Distributed Generation
Options for Industry and Commerce
Introduction
Several coincident, significant
transformations are causing a revolution in the way electricity is produced, distributed, stored,
and marketed. A top-down, centralized system is devolving into one that is much
more distributed and interactive. The mix of generation is shifting from high
carbon to lower carbon, and, often, to no carbon. In many regions, the electricity
business is transforming from a monopoly to a highly competitive arena. A profound shift is under way in the energy
market, as companies
increasingly turn to their own, on-site generation of power in order to meet at least some of their energy needs. While centralized production at power plants continues to dominate, leaders of many energy-intensive businesses are exploring ways to put themselves in better control of their energy supply: recognizing that how energy is produced, how reliably it is delivered and at what price is a key factor in their profitability, sustainability and resilience.
Distributed Generation
Although
there is not a single shared definition for distributed generation among the
different jurisdictions worldwide, the term is generally used to refer to power
generation located near the point of consumption, as opposed to centralized
generation, which is typically located outside of the distribution network.
Frequently, distributed generators are located on the consumption side of the
customer’s meter, and the electricity generated by a DG system can be either
consumed on-site or injected into the local grid.
Distributed energy, or decentralized energy means to generate electricity at
or near
the point
of use, rather than
energy produced at large centralized plants elsewhere and sent through the national grid. This production can encompass
any size of operation, technology
or fuel used, both off- grid and on-grid.
That’s not to say that traditional and familiar
centralized energy production
will be consigned
to the past any time soon. The power system relies principally on centralized power: large, high-capacity plants, built at great cost over long timescales With large infrastructure
projects often planned decades before
they become operational, the reliance on centralized energy continues
But against this backdrop of continued reliance on centralized power, another, more disruptive trend is emerging as companies
begin to explore self-generation for at least some of their energy
Environmental Benefits
Distributed generation (DG) could contribute to the world drive to
reduce carbon emissions and global warming.. This would be the result of :
reduced heat losses , heat that is now lost could be used for cooling of
heating buildings ; reduced electricity losses as generation is moved in
proximity of the consumption point ; encouraging use of renewable sources of energy
; increasing awareness of the environmental concerns related to power sector
contributions to emissions .
Reasons
for Interest in Distributed Generation
The rising cost of wholesale energy prices
and
the falling cost of self-generation technologies and capabilities, are driving businesses towards distributed energy, environmental considerations (whether
intrinsic or because of positive
associations and brand lift) are also a strong motivator. The main reason behind the move to distributed
energy and self-production is cost, .Companies
have experienced rising energy costs along with everyone else 15 years, nor are they exempt from the increase in costs associated with the management of grid infrastructure, which represent an increasing share of energy bills.
In other words, wholesale energy bills are made up of commodity costs (the cost of the energy itself) and non-commodity costs (other charges). While commodity costs made up around three-quarters of commercial users’ energy bills as recently as 2012, non-commodity costs (charges associated with transmission, distribution,
technical losses, theft, collection deficiency, subsidies and policy
costs) have been steadily rising and now account
for around half the energy bill of wholesale customers. The cost associated with
buying and installing energy- generating equipment on their own sites keeps coming down. There
has been a big reduction in the cost of solar panels, for example, and we’re now seeing
big reductions
in the cost of batteries,
which are also an important part of the distributed energy picture. Businesses hope to drive down their overall electricity bills, while becoming greener in their energy use and less reliant on third-party providers for their supply.
Some businesses
have already travelled
a fair distance down this path, while others are weighing
up the pros and cons These investments and strategic plans are leading to a trend of decentralization in energy production, with significant implications for utilities
firms in terms of planning for changing patterns of demand from
large-scale energy users and adapting
to
new ways to manage
more
decentralized distribution networks. Other reasons highlight
the emphasis on renewable-energy sources that companies are principally
relying on. For example, environmental considerations are cited by many as a reason to produce their own energy. some
mention tax breaks or other incentives for the use of
renewables and some cite
the desire to be seen as a green, sustainable
and/or innovative business.
ome of the big technology companies running huge data centers—Google, for example, or Amazon—there’s a definite movement in the direction of wanting to run on 100% renewable power,
often involving on-site generation of that power Sony
announced that they aim to be 100 per cent renewable across all of their
business sites by 2040 . Tetra Pak to boost renewable
energy use with new solar array at its U.S. headquarters
Company is on track to reach 100
percent renewable electricity worldwide by 2030
That’s not to say that many companies
plan to ditch their utility provider completely. Sixty-two percent of respondents strongly or somewhat agree that electricity utilities
should remain the main energy producers, to enable economies
of scale..There’s plenty of evidence that the energy market is changing fast and that the utility of the future is likely to play a rather different role in its work with businesses,
particularly those in
energy-intensive industries
Options
Options include
solar arrays
on the
rooftops
of hotels,
shops, distribution hubs and
factories
to combined heat and power (CHP) systems in their basements, Solar stands out as by far the most popular option for on-site energy generation, due in part to the convenience and space-benefits
of installing solar arrays on rooftops that might otherwise go unused, and the maturity of the technology for the
self-generation market..solar
seems the most popular followed by wind , biomass, non renewable sources and hydro The trend is gathering
momentum, however, with several prominent companies
recently announcing new
projects in on-site power generation.
In July 2018, for example, consumer
packaged Goods Company Nestle opened a nine-turbine wind farm in Dumfries
and Galloway in Scotland, which will produce around 125 GWh of power annually. This is enough, the company claims, to supply half the annual
electricity demands of its factories,
offices and warehouses in the UK and Ireland. In June Screwfix, a DIY retailer owned by home improvement giant Kingfisher, announced its first net-zero energy store,
featuring an on-site solar array,
battery storage and an air source heat
pump. According to Kingfisher, energy
generated by
the
solar panels at
the
Peterborough store will run
the building during the day and charge
the
batteries to
provide power at
night, while the
heat
pump will replace existing gas and electric heating
units. And in
Crewe, construction
has begun on a 10,000
unit-strong solar farm
at the
factory of carmaker Bentley. Once completed, these panels will provide 2.7 MWh to the factory, or around a quarter of its total power consumption. Exxon, Shell, and BP have announced initiatives to
report the risks climate change pose to their business, bowing to shareholder
pressure. 6 U.S. Corporate Giants Leading the Move to Renewable
Energy these are : Intel; Kohl; Walmart ; Apple ;and IKEA .
DG
systems may include the following devices/technologies:
·
or a combination of the above. For
example, hybrid photovoltaic, CHP and battery systems can provide full electric
power for single family residences without extreme storage expenses.
Cogeneration
Solar power
Photovoltaic, by far the most important solar technology for
distributed generation of solar power, It is a fast-growing
technology doubling its worldwide installed capacity every couple of years. PV systems range from distributed, residential, and
commercial rooftop or building integrated
installations, to large, centralized utility-scale stations. As most renewable energy sources and unlike coal and nuclear, solar PV is
variable and non-dispatch able, but has no fuel costs, operating pollution, as
well as greatly reduced mining-safety and operating-safety issues. It produces
peak power around local noon each day and its capacity factor is around 20 percent.
Wind power
Wind turbines can be distributed energy resources or they can be
built at utility scale. These have low maintenance and low pollution, but
distributed wind unlike utility-scale wind has much higher costs than other
sources of energy. As with solar, wind energy is variable and non-dispatchable.
Wind towers and generators have substantial insurable liabilities caused by
high winds, but good operating safety. Distributed generation from wind hybrid power systems combines
wind power with other DG systems. One such example is the integration of wind
turbines into solar hybrid power systems, as wind
tends to complement solar because the peak operating times for each system
occur at different times of the day and year.
Hydro
power
Hydroelectricity is the most widely used form of
renewable energy and its potential has already been explored to a large extent.
Waste-to-energy
Municipal solid waste (MSW) and natural waste, such
as sewage sludge, food waste and animal manure will decompose and discharge
methane-containing gas that can be collected and used as fuel in gas turbines
or micro turbines to produce electricity as a distributed energy resource. ).
Energy storage
A distributed energy resource is not limited to the
generation of electricity but may also include a device to store distributed
energy (DE). Distributed energy storage systems (DESS) applications include
several types of battery, pumped hydro, compressed air, and thermal energy storage.
PV
storage
Common rechargeable battery technologies used in today's PV systems
include, the valve
regulated lead-acid battery (lead–acid battery), nickel–cadmium and lithium-ion batteries. Compared to the other types, lead-acid
batteries have a shorter lifetime and lower energy density. However, due to
their high reliability, low self-discharge (4–6% per year) as well as low investment and maintenance costs, they
are currently the predominant technology used in small-scale, residential PV
systems, as lithium-ion batteries are still being developed and about 3.5 times
as expensive as lead-acid batteries. Furthermore, as storage devices for PV
systems are stationary, the lower energy and power density and therefore higher
weight of lead-acid batteries are not as critical as for electric vehicles.
However, lithium-ion batteries have the potential to replace lead-acid
batteries in the near future, as they are being intensively developed and lower
prices are expected due to economies of scale provided by large production facilities. In
addition, the Li-ion batteries of plug-in electric cars may serve as future storage devices, since most vehicles are parked an
average of 95 percent of the time, their batteries could be used to let
electricity flow from the car to the power lines and back.
Vehicle-to-grid
Future generations of electric vehicles may have the ability to deliver
power from the battery in a vehicle-to-grid into the grid when needed. An electric vehicle network has the potential to serve as a DESS
Impacts of Distributed generation
of companies
Companies who have already made the move, self-generation of electricity is widely regarded to have delivered impressive rewards. Most
claim a slightly
or strongly positive
impact on the cost
of business operations,
Drawbacks
Drawbacks include: the high up-front
cost;
while a lack of understanding/expertise in electricity generation; reduced focus on their core business.
Energy generation is quite capital-intensive and for a relatively small business that kind of capex isn’t as achievable as
it
might be for bigger companies, Self-generation is also quite time-consuming. It’s a complicated area and one in which the
company has no expertise.
.”
Implications for utilities providers and network operators
The big question
is who is going to pay for the grid in the future—the fixed costs associated with building and maintaining transmission lines. If more and more companies go off-grid and become essentially energy self-sufficient, utilities
are left with a diminishing
number of customers to pay these costs, which obviously results in an inequitable distribution
of those grid costs among remaining
customers. There could be a move towards network charges based on gross demand rather than net. However, this could prove unpopular, as it would mean that self-generating businesses
also face network charges. Business models and charging mechanisms
are going to have to change the traditional
utility model based on centralized supply is under severe pressure from technological change and regulatory interventions.
There is also the question
of whether
local grids will be able to cope with two-way flows of energy as more companies
seek to sell the energy they generate back to the grid. . Battery prices are falling
rapidly, opening
up opportunities for companies
to create new revenue
streams, by storing at least
some of the energy they create and selling it on. This could create
challenges for distribution network operators (DNOs), the companies that own the cables and towers that bridge the gap between the national
transmission network on one side, and
homes and businesses on the other.. “\A two-way flow on these networks, where power is being pushed back into the grid at times when there’s excess power locally creates a need to manage local grids much more closely
on
a minute-by-minute,
second-by-second basis, to keep frequencies
within the ranges at which they need to be maintained
and ensure the local grid doesn’t trip..
That’s a big change
from the unidirectional flows that DNOs are accustomed to managing.
This will force today’s DNOs to become distribution
system operators, or DSOs— innovative companies that use smart grid technologies to move away from this traditional role of delivering electricity in one direction from centralized power plants to homes and businesses, in favor of acting
as operators of
“smart platforms” that
actively
manage and balance
supply
and
demand in local areas, from a range of decentralized sources.
The rise of electric vehicles (EVs), which will also bring new complexities, not just for utilities but also for many of their business customers..Increasing
numbers of EV owners will be
looking to plug in their cars when
they visit a supermarket, check into a hotel or simply arrive at work. It will take some pretty smart management across the entire grid in order to cope with the inevitable peaks in demand that occur at charging stations at certain times of the day, because charging an electric vehicle
relies on a higher capacity and faster charging connections compared with charging other kinds of appliances. For hotel car parks and motorway service stations, for example, capacity constraints in terms of the quantities of energy that can be delivered to a site during peak periods could quickly become an issue.
This may even result in increase in peak demand.
New patterns in electricity flows across the grid, meanwhile, will open up new opportunities
for
demand-side response
aggregators, but these are likely to face increasing
competition from utilities companies and DSOs, Demand
response is the mechanism
by which companies and consumers reduce or shift electricity use during peak periods in response
to time-based rates or other forms of financial incentives. Many aggregators have flourished in recent years, thanks in large part to the shift to energy self- generation by companies.
These tech-focused firms have built some very clever software to help businesses understand how best to use the mix of distributed energy and power that comes from utility providers and then manage
those assets on their behalf, Many of these companies
are still quite small, however, and traditional utilities are increasingly
investing in similar technologies to offer those services themselves to customers.
Sorting through these issues will take a concerted joint effort among utilities,
policymakers and energy- intensive companies. A number of things need to happen in order to enable the smarter grid of the future to operate more efficiently,
smart meters , time of use tariffs , and two way metering and buy back tariffs
needs tom be in place
The future relationship of utilities and energy-intensive business customers will instead look far more collaborative—but the latter group will become increasingly more savvy shoppers and be reluctant to pay higher bills. More than half (52%) strongly or somewhat agree that the cost of energy will probably fall if more power production is decentralized, due to increased competition between power producers.
Pakistani Market
Solar roof tops have a decided financial attraction for the
Pakistani industrial and commercial consumer.
For starters both these consumers are charged above cost of supply. The tariff dissertations are explained as
follows:
Tariff distortion.
Electricity tariff subsidizes domestic consumption at the cost of
industrial consumption. Comparison of the financial tariff to tariff based on
marginal costs has been made. The marginal Cost estimates (at an oil price of $
52/bbl) are presented as follows:
|
Table - : LRMC Estimates
|
|
(Based on oil price of US$52)
|
|
Voltage Level
|
Capacity
|
Peak Energy
|
Off Peak Energy
|
|
$/kW
|
c/kWh
|
c/kWh
|
|
Gen
|
417
|
10.24
|
6.39
|
|
500 kV
|
506
|
10.41
|
6.51
|
|
220 kV
|
540
|
10.59
|
6.58
|
|
132 kV
|
623
|
10.91
|
6.74
|
|
66 kV
|
718
|
11.23
|
7.00
|
|
11 kV
|
755
|
13.72
|
8.96
|
|
0.4 kV
|
970
|
16.35
|
10.25
|
Source: Consultant
Tariff from LESCO web site had been compared with a tariff
calculated based on marginal costs. This comparison is presented as follow:
|
Tariff : Financial vs. Marginal
|
|
|
Tariff Rs./kWh
|
|
|
Customer
|
|
|
|
Financial
|
|
Category
|
|
Financial
|
Marginal
|
% Marginal
|
|
|
|
|
|
|
Industry
|
|
13.46
|
11.59
|
16.19
|
|
Domestic
|
|
10.25
|
15.29
|
-32.98
|
|
Commercial
|
|
16.30
|
15.14
|
7.65
|
The domestic financial tariff is about 33% lower than the tariff
based on marginal costs.B1 industry financial tariff is 16% higher than the
economic tariff. Financial and tariff based on marginal costs for medium sized
commercial customers is about even. The share of domestic consumption in
Pakistan is much greater than in most countries at its stage of development.
The reason is that the state subsidizes domestic consumption, especially for
more affluent households. This happens at the cost of power for industrial
consumers. This is one reason why compared to the size of the economy, the
country remains less industrialized. High energy cost impact profitability of
investors. Basing electricity tariffs on the long run marginal cost ensures
that both the level and structure of tariffs reflect the cost of expanding the
power system.
Commercials entities say a mall
purchases power from the grid at Rs12-14 per unit for its consumption which is
spread over 24 hours, a solar rooftop solution can instantly cut the net tariff
in half — thereby helping them to hedge a long-term power tariff. There is
another advantage for industrial and commercial consumers with solar power —
the energy is available when they need it the most during daytime which results in significant cost savings for
their operations. Educational institutes such as colleges and universities
could come in next as potential players in the market. Think of these
institutions which have expansive, flat-topped buildings and large campuses
ideal for installing solar panels.
Urban educational institutes obviously come with a net metering
advantage and have become excellent candidates for rooftop solar plants. Many
of these institutions have acres of roofs, but assuming conservatively that
only 200 kW of solar gets installed on average on these premises, there is
scope for additional installation of 5,000MW across the country.
Net metering provides an ideal opportunity to
sell power back to the grid in summer and over the weekends and supplying to
the grid at a tariff of Rs10-12 per unit.What once did not make any commercial
sense is now solely lucrative on economic grounds.With rooftop solar
dominating, net metering has become even more critical today and is sprouting
different business models such as the ‘opex model’ where the roof owner does
not own the solar plant. The solar is owned by a third party who invests in the
plant and sells power, typically, to the roof owner.
Since the rooftop solar plant owner is a power company and there
is an incentive to sell electricity back to the grid through net metering,
every unit of electricity generation matters. The roof owner is happy because
he gets a fixed long-term tariff without undertaking any upfront investments —
and hedges himself against rising power tariffs (think of all the surcharges).
The third-party owner of the solar panel is happy because his
internal rate of return (IRR) of selling the power back to the grid and opex
revenues from his customer is higher than his cost of capital. And last, the
government is happy because the grid is now more stable owing to all the excess
power being supplied to surrounding neighborhoods instead of burning additional
electricity.
There are technological challenges, too, but they could be easily
overcome. For instance, not many Discos have the technical capability to adjust
to power fluctuations. During the day, there’ll be adjustments to accommodate
sudden spikes of generation; in the evenings, there’ll be a reverse flow which
makes the power variability and intermittency come in a much larger way. There
is another concern of the government’s stranded costs of assets that it has
procured on stringent ‘take or pay’ terms.
CONCLUSIONS
Benefits and Costs associated with DG
|
Stakeholder perspective
|
Factors affecting value
|
|
DG customer
|
Benefits: Reduced utility
bill, additional incentives, tax credits, consumer empowerment
Costs: DG system cost
|
|
Other customers (e. g. ratepayers)
|
Benefits: Reduction in
transmission, distribution, and generation capacity costs, energy
costs, and
grid support
services8
Costs: Administrative costs, rebates/incentives, decreased utility
revenue that is
offset by increased
rates
|
|
Utility
|
Benefits: Reduction
in transmission, distribution, and generation capacity costs, energy
costs, and
grid support
services
Costs: administrative costs, rebates/ incentives, decreased
revenue, integration
and interconnection costs
|
|
Society
|
Sum of the
benefits and costs to
all stakeholder + additional societal and environmental benefits
or costs that accrue to society
at large rather than
any individual stakeholder.
|
A profound
shift is under way in energy production.
Distributed energy is here, and a trend likely to pick up pace as more business opts to meet a greater proportion of their energy needs through self-generation. The pressure is on for utilities
companies to radically rethink their business
models. For many, future success will depend on their ability to partner with energy-intensive companies on their distributed energy journeys, assisting them in the design, procurement and implementation of on-site energy generation equipment, and its ongoing operation and maintenance.
Power grid is under increasing pressure, and that trend is set to continue.
Electricity pricing, meanwhile, is volatile,
but on a general upwards trajectory. For many companies,
particularly those in energy-intensive industries, it will simply make good business
sense to generate at least some of their own energy, store it when it is abundant
and cheap, and tap into it when grid power is scarce and costly.
It is not only the
ability to self-generate that drives self-generation, but complementary
technologies and capabilities such as those that allow greater insight
over energy use and the ability to squeeze out further efficiencies, as well as battery storage.
For many, the only way to guarantee round-the-clock access to cost-efficient power will be to make it themselves and take advantage of investment economics that are improving at breakneck speed. In time, self-generation of power will become a valuable revenue
stream and a source of new value for business leaders, as well as an attractive form of insurance and clear sign of their company’s green credentials.
