Distributed Generation - A Force to be Reckoned With

Distributed generation is becoming popular fast for a number of reasons and the utility needs to embrace this trend.
Published: Mon 07 Apr 2014

The possibility of a more reliable and cheaper supply of electricity is becoming very attractive to consumers around the world and its being fuelled by cheap solar panels and installation. [Cheaper Solar Installations-Watershed Moment for Distributed Generation and Renewables.] The manufacturing of hugely effective and cost-efficient batteries are also on the horizon, driving more consumers away from the power grid.

While this is great news for consumers, utilities are left scrambling to transform themselves in an attempt to stay afloat in a hugely competitive industry. A report by investment bank, Morgan Stanley, predicts that ever-cheaper solar and other renewable-energy sources, combined with better and more plentiful batteries, will see many businesses and other power consumers leave their electricity providers.

Batteries-A tipping point for distributed generation

Tesla Motors, an American maker of electric cars, recently said it will build a “gigafactory”, which by 2020 will turn out as many lithium-ion batteries as the whole world produced last year. These batteries will not only power electric vehicles, they can also be used to store electricity during times of excess generation from solar or wind power. Consumers will then be able to draw from this stored electricity when power generation is low. We discuss the potential of Tesla’s battery factory in our article, Will Tesla’s “Gigafactory” Crack the Energy Storage Market?

Morgan Stanley predicts that if Tesla’s factory provides the cheap batteries it promises, Californian households will be able to run off a solar-plus-storage system costing just US$350. Grid electricity is expected to cost around double that.

It is therefore possible that the factory’s huge production of efficient batteries will create a tipping point for distributed generation, a trend which is becoming more popular for a number of good reasons.

Research shows that distributed generation saves money, enhances operational efficiency, lowers the risk of power outages, protects against military and cyber attacks, decreases the devastating effects of natural disasters, and helps reduce the environmental footprint. The opportunities are endless too since anyone can tap into this revolutionary industry. Basically, if you have a roof, open field, livestock, military base, data center, sewage treatment plant or a factory, you can become an investor in or owner of distributed generation. [Distributed Generation Opens a Floodgate of Opportunity.] General Electric’s investment of US$250 million in battery storage is further proof that the storage market is maturing. [Energy Storage-General Electric Gets Serious].

Small power stations have been around for a while but they were costly and not very energy efficient. However, new smaller plants are proving to be more cost-effective and energy efficient. The plants are able to produce power in the tens of megawatts at most (a typical coal-fired power station produces it in the hundreds). This is reducing transmission costs, as well as the risk of widespread power cuts which can be devastating to the economy.

Distributed generation is not all about renewables and batteries

Not all distributed-power schemes rely on renewable sources and batteries.

Wesleyan University in Connecticut has a system which is based on an efficient engine running on natural gas. Of course, this is a cheap resource thanks to fracking in the US. The system produces around 95% of the university’s electricity needs. The system absorbs the majority of the engine’s waste heat to provide heating and hot water. This cuts the university’s net energy consumption by 30%.

A lorry-mounted aircraft engine can also become a mobile gas-fired power station. General Electric recently installed 24 of these units in Algeria which provides 30MW of power.

Waste-recycling schemes are also playing a major role in distributed generation. With the right bugs, anaerobic digesters can consume any kind of organic waste, from food scraps to cow dung, giving off methane that can be used to run a generator.

Disruptive force

But, solar panels remain the most disruptive. Investment research company, Morningstar, points out that although distributed generation currently accounts for a mere 1% of US installed capacity, this figure will jump to 33% by 2017. Today, Germany’s distributed generation accounts for 20% of the country’s installed capacity. Based on these figures, the research firm says that this could “kill” utilities in their current form. Small-scale producers will dump their surplus power on the market at prices below those at which the utilities can recoup their cost of capital and therefore pay to maintain the grid.

In a recent study, America’s Electric Power Research Institute highlights the dangers of an unplanned move to distributed generation. The paper uses Germany as an example. The rush for renewables is placing major strain on the power network and has given utilities a hard time- Germany utility RWE made a net loss of US$3.8 billion last year, no thanks to the escalating supply of electricity from (subsidised) renewable sources which undercut its prices.

Distributed generation is here to stay and will continue to develop since the opportunities and benefits are hard to ignore. [Distributed Generation Cannot Be Stopped]. While this growing trend may be disruptive to the utility’s current business model, it can also be viewed as an opportunity. [Distributed Generation Opens a Floodgate of Opportunity].

Distributed generation is creating a platform of change for manufacturers, power consumers, investors, buyers and sellers alike. Perhaps this extremely competitive setting will instigate innovation within the traditional power industry.