REMARKS OF BLOSSOM A. PERETZ, ESQ.
DIRECTOR, DIVISION OF THE RATEPAYER ADVOCATE
AT THE NEW JERSEY ASSOCIATION OF ENERGY ENGINEERS’
2000 ENERGY FUTURES FORUM
APRIL 13, 2000
Good morning. It’s a pleasure to be here today. The topic I have chosen to speak on is distributed energy, a concept that has literally gone full circle. By that I mean that distributed generation, (DG), which can be defined as the generation of electricity by facilities smaller than central generating plants allowing for interconnection throughout the power system, was common in the early part of the 1900's. It wasn’t called distributed generation. It was more in the nature of power being generated locally at separate facilities, and used locally. The development of the central generating plant gradually replaced local generation, and reached its culmination, if we can use that term in this context, in the building of huge nuclear power plants. As we all now know, bigger did not prove better, and the current trend is to build smaller, more focused generating plants located where power is needed.
This is where distributed generation (or DG) comes in. Notably, distributed generation is most often on the customer’s side of the meter. It is the customer, not the utility, who generates the power on his site, and then arranges to connect it to the utility distribution grid, through an appropriate interconnection. Furthermore, the successful development of distributed generation is highly technology-dependent, and requires utility cooperation for the necessary utility interconnections. Interconnection is an important issue. The DG application must coexist in harmony with the grid. The ability of Distributed Generation to be connected to the grid is important because of the potential for the DG owner to sell excess capacity back to the grid. Fuel cell owners can decide to use the power --or cut back on their use-- and sell some power to the grid. DG’s strategic value derives from its flexibility. DG can be sized to match needs of specific customers; can be operated flexibly to capture hour by hour variation in energy prices; can be sited almost anywhere to capture markets at key locations.
We could agree that Distributed Generation is a system located near the energy consumer’s site that could be integrated with the electric grid with benefits on both sides; technologies that are connected to or injected into the distribution level of the transmission level at any point in the system. But there are ancillary issues --not yet agreed upon such as-- when we say Distributed Generation --what size are we talking about? Some say that DG is generation less than 1 MW-- some stretch it up to 50 MW? This issue is not yet resolved.
Are there circumstances when generation remote from the site can be considered DG?
Are there circumstances when the system services multiple customers?
Should ownership by a regulated utility preclude classification as DG? What about energy storage?
Some examples of distributed energy technologies are micro-turbines, fuel cells, photovoltaics, and wind turbines. Distributed energy is environmentally friendly and easy to move --located at the customer side of the meter-- avoiding the need to build a huge grid infrastructure to connect central station generators. The bottom line for consumers is that it can be better match supply with demand, reduces line losses associated with transportation, lowers the need for huge reserve margin and for some technologies makes good use of byproducts such as heat and steam. DG can also be used for peak-shaving, backup for reliability, to bypass grid bottleneck and to provide power in remote areas. DG can overcome high capital costs, high fuel costs, it is flexible and adaptable. These technologies have the potential to reduce pollution and can use waste heat to increase energy efficiency since the costs for transmission and distribution are significant -- in addition during the transmission and distribution from a large central plant -- up to 7% of the power is lost -- DG customers can offset all or part of T&D costs. DG then become another way to distribute power -- rather than just a smaller scale of generating power. This option allows for a greater degree of energy self-reliance and a change in the balance of power between the end user and the energy supplier.
In this discussion however I will not focus on the details of the various DG technologies, with which I assume many of you in this room may well be quite knowledgeable. Rather, I will focus on elaborating the benefits of DG for consumers and how these can be harmonized to the benefit of the general utility system. I will also discuss the environmental benefits of distributed generation. In other words, I see DG as a win/win on all sides.
First of all, if we accept the premise that consumers should have the widest latitude to choose what fits their needs best, a premise I heartily support in this era of deregulation, distributed generation provides consumers with an additional option for their power requirements. Distributed generation provides the consumer power when and where it is needed; distributed generation is not only a new way to generate power, but a new way to distribute power. For instance, during peak times of heavy electric demand, distributed generation can provide an economic option for those consumers in power constrained areas. The concept of peak shaving has long been recognized in the gas distribution area, when supplemental units providing propane, or LNG are turned on during peak times to supplement natural gas. DG units can be used to generate electricity during peak times for direct use by the consumer, as a cost effective option for avoiding the heavy costs associated with peak power. Moreover, it can benefit the general system if any excess power can be fed back into the system through an appropriate interconnection. Such use would have the dual benefit of decreasing costs for the consumer, and aiding the electric utility during peak times. Indeed, if enough consumers utilize the DG option during peak times, this will have the general benefit of making it unnecessary for the utility to install expensive peaking capacity, both on the transmission and distribution side by mitigating the need for substation and feeder upgrades, as well as on the generation side. Furthermore, installed DG capability will provide an additional level of reliability for the end-user, i.e. the consumer. Utilities have offered their customers increased levels of reliability through standby capacity. End users have also invested in power reliability measures such as uninterruptible power systems (UPS) and clean power systems, which may take the form of suppressing or resolving power quality distortions, such as voltage variances and harmonic distortions. DG provides another design option for power reliability and quality. Onsite power generation can also be superior to grid power in accommodating the voltage fluctuations caused by high-voltage motors and other appliances typically found on an industrial plant floor. In this regard I want to mention fuel cells, which have a reputation for producing clean, high-quality power ideal for data and telecommunications centers. Fuel cells which generate electricity from natural gas, or other hydrocarbon fuels, also have the potential of supplying electricity and heat to residential customers, thereby providing them with another option for energy supply.
Plug Power Inc. a leading designer of fuel-cell systems for residential power generation, formed in June 1997, went public with an initial public offering price of $14. In February 2000 the company announced plans to begin commercial sales of the system in 2001, causing Plug Power’s stock to skyrocket. The company’s stock is currently trading at more than $120 per share. While 200 of these units have been installed worldwide, at about $4,000 per kilowatt, of course the price remains a barrier to distribution. As you may all know, New Jersey Resources Corporation, through its unregulated affiliate has entered into an agreement with GE to market GE fuel cell systems, manufactured by Power Plug.
Nevertheless fuel cells and other distributed generation technologies have been viewed as a marketplace threat to conventional generation --suggesting that on-site power will eventually replace the grid. For the utility and the energy companies -the fuel cells represent an option to better service customer with less investment costs in remote areas --and with an opportunity to increase capacity without huge capital investment. The new technology holds promise to be more reliable and cleaner-- perhaps replacing old generations plants as they are retired. Will the fuel cell technology hold promise for the residential customer? Only when there is confidence in the reliability and cost for the average consumer.
DG installations also are uniquely suited to meet isolated load requirements. Indeed, DG units have for many years been deployed in remote agricultural, mining and oil production field sites where commercial grid power was simply not available. But they can also be deployed on customer sites to meet high-voltage requirements that would otherwise require costly enhancements of feeder facilities and substations. Many utilities now pass these costs directly through to their end-use customers anyway, and customers might well prefer investing directly in onsite generation.
We are all familiar with one example of successful distributed generation, and that is cogeneration. This state has fostered the development of cogeneration facilities and currently there are numerous cogeneration facilities in this State, both large and small. Cogeneration has proven itself a reliable option for end users, by creating significant synergies in the overall combustion efficiency of the plant, especially where electricity is generated by using some or all of the waste heat of the primary thermal load. Also, because the electricity is generated on site, the usual line losses inherent in transmission and distribution facilities do not occur, and it is therefore also more environmentally beneficial. As I understand it, there have been significant improvements in combustion turbine technology, as well as the development of microturbine products, that make it possible to dramatically lower the scale required for economically attractive cogeneration installations. The same is true for the development of fuel cells, which also holds the potential to be useful for small-scale cogeneration.
Finally, there are numerous DG opportunities that employ renewable energy sources and cover a broad range of technologies and applications, from small scale photovoltaic installations to wind turbines, to relatively larger scale biomass-fuel generation facilities. Many of these can be made available to residential consumers, who also should be able to use DG as an electricity option, whether for economic reasons, or as a way to improve the environment by reducing harmful emissions or by using renewable technologies. Several renewable energy technologies are practical in niche DG applications, such as residential solar-assisted water heaters, and residential geothermal heat pumps.
The Wall Street Journal, on Tuesday, February 22, 2000 reported that General Electric had achieved a breakthrough in the design of new natural gas powered generating plants for production of electricity --using less fuel than in present systems. The new plant design, called the H System, relies on steam, rather than air, to cool the huge fan blades that generate electricity-- which allows the blades to grow hotter and generate more power more efficiently. The design uses 5.3% less fuel less fuel than current technologies and is 60% efficient, compared to 32% - 40% efficiency of current coal, gas and oil plants. Energy Secretary Bill Richardson of the US Department of Energy praised the cleanliness of the new turbine saying it would cut by half the nitrogen oxide emission level of turbines now in use. This new technology is scheduled to go on line in 2002 at Sithe Energies 750 MW power plant upstate New York.
The benefits of these renewable energy applications are self-evident, and there is growing consumer awareness of the benefit of investing in renewable energy equipment and services at a premium price out of concern for the environment. That awareness and interest is shared by the State of New Jersey. The Electric Discount and Energy Competition Act enacted a little over a year ago, singles out the importance of the development of renewable technologies, by allocating a specified amount of money, to be collected from utility customers through the Societal Benefits Charge, specifically for the development of renewable technologies. It is estimated that the level of mandatory funding for renewable technologies is $32 million annually, for the next eight years. It is hoped that thereafter there will be an active and viable market in renewables, and that the competitive marketplace will be able to supply renewables without infusion of State subsidies. It is thus the public policy of this State, as expressed in the energy legislation signed by Governor Whitman, to further the advancement of the renewable technologies in this State both in word and deed, through significant support of in-state renewable technologies.
In California where homeowners in the San Fernando Valley see summer temperatures soar into the 100"s --bringing high energy bills, in July 1999 a new complex of 186 two story homes include natural gas-fired air conditioning gas absorption chillers to cool their homes -- and solar electric roof panels-- that is photovoltaic roof panels-- to produce power. In addition to lower costs for consumers-- these new technologies are environmentally friendly. I would note that this project is a joint project of private industry, Southern California Gas Co. and the federal government. This project, known as Village Green was the nation’s first larger-scale residential project to use natural gas-fired air conditioning.
I started out by saying that distributed generation has the potential of being a win/win situation for all parties. Let me further elaborate on that a little bit, since I am familiar with some of the arguments raised by the utilities often predicting the usual doom and gloom scenarios. The first argument is that the successful deployment of DG will strand transmission and distribution facilities. To my mind that assumes a levels of DG deployment in the foreseeable future that is highly unlikely to occur. What is far more likely, is that DG will be deployed by larger customers, who will experience immediate economic benefits, and that this will have the beneficial effect on utilities of mitigating their need to build new plants or enhance or expand old plants. That will have the further beneficial effect of mitigating the need for additional financing to support such plants, and should result in a more stable rate structure. I have also heard it mentioned that since DG will be primarily gas fueled, this will place a strain on the gas distribution system. This seems a highly unlikely scenario. It is far more likely that the gas utilities will directly benefit, by seeing gas usage increase during the summer time, a traditional low point for gas usage. Again, a win/win situation. We should also take into account the beneficial effect of DG on the environment, especially if fueled by gas or renewables, which should in the future lessen the regulatory pressures on New Jersey.
My message to you today is that DG can be a powerful and beneficial force in the energy industry. DG increases consumer choices for all classes of customers, and allows customers, not just the electric utility, to choose an electricity model that works best for them. I would hope that this can be accomplished in a cooperative framework, and that as in California, utilities and/or energy companies will work together with their customers so that both sides can benefit. Included in that is the establishment of appropriate interconnection policies with reasonable technical specifications that will not impede the development of this industry, but will foster it, while maintaining proper safety and reliability standards. The Division of the Ratepayer Advocate strongly supports the development of distributed generation, to increase customer choices, to reduce the costs of electricity, and to improve our environment.
Distributed generation will replace the old model of only centralized power plants. However, the new model will not just mean islands of power and no electric grid. The model will take advantage of the grid -- power will be transmitted both ways. It will be a network connecting large power plants with mid-size power plants, power generating devices all down to the residential level.
Regulatory incentives may be needed to jump start this industry -- possibly tax credits -- especially to jump start the small commercial and residential marketplace, but first regulators have to be convinced of the benefits of new DG technologies for consumers, balancing concerns of reliability, provider of last resort and of course rates for new unbundled services -- such as metering.
I will close with a quote from Lawrence M. Downes, Chairman and CEO of New Jersey Resources who said:
"Fuel cells are a key part of our strategy to actively participate in New Jersey’s evolving electric market .... By partnering with GE to bring fuel cells to energy customers in our state, we will advance New Jersey’s efforts to open its energy markets to competition by offering innovative technologies that give customers real choices about how they purchase their electricity."
Ladies and gentlemen, it will be your task, as members of the New Jersey Association of Energy Engineers, to join this movement and to incorporate DG technologies as part of the energy infrastructure of this State.
Thank you for your attention.