Distributed Generation and Innovation

Distributed Generation
The Next Wave of the Technology-Enabled Revolution Presentation to the Edison Electric Institute DG Task Force June 2001 Marc w. Goldsmith

Distributed Generation and Innovation
Contents 1 Distributed Generation and Innovation 2 Distributed Generation: Threat or Opportunity? 3 ADL Research in Distributed Generation Technology Economics Markets Policy Business Models Industry 4 The ADL Difference: Our Expertise and Experience CAM MG10956

Market Capitalisation ($bn)
Distributed Generation Industry Context The energy industry is changing. Among the more successful players are those companies we have identified as “innovation energy.” 60 BG Enron “Innovation Energy” E&P companies Utility companies 50 AEP 40 P/E Ratio (%) Dynergy TFE 30 Centrica Many different types of DR, each appropriate for different applications Squares are dist gen, curved corners indicate storage Duke Energy 20 ExxonMobil Texaco Repsol ENI “Conventional Oil” TXU 10 Shell BP Source: Winthrop Corporation 50 100 150 200 250 300 350 Market Capitalisation ($bn) CAM MG10956

Distributed Generation Innovation
Enron’s reputation for innovation has enabled it to consistently out-perform its peers in total shareholder return. 100 200 300 400 500 600 700 800 900 1000 1/1/92 1/1/93 1/1/94 1/1/95 1/1/96 1/1/97 1/1/98 1/1/99 1/1/00 ENRON Premium Many different types of DR, each appropriate for different applications Squares are dist gen, curved corners indicate storage Peergroup Average CAM MG10956

Distributed Generation Innovation & Technology
We expect energy companies will leverage innovation and technology to close the widening growth gap. How to Target Earnings Growth The Innovation Challenge: Closing the Growth Gap and Building Confidence for the Longer Term New Markets and Ventures (Beyond Bulking Up) New Rules and Standards (Beyond ISO 9000) New Methods and Processes (Beyond Continuous Improvement Earnings Growth The Emerging Growth Gap: New Products and Services (Beyond Line Extensions) Many different types of DR, each appropriate for different applications Squares are dist gen, curved corners indicate storage Through Conventional M&A, TQM, BPR, and NPD Projected Business Growth: What worked Before Doesn’t Work Anymore Total Quali Base Business Today Tomorrow CAM MG10956

Potential Opportunity
Distributed Generation Threat or Opportunity Company-Specific Generally it is corporate strategic perspectives and/or operational focus that determine whether companies see DG as a threat or an opportunity. Potential Opportunity Potential Threat Distributed virtual power plants O&M service Direct kW/kWh competition Impact on standard cost recovery Air quality impacts Generator Transmission Company Some potential increase transfer capability Little direct impact Long-term stranded costs New service offerings (DG ISO/PX) Tool to help manage system growth in de-regulated environment Potential impact on distribution systems design Reliability and maintenance Substitute for new construction System by-pass Negative operational impact on distribution system (system protection outage recovery) Impact on metering systems Distribution Company Many different types of DR, each appropriate for different applications Squares are dist gen, curved corners indicate storage Electricity Company New product opportunity New service opportunity New market entrants with a differentiated product Innovative image Reliable image Hedge on disruptive technologies Uncertainty of reward Loss of traditional revenue sources Corporate CAM MG10956

Definition of Distributed Generation
Distributed Generation Threat or Opportunity Overview Distributed Generation (DG) has provoked significant interest and investment from energy companies… Definition of Distributed Generation Integrated or stand-alone use of small modular resources by utilities, electricity customers, and third parties in applications that benefit the electric system, specific electricity users, or both. Often synonymous with other commonly used phrases like: self-generation, on-site generation, combined heat and power (CHP) or cogeneration, and "inside the fence" generation, our definition includes storage, superconducting and demand-side management technologies. Central Plant Step-Up Transformer Distribution Substation Gas Turbine Transmission Substation Distribution Substation Fuel Cell Micro- turbine Distribution Substation Recip Engine Commercial Photo- voltaics Gas Turbine Many different types of DR, each appropriate for different applications Squares are dist gen, curved corners indicate storage Flywheel Residential Industrial Commercial Fuel Cell Cogeneration Adapted from EPRI Distributed Resources Target … If deployed on a widespread basis distributed generation represents a fundamental shift in the electricity industry. CAM MG10956

Several forces are aligning to create opportunities for DG.
Distributed Generation Threat or Opportunity Emerging Opportunities Several forces are aligning to create opportunities for DG. Increased risk in large power plant construction Unbundling of traditional, vertical, integrated utilities Difficulty siting T&D and large plants Advances in communications & control technologies Emerging Distributed Generation Opportunities Slower demand growth Reliability and power quality concerns Improved distributed power technologies CAM MG10956

There are several commercially available and emerging DG technologies.
Distributed Generation Technology Availability There are several commercially available and emerging DG technologies. Commercialization Status of DG Technologies Research & Development Demonstration Market Entry Market Penetration Market Maturity Initial System Prototypes Refined Prototypes Commercial Prototypes Fuel Cell Microturbine PV Solar Recip Engine Gas Turbine Fuel cells provide electricity and thermal services to buildings Proton Exchange Membrane (PEM) fuel cells are being developed for transportation applications If fuel cell transportation market develops, it would greatly accelerate the fuel cell market for stationary applications Microturbine technology was initially developed for transportation, defense and aerospace applications but now shifted to powergen Projected to have low capital cost, low maintenance cost, low emissions, low noise, and moderate efficiency Photovoltaic semiconductor-based panels convert sunlight into power Ideally suited and cost-effective for many off-grid applications Still relies on government subsidies for grid-connected use, but price is steadily dropping Diesel or gas recip engines packaged for power generation Used widely for standby, baseload, cogeneration, and peaking Drawbacks: emissions, noise, and high maintenance cost Most products available were initially developed for mechanical drive applications Majority of power generation applications are cogeneration or standby Limitations are relatively high first cost and low efficiency CAM MG10956

Distributed Generation Landscape DG Technologies Characteristics and Applications
Each of these DG technologies has distinctive performance characteristics that best fit the needs of different applications. Typical Unit Size Range (installation size can be larger) 2000 Installed Capital Cost ($/kW) Efficiency (%) Commercial Availability Residential Commercial Industrial Grid-Distributed Remote/Off-Grid Distributed Microturbines1 kW 1,000-1,300 22-30 2000 Reciprocating Engines 5 kW - 20 MW 28-40 Now High-Temperature Fuel Cells 50 kW - 3 MW NA3 45-55 2003 Low-Temperature Fuel Cells PAFC kW 3,000+ 34-40 Now PEM kW NA4 30-40 2001+ Small Gas Turbines 500 kW - 20 MW 650 25-405 Now Stirling Engines kW NA6 20-32 2001+ Photovoltaic Cells kW 6, ,000 12-13 Now Primary Target Market Secondary Target Market 1. Recuperated microturbine 2. Large, gas-fired reciprocating engine 3. Not available; projections of $1,000-$2,000 4. Not available; projections of $1,000 - $2,000 5. 40% efficiency achieved with advanced turbine cycle 6. Not available; projections of $700-1,500/kW CAM MG10956

Commercial Building Segments Power Delivery Business Needs
Distributed Generation Landscape Disruptive Technologies Applications There are many DG applications emerging in both developed and developing countries. Commercial Building Segments Reliability Power Quality On-Site Baseload Peaking Cogeneration Remote Portable Landfill gas Biomass Residential Grid Support Microgrids Assembly Education Food Sales Food Service Health Care Lodging Retail Office Public Order Worship Warehouse Multi-Family Residential Farms Industrial Segments Food Textile Furniture Paper Pharmaceuticals Stone/Clay/Glass Primary Metals Fabricated Metals Machinery Electronics Transportation Power Delivery Business Needs System Performance Service reliability Power quality Power transfer capability System capacity Avoided system improvements and capacity upgrades Improved capacity utilization system optimization Reduced power losses System Maintenance Temporary power during maintenance of critical elements Emergency power during system restoration Financial Hedge Energy cost reduction Portfolio risk management Financial resource management (capital and O&M) CAM MG10956

Decreased exposure to electricity price volatility
Distributed Generation Topics Economics Customer Benefits There are benefits that DG can provide to customers that must be considered in assessing DG economics. Reduced energy costs for thermal energy loads (steam, hot water and cooling) Decreased exposure to electricity price volatility Increased power reliability Improved power quality New sources of revenues CAM MG10956 Although the benefit values can vary by customer, some benefits may be similarly valued across a broad range of end-use customers.

Avoided increases in system capacity
Distributed Generation Topics Economics Grid-Side Benefits There are also benefits on the grid-side that will also impact DG economics. Avoided increases in system capacity Reduced transmission and distribution (T&D) electric losses T&D upgrade deferrals VAR support Transmission congestion relief Peak shaving Reduced reserve margin Improved power quality Improved power reliability Avoided T&D siting concerns CAM MG10956

Typical additional costs when installing DG, include: Standby charges
Distributed Generation Topics Economics Added Costs for Customer Besides benefits there are additional costs to the customer when installing DG. Typical additional costs when installing DG, include: Standby charges Exit fees Competitive transition charges (CTC) Additional incremental capital costs for interconnection and permitting These added costs are extremely site-specific, and vary widely state by state. CAM MG10956

Distributed Generation Topics Economics Benefits and Costs
The attractiveness of DG will vary by these added benefits and costs that will fluctuate by fuel and electricity prices. 4.2 MW Gas Turbine 12 11 5-year payback with customer or grid 10 benefits 9 5-year payback 8 1998 Gas Prices ($/MMBtu) 7 MA FL VA AZ 6 CA 5-year payback 5 with added NY IL cost TX 4 3 2 4 5 6 7 8 9 10 11 12 1998 Electricity Prices (¢/Kwh) CAM MG10956

Distributed Generation Topics Economics Vertically Integrated Utility
DG could be an attractive option for the vertically integrated utility if their system is constrained. Range of Utility Costs to Meet New Demand Costs to Meet New Demand ($/Kwh) Central Plant Distributed Generation CAM MG10956

Distributed Generation Topics Economics Wires Company
DG could be an attractive option for a wires company in lieu of system expansion. Range of Utility Costs to Meet New Demand Range of Utility Costs to Meet New Demand ($/Kwh) Distributed Generation Central Plant CAM MG10956

DG Going Forward Market Perspective
The DG opportunity will come in waves. Watt Wave Kilowatt Wave Megawatt Wave Why? Technology availability Transaction and project costs ($/kW) Project economics Receptive customers Large commercial and industrial Wires companies CAM MG10956

What does the Megawatt wave look like?
DG Going Forward Market Perspective What does the Megawatt wave look like? Gas turbines, reciprocating engines, photovoltaics Customer needs - price volatility and reliability Rentals Back-up generation plus DG Capacity T&D support Hedge Still traditional players Equipment suppliers Gas and electric utilities Wires companies Large customers CAM MG10956

DG Going Forward Market Perspective
What does the Kilowatt wave look like? The Megawatt wave with more uncertainty. Microturbines and fuel cells Drivers? Power quality Image Green power Cost savings Seamless direct access to markets Traditional players Moving down and up value chain Creating new value networks Nontraditional players? Market channels Appliance manufacturers Consumer products HVAC suppliers Retail (Home Depot, Walmart) e-business Equipment suppliers Automotive Appliance HVAC Consumer Energy suppliers Large and small C&I (telecom, supermarkets) Residential Customers Small commercial Large energy companies CAM MG10956

Back-up Generation Market Review North American Market
The North American back-up generation market continues to grow steadily, driven by the < 2 MW recip engine segment. North American Market for Backup Generators Market Trends for Backup Generators The gas turbine and > 2 MW reciprocating engine markets both maintain a 2% CAGR, while < 2 MW reciprocating engines maintain a 7% CAGR. Post Y2K markets for standby generators are primarily: data centers, internet applications and telecom. These segments make up roughly 50% of standby generator market. Recip engines now dominate this market, but they may see competition from fuel cells and microturbines as the technologies develop. Sales of backup generators to utilities and end-users will continue to be driven by reliability concerns. There is increasing interest in using backup gensets for peak shaving/DG, but there are barriers (interconnection and emission standards). BU Annual sales based on Power Systems Research and “Diesel and Gas Turbine Worldwide” historical data ( ) and ADL analysis. CAM MG10956

New York City/Long Island Wisconsin/Upper Michigan
Distributed Generation Markets DG Market and Reliability Pockets of System Weakness Generation and transmission constraints and reliability concerns are creating near-term opportunities for DG. New York City/Long Island Wisconsin/Upper Michigan New England NYC and Long Island have a peak load of 14,840 MW with a combined capacity and import capability of 19,021 MW. With demand growing, ISO published that ‘”after summer 2000, the New York Control Area will not be able to meet NPCC adequacy criteria.” Lack of transmission capability between upper Michigan and Wisconsin has resulted in congestion. ISO NE has issued 6 voluntary load curtailments in 2000 and 11 during the summer of 1999. California Generation shortages and transmission constraints result in repeated voluntary load shedding and rolling blackouts during WSCC Peak demand growth has exceeded new generation capacity. The southwest portion of WSCC may not have adequate resources for widespread heat waves. S. Illinois Boston/Connecticut Congestion in Southern IL due to the shipment of power to the south. Transmission into Boston is often heavily congested. Connecticut also has congestion problems. Dallas-Fort Worth PJM Dallas-Fort Worth has 800-1,000 MW annual load growth and insufficient generation and transmission capacity into the area. PJM has issued 19 Emergency Generation actions and/or Manual Load Dump Warnings, including 2 days of voluntary load shedding in 2000. Delmarva S. Delmarva had 13 Emergency generation and/or manual load dump warnings in Summer 2000, and continues to pose problems to grid. No grid upgrades are planned as S. Delmarva is rural. Texas ERCOT issued 10 incidents of voluntary load curtailment resulting in 9,407 MW shed as of September 2000. Houston Houston has excess generation but lacks export transmission capability. CAM MG10956

Distributed Generation Markets Case Study Commonwealth Edison
Commonwealth Edison has been using DG for capacity and system support during peak periods over the last three summers. Over the past 3 summers, ComEd bolstered its system with rental recip engine packages Source: PMA Online Recip Engines installed by ComEd for system support Modular diesel generators installed in groups of 20 to 30 160 Caterpillar Power Modules producing 240 MW at 8 locations trailer-mounted units driven to location units have on-board fuel capabilities 60 Aggreko container generators producing 60 MW at 2 locations unloaded using cranes standard design, e.g., switchgear is same from unit to unit Setup takes about 1 month for the Caterpillar units and within 1 week for the Aggreko units In the summer of 2000, ComEd began to use small gas turbines as well. In each of the three years ComEd has used DG, they have looked at alternatives to recips, including GTs Low emissions, a feature of GTs, are an increasing large concern for users of DG, particularly in urban areas where air quality may be poor In summer of 2000, ComEd rented 5xTM2500’s (22.8MW each) from GE Rentals. CAM MG10956

Distributed Generation Markets Back-up Generation Texas
Based on prior ADL analysis, there are potentially 3,300 MW of operable gensets available in Texas. Population of Gensets Available in Texas Applications of Available Gensets Cumulative Capacity of Gensets Installed in Texas: 3,300 MW The vast majority of the gensets are less than 1 MW in size and were originally designed for standby application. About 1/3 might be convertible. CAM MG10956

Technology Development? Regulatory Environment?
Distributed Generation Markets Uncertainties While the market potential is very large, the development of DG still carries some fundamental uncertainty… Winning Technology? Which technologies (and suppliers) will be the winners? No single technology is likely to dominate, some will fail; there will be different speeds to market. Technology Development? Most technical uncertainty is likely to be resolved (eventually), but not as quickly as predicted and with unexpected barriers. How soon will technical uncertainties be resolved? Fit With Needs? Will product attributes find a match with customer needs, enabling a winning product? A key issue that involves technology, product and business/ service model components - a 50/50 proposition at this point. Disruptive Potential? Will customers find “value” in other than commodity electricity? The great unknown - a lot of speculation, but none identified yet. The key to Distributed Generation’s real potential to revolutionize. Economics? Will the economics work at application and business levels? Economics vary widely from application to application, with several areas of uncertainty. Although there will be attractive applications, mass market economics will be more difficult than assumed. Regulatory Environment? Will a supportive regulatory environment emerge? A regulatory environment which is technology neutral is likely to emerge. Disruptive triggering events could tip the scale. CAM MG10956

Public Policy Objectives
DG Policy Overview Impact Analysis We measured the impact of eight DG policy issues against five broad public policy objectives and on DG-specific policy. DG Policy Issues Public Policy Objectives Grid-side benefits DISCO participation Interface with grid Interconnection Stranded costs Stand by charges and customer retention tariffs Siting and permitting Public support Encourage competition and economic efficiency Protect consumers from cost-shifting Maintain a viable utility franchise Protect the environment Ensure safety and grid reliability Create a competitive environment for DG CAM MG10956

Major regulatory policy objectives
DG Policy Overview Impact Analysis The analysis linked eight DG policy questions most directly with two major regulatory policy objectives, and five questions had a high impact on the policy goal of a competitive environment for DG. DG Policy Questions Major regulatory policy objectives Encourage competition and economic efficiency Ensure safety and grid reliability Priority DG issues for creating a competitive environment for DG System interfaces Interconnection Siting and permitting Stranded costs Standby charges CAM MG10956

DG Policy Overview Impact Analysis
Among the eight DG policy questions, five had a high impact on the policy goal of a competitive environment for DG. Engineering connections and market access. High technical complexity vs. additional capacity for T&D system, customer market access and operational flexibility. System Interfaces Technical requirements, processes and contracts modified for DG? Safety and reliability vs efficiency and fairness. Interconnection CAM MG10956

Stranded Costs (CTCs and exit fees)
DG Policy Overview Priority Issues Among the eight DG policy questions, five had a high impact on the policy goal of a competitive environment for DG. (continued) Streamlined process vs. adequate consideration. Environmental goals vs. reliability and other public policy objectives. Siting and permitting Potential high assessed costs (disproportionate to cost of DG project) that discourage innovative solutions that are more efficient and cost effective vs. recognition of past investment and loss of load. Scale of DG threat to load vs. customer choice and opportunity for system improvement. Stranded Costs (CTCs and exit fees) Excessive (e.g., no recognition of combined reliability of DG units) vs. too low (no recognition of cost of backup power on spot markets. Cost to utility vs. benefit to system and customer. Standby Charges CAM MG10956

Three other key policy questions were identified in the analysis.
DG Policy Overview Additional Key Issues Three other key policy questions were identified in the analysis. Correct price signals by sharing DG benefits and costs among appropriate parties vs. difficulty of calculating these benefits for local conditions. Grid-side Benefits Best position to recognize best DG opportunities in distribution network vs. unique access to customers could threaten open markets and customer choice. Alternatives to ownership that share benefits. Stranded Costs (CTCs and exit fees) Active encouragement of commercialization of advanced technologies to provide public benefits (e.g., improved system reliability, climate change, energy efficiency) vs. distorted price signals and pursuit of poor technical risks. Public Support CAM MG10956

Product Development & Supply Distribution & Installation
DG Business Models Developing a DG Business In order to assess the total value of a distributed generation business, revenue from all segments of the value chain should be considered. Marketing & Sales Product Development & Supply Operations Service Marketing Sales Manufacture Packaging Financing Distribution & Installation Fuel Supply Operate Maintain Service Delivery Advertising marketing collateral Customer analysis Sales force Training Account management Technology core Equipment selection System design Pricing decisions Financing packages Fuel cells Battery storage Small GTs and microturbines Small IC engines Automation/ diagnostics Photovoltaics Flywheels Power electronics Switchgear Controls Generation Distribution Storage Portable systems (e.g., barge, truck-mounted) Marketing Service requirements Sales/lease Distribution networks Dedicated sales staff Structuring contracts Gas marketing Electric marketing Fuel switching Operating strategies Contingency planning Service Hedging strategies Savings levels Performance guarantees Outage arrangements Noise and environmental Customer interfaces Maintenance services Operate/maintain facilities network Service/overhaul centers Fuel management acquisition/ storage service Replacement packages Performance/monitoring maintenance management system Billing Payment terms Customer satisfaction TQM strategy Remote multi-node system control Managing end-user systems Ownership of distributed systems Providing energy services Arthur D. Little’s approach is designed to assist in assessing the fit where there is substantial business in the DG area. CAM MG10956 19 11 15

DG Business Models Utility Business Strategy Competing Players and Strategies
Although a number of approaches are being tried, the winning strategies are yet to emerge, giving the new entrant significant strategic freedom. Strategy Key Players Key Discriminators Core Component Technology Supplier Howmet Visteon Ballard Delphi Strong proprietary technology position Unique production capabilities Equipment Package Supplier AlliedSignal Plug Power Capstone Efficient production processes Strong product design capabilities Exclusive Regional Distributor Unicom DTE Energy GE Power Systems Regional market and distribution channels Ability to manage inventory risk Turnkey Customer Solution Provider Sempra PSEG Williams Creative solution design capabilities Access to product and technology solutions Field Service Provider (Install, Operate, Maintain) Honeywell Extensive contractor network Efficient dispatch and field support processes Energy Service Provider Enron Duke Energy marketing and trading capabilities Ability to manage technical and economic risks CAM MG10956

Regulatory Frameworks
DG Business Models Market Potential Formation Because DG technologies, business models, and regulatory frameworks are still embryonic, there is significant uncertainty in key market drivers. Technologies Business Models Regulatory Frameworks Microturbines nearing commercial status - beta units in the market today Fuel cells PEM nearly commercial; residential beta units available by mid-2000 SO commercial by 2005 IC engines established -incremental improvements Supporting technologies (power conditioning, fuel processing) developing rapidly (costs still high) No clear winning business model (yet) Equipment supply and distribution channels forming Commercial & Industrial business models tend to focus on energy service (similar to traditional ESCO) Residential business models aim toward eventual mass market Emerging in several states (CA, TX, PA, NY, OH) as part of deregulation - some allowing DG net metering Interconnection standards now being developed (IEEE) Duration and level of competitive transition charges and impact on DG varies In a number of states, there is no penalty for disconnecting from the grid CAM MG10956

Unregulated Utility Business Re gulated Utility Business
DG Business Models Business Opportunities and Risks The emergence of distributed generation creates both important opportunities and risks for utility businesses. Unregulated Utility Business Re gulated Utility Business Increased portfolio of products, services and technologies to support turnkey customer solutions offerings Potentially large, new markets for innovative DG products and services (e.g., residential) New value chain and industry structure create opportunities for alliances and equity investments Risk that national and global scale companies (GE, auto manufacturers, mega-ESCOs) will capture bulk of market Risk that technologies or disruptive market potential do not develop Risk of stranded investments (especially T&D) as end-users adopt DG solutions Opportunity for DG to economically displace required T&D investments Both opportunities and risks created by introducing end-user DG adoption into the regulatory equation Potential ongoing role for T&D utilities as small-scale generators Will equitable costs of providing standby power be recovered? Added uncertainty in forecasting for regulated rate development CAM MG10956

DG Business Models Strategic Option Identification Value Chain
Analyzing the value chain, under alternative future scenarios is another tool to identify potentially attractive strategic options. Equipment Supplier Product Distributor and Supplier Operator and Maintainer Energy Provider Core Component Core Component Equipment Integration / Packaging Equipment Sales and Distribution System Design and Sales Installation and Inter- connection Financing Operation and Maintenance Fuel Delivery Energy Service Illustrative DR value creation by VC Segment C&I 26% 8% 5% 7% 1% 4%1 48% 1% Res 33% 7% 5% 6% 1% 10% 37% 1% 1includes replacement parts System Designer and Seller System Designer and Seller Strong system and application engineering capabilities Well-established relationship with DR equipment suppliers Fuel Supplier Ability to provide customers with multiple gas supply options Comprehensive fuel sales and distribution network Fuel Supplier Financing Provider Financing Supplier Experience in consumer product finance Strategic Technology/ Product Investor Equipment Seller and Distributor Able to achieve synergies with other business areas of the investor Innovative product and services Financial staying power Complete distribution network E-commerce capability (or alliance) Secure exclusive distribution rights for key products or technologies in the region of interest Brand recognition Operation and Maintenance Provider Operation and Maintenance Provider Rapid accessibility of O&M personnel to customer sites System/product monitoring capability Energy Services Provider Broad portfolio of energy services package offerings Energy Services Provider Equipment/System Installer Equipment/System Installer Make DR equipment/systems transparent to the end-users Expertise in system/process optimization Provide integrated value-added gas/electric solutions CAM MG10956

DG Business Models Utility Business Strategy The Challenge
The challenge: to capture the opportunities from DG, companies must act quickly, but without enough information to fully resolve uncertainty. Potentially Large Opportunity Commercial/small industrial DG products/services Residential DG products/services Equity investment opportunities (DG technologies and innovative DG product/service elements) DG presents potentially attractive opportunities . . . Unresolved Uncertainty Near-Term . . . about which there is substantial uncertainty which won’t be resolved in the near term . . . Technology commercialization Technology economics Disruptive product attributes Competitive intensity Delay Diminishes Strategic Position . . . and upon which a company must act soon, or significantly diminish its future DG strategic position. Competitors moving now Diminishing alliance options Losing first mover advantages Disadvantaged learning curve position CAM MG10956

Contents 1 Distributed Generation and Innovation 2 Distributed Generation: Threat or Opportunity? 3 ADL Research in Distributed Generation Industry Wires Perspectives Interconnection Iso’s and Grid 4 The ADL Difference: Our Expertise and Experience CAM MG10956

Distributed Generation Industry Wires Perspective DG Concerns
Wires companies are concerned about the DG technologies and how they would interact with the grid. DG Equipment related concerns Grid-related concerns Source: Arthur D. Little Interviews with 14 U.S. electric distribution companies. CAM MG10956

Distributed Generation Industry Wires Perspective DG Potential Benefits
Most wires companies consider DG’s potential to augment the T&D system as its most important benefit. Source: Arthur D. Little Interviews with 14 U.S. electric distribution companies. CAM MG10956

Distributed Generation Industry Interconnection
The interconnection black box provides protection for the customer’s and the utility’s equipment, safety of line workers as well as the parallel operation of the DG with the utility grid. GEN 52 CT CTs (3) 27 87G 46 51G 81 O/U 59 86 40 ALTERNATE 50/ 51 TYPICAL GENERATOR PROTECTION PTs TO 86 FROM 87G 52 TRIP SIGNAL 32 RV 52 CT CTs (3) 27/ 59 51G 81 O/U 47 86 32 50/ 51 INCOMING UTILITY PTs FROM 87T 52 TRIP SIGNAL 51N TYPICAL UTILITY PROTECTION 87T TO 86 21 - Distance relay 25 - Sync check relay 27 - Undervoltage relay 32 - Reverse power relay 32RV - Reverse vars (loss of excitation) 40 - Loss of excitation 46 - Negative phase sequence time overcurrent relay 47 - Voltage sequence/undervoltage relay 50 - Instantaneous overcurrent relay 51 - Time overcurrent relay 51G - Ground overcurrent relay 51N - Residual ground overcurrent relay 52 - Circuit breaker 59 - Overvoltage relay 59G - Ground overvoltage 81O/U - Over/under frequency relay 86 - High speed lock-out relay 87G - Generator differential overcurrent relay 87T - Transformer percentage differential overcurrent relay Source: Enercon Engineering CAM MG10956

Increased burden for processing
Distributed Generation Industry Interconnection Levels of Complexity Grid interconnection and process has emerged as an important issue for multiple reasons. The number of small generators seeking interconnection to the grid could increase in the future which will present stakeholders with: Increased burden for processing Potentially negative impact on the system Potentially positive impact on the system if done properly Opportunity for standardization and thus reduce costs DG advocates contend that the current interconnection requirements and approval processes are effectively increasing costs unfairly and pricing DG out of this market (negative history of cogen). Distribution companies are concerned that DG will negatively impact the safety and reliability of the grid, and unfairly increase the distribution companies’ costs. ISO/RTOs may add another level of complexity relative to metering, scheduling and settling DG accounts and vice versa. CAM MG10956

Technical Contract Process
Distributed Generation Industry Interconnection Issue Summary There are three overlapping elements of interconnection that must be addressed together. Technical Contract Process CAM MG10956

Existing requirements perceived by some as unreasonable
Distributed Generation Industry Interconnection Technical The technical issue revolves around having a safe, reliable, meterable and standardized interconnection. Existing requirements perceived by some as unreasonable To ensure safety and reliability, utilities must test each alternative solution before it can be integrated with the distribution system Technical requirements vary by utility Utilities give the minimum requirements that may change with each interconnection Alternative solutions/ technologies (new and existing) particularly for integrated devices are not readily accepted by utilities Existing requirements do not account for emerging applications and needs for dispatch, metering and power quality Process Technical Contract CAM MG10956

Perceived lengthy, onerous process
Distributed Generation Industry Interconnection Issue Summary Interconnection processes vary widely across the country in that some are reasonable and others are lacking or onerous. Lack of defined process at some utilities, ISOs, RTOs ; or process and technical requirements limited to Qualifying Facilities Perceived lengthy, onerous process Process controlled by entities that view DG as competition Utilities’ process can be an early warning system of loss of customers and respond with reduced rates Lack of timely and efficient settlement of disputes Results of interconnection analysis not always made available to customers Customers must pay for studies the utility performs on interconnection based on fees set by the utility Interconnection studies are required in some states no matter the size of the facility Process Technical Contract CAM MG10956

Lack of standardized utility contracts for interconnection.
Distributed Generation Industry Interconnection Issue Summary Contract terms are overwhelmingly in favor of incumbent wires companies. Lack of standardized utility contracts for interconnection. Those that exist are more complicated than necessary for DG. Contract length and complexity not in line with DG facility’s impact on the grid Contracts not reciprocal in terms of liability and indemnification (e.g. universal indemnification required by some utilities) Interconnect agreements require customers to carry general liability insurance to cover utility’s interests Process Technical Contract CAM MG10956

Distributed Generation Industry Current DG Programs Utility and ISO Examples
There are several examples of ISO and utility programs that now incorporate DG. Utility/ISO Strategy Program Size New York Power Authority Program created in Summer of 2000 and scheduled to go online Summer of Created to meet New York Power needs. 500 MW Commonwealth Edison (ComEd) Program created to begin in Summer of 2000 to meet market demand and relieve constraints on distribution system. >400 MW Kansas City Power and Light Program designed to reduce utility’s generation costs during times of peak load via DG located on the grid. 30 MW Portland General Electric Program locates utility-owned assets on the grid created to increase generation capacity and reduce customer costs during times of peak load. Currently has 30 MW generating capacity with goal of 100 MW for 2005. Mississippi Power Program created to provide extra capacity during peak loads and also to provide customers with improved reliability. Currently has MW generating capacity. Illinois Municipal Electric Agency Program locates Agency-owned assets at customer sites and pays customers a capacity fee, Goal is highly reliable energy supply for key IMEA accounts and lower Illinois Municipal Electric Agencies energy costs. 183 MW of DG, with JITKA representing 20MW of this total. IMEA plans to increase to 270 MW of DG capacity in 17 member communities. Georgia Power Program created in 1992 to offset peak capacity costs. 66 MW CAL ISO Program designed to increase California’s generating capacity and improve grid reliability in 2001. 2000 MW PJM ISO Pilot Program created to evaluate interconnection issues and DG role in improving grid reliability through DG at customer sites. 80 MW CAM MG10956

Distributed Generation Industry ISO Perspective DG Interests and Concerns
In an interview program, ISOs expressed both support and concern over potential DG use in bulk electricity markets. ISO Support ISO Concerns Relatively small amounts of DG capacity can positively affect reliability and market pricing under the right circumstances and conditions DG solutions may be more economic than traditional bulk power engineering solutions, provide faster solution, and avoid/postpone more extensive or expensive alternatives DG may be next logical broad policy initiative to complement programs for bidding load reductions into the market DG may be most effective during peak periods when systems need relief the most DG can be a source of ancillary services Market opportunities could be structured to encourage aggregation of DG capacity for economies of scale Potential for gaming the system so that profits are made without improving system operations Rules must avoid both inadequate and excessive control of DG (e.g., 1 MW scheduling threshold) Transco is prevented from owning generation; Transco and ISO need to coordinate with and rely on other parties for important elements of a reliability solution Practical considerations of interconnection and operation that could affect system integrity and safety Existing technical and economic barriers to DG (e.g., interconnection, metering and tariffs) CAM MG10956

US Postal Service - Anchorage, Alaska
Distributed Generation Industry Integrating DG with Power Markets Example US Postal Service - Anchorage, Alaska The US Postal Service facility in Anchorage is just one example of remote dispatch of DG. Opened August 9th, 2000 “Nation’s Largest Assured Power Commercial Fuel Cell System” Five fuel cells connected in parallel to produce 1MW of electricity Primary source of power for the US Postal Service Anchorage facility Owned/Dispatched by Chugach Electric Fuel Cells provided by International Fuel Cells Interconnection, Site Management System and Dispatch Software provided by GE Zenith Controls STATIC TRANSFER SWITCH (SSW) Utility Grid Fuel Cell Bus SSW Isolation Switch Global Bypass Fuel Cell No 1 Fuel Cell No 2 Fuel Cell No 3 Fuel Cell No 4 Fuel Cell No 5 Post Office Load Fuel Cell LSM Controller Control Signals Telephone Line This is the site. 5 fuel cells. Interconnection switches are in grey building on the right hand side. Chugach Electric Control Center Source: GE Zenith Controls CAM MG10956

The ever popular conclusions slide
DG Going Forward Conclusions The ever popular conclusions slide The Megawatt Wave is happening now. Emerging technologies will be better from both an economic and market perspective. DG has the potential to “disrupt” the utility industry. There are benefits to customers, wires companies, vertically integrated companies and the electric system. DG implementation will need to be understood and managed to obtain the optimal benefits. Policy and regulatory issues exist and will need to be collaboratively solved. CAM MG10956

The ADL Difference ADL is a world leader in its capacity to combine the application of technology-based solutions to business issues for the energy industry . Power Generation Equipment Renewable Energy Systems Advanced Energy Systems Combustion Emissions Control Gas turbine technology Fuel cells IC engines Coal technology Energy storage Photovoltaics Wind Biomass Solar thermal Hydro Geothermal Hydrogen generation Fuel reforming Battery technology Electric/hybrid vehicle Hydrogen storage Industrial heating Burners Alternative fuels Air toxics control Exhaust/flue gas treatment Energy Technology Strategic Issues Strategy Formulation Operational Efficiencies Organizational Effectiveness Financial Management Regulatory Tactics Integration of strategies Visioning Planning and management of strategic investments Technology management R&D portfolio management Technology assessment Optimal resource portfolio Sourcing economies for the fuel mix portfolio Enhancement of information and control technologies Process changes due to delivering synergies in power plant dispatch and operations Optimization of staffing levels and skill sets Best set of corporate values Consolidation of collective bargaining agreements Best set of compensation and benefits programs Optimization of resource portfolio through asset management Appropriate financial manage-ment practices with regard to dividend policy, capital struc-ture and treasury manage-ment Best means to deal with non-performing assets Achieving regulatory flexibility in a multi-jurisdictional environment Minimization of environmental compliance program costs CAM MG10956

Distributed Generation Experience Utility Business Strategy
Developed the business strategy selected by a major U.S. utility to pursue growth opportunities related to distributed generation. The Challenge Develop a business strategy that positions the utility to capitalize on growth opportunities, while managing resources effectively and achieving synergies with other business areas and initiatives Identified strategic options along the value chain, including equipment supply, sales and distribution, and turnkey end-user solutions, and using a blend of technologies, internal capabilities, alliances and equity investments Screened and evaluated the options based on business potential, competitive differentiation and fit with the utility’s overall strategy Designed a phased, learnings-based approach and organization to capture the upside, while maintaining high investment flexibility. The Approach The Result The utility adopted our recommended approach and decided to form a small, entrepreneurial organization to develop innovative product and service solutions and pursue the specific distributed generation business areas we identified. CAM MG10956

Distributed Generation Experience Electric Utility
Assisted a large U.S. electric utility with developing a strategy to increase the penetration of distributed generation in its service territory. The Challenge A large regulated utility wanted to use Distributed Generation as a resource to meet customer needs in the near future. The Approach Assessed the current market penetration of Distributed Generation in the utility’s service territory Determined the market potential for Distributed Generation within the service territory Evaluated the economic drivers and the economic potential for Distributed Generation over the next five years Developed incentives that would be required to facilitate more widespread adoption of Distributed Generation The Result The client has a strategy that will promote the use of Distributed Generation in its service territory in a manner that fits with the utility’s long term strategic objectives. CAM MG10956

Distributed Generation Experience Energy Company
Developed a global distributed generation strategy with a large energy company that maximises the opportunity across its business units. The Challenge A large global energy company wanted to maximize the distributed generation (DG) opportunity across all its regulated and unregulated businesses. The Approach Developed a common understanding of the future external and internal environment for DG Assessed the strengths and weaknesses of each business unit. Identified threats and opportunities presented to each business unit. Explored innovative ways to create value with DG in the future business environment. Created a shared vision which will guide the development of strategies at both the Corporate and Business Unit level Defined priorities for investment, support, and collaboration among businesses and with the corporate parent The Result The client implementing business unit strategies that are consistent with a shared corporate vision for Distributed Generation. CAM MG10956

Achievable DG Market Potential Under Different Incentive Programs
Distributed Generation Experience Electric Utility Evaluated the effect of different distributed generation incentive programs for a large U.S. electric utility. The Challenge A large regulated utility needed to increase the penetration of Distributed Generation in its service territory to meet the projected capacity shortfall. DG Equipment First Cost and Operating Cost Grid Cost of Delivered Energy Economic Incentives from Local Utility DG Economic Model The Approach Evaluated the economic attractiveness of DG under several Distributed Generation incentive programs Estimated the economic market potential of Distributed Generation under the incentive programs Ranked the effectiveness of the Distributed Generation incentive programs Achievable DG Market Potential Under Different Incentive Programs The Result The client was able to make strategic decisions based on the ranked effectiveness of the programs to promote Distributed Generation. CAM MG10956

Distributed Generation
Distributed Generation Experience Electric Utility Developed a resource allocation framework for distributed generation, demand side management and load management for an electric utility The Challenge A large regulated utility desired assistance in its resource allocation planning, based upon growth in peak demand and energy. Distributed Generation Demand-Side Management Load Management The Approach Quantified the future impact of customer on-site generation, potential demand-side management, and load management programs on forecasted load requirements Analyzed existing studies of market potential for each of these resource types to establish feasibility Contrasted results with the forecast growth in peak demand and energy Determined power needs that must be met by other sources Resources The Result The client successfully revised its Integrated Resources Plan and was able to develop strategies for resource allocation. CAM MG10956

Intellectual Foundation
Distributed Generation Experience Regulatory Assisted 12 Distributed Generation equipment suppliers in developing information to educate policymakers in Distributed Generation. The Challenge A group of equipment suppliers needed to educate regulators, legislators, and policy makers with sound, fact-based information on Distributed Generation. Exec. Summary {1} The Approach Identified gaps in the current understanding in Distributed Generation on part of regulators, legislators, and policy makers Created a Distributed Generation primer to provide the sound intellectual foundation for decision making Wrote a series of white papers addressing regional, stake-holder, and technical issues in Distributed Generation Legislators White Papers Regulators {3} Staff DG Primer {1} Intellectual Foundation The Result Clients will have a uniform, unbiased, information base to educate regulators, legislators, and policy makers on Distributed Generation. CAM MG10956

Distributed Generation Experience DG Impact Study
Completed a DG impact study for a northeastern U.S. electric utility to help it understand the market potential for DG in its service territory. The Challenge Perform a detailed assessment of the market potential for DG within the client’s customer base and determine the impact on the client’s business Developed a detailed economic performance model that simulated DG operation under several scenarios, and applied the model using actual customer data to determine market adoption of DG Completed an assessment of the local, regional and national regulatory environment with respect to DG Assessed the likely impact of DG on the client’s power delivery business and made recommendations for strategic response The Approach The Result The utility used the results of the study to begin a strategic DG business planning effort. CAM MG10956

Distributed Generation and Innovation

Similar presentations

Presentation on theme: "Distributed Generation and Innovation"— Presentation transcript:

Similar presentations

About project

Feedback

Log in

Auth with social network:

Distributed Generation and Innovation

Similar presentations

Presentation on theme: "Distributed Generation and Innovation"— Presentation transcript:

Similar presentations

About project

Feedback