide for random in-use testing,

but allows inspections of manufacturers and retailers and resellers to ensure compliance

FACILITATING INTERCONNECTIONSolving interconnection issues may

ease investor worries Common standards mean getting your

money back is more of a sure thingCA has set standards through

legislation and rulings by CA Public Utility Commission

Streamlines contractual issues

A CALIFORNIA SUCCESS STORY

Occurred before the certificate programCA decided to shut down Rancho Seco

Nuclear PlantUtility lost half of its capacity Instead of building new CG, pursued

energy efficiency and DG

Eureka! Cont.

Invested in all kinds of renewable DG as well as CHP systems

Whatever fit client needs bestEconometric studies show savings of

$180 million to region versus the nuclear plant4

4. Natural Capitalism: Path to Sustainability?, L. Hunter Lovins, Natural Resources and Environment, Fall, 2004.

CONCLUSIONS DG can:

Reduce GHGs Improve efficiency Enhance reliability Save money

But only if we: Promote the right kind of DG with tax incentives,

technology forcing and regulatory ease