Values and Methods of Integration:
Distributed Generation at its Best


For many years the developers and manufacturers of distributed generation (DG) technologies focused on perfecting promising technologies, that offered the hope of a greener and secure energy future, less dependent on foreign oil. To facilitate this, many of the developers of these technologies received grants, contracts and other forms of public subsidies. This approach to renewables and other technologies development began aggressively in the Carter administration and has continued largely unabated since that time. DOE and state energy offices lined up their programs to distribute funds to various technologies, by types, forcing the technologies to compete with one another for subsidies. The technology developers' efforts were focused on making a public policy case for their technology and fitting it into the funding priorities of targeted agencies.

Over the years, the game has changed; more emphasis is placed on private capital and with it, attendant pressures to perform for lenders and shareholders. Smaller DG startups were bought by large companies and frequently spun off, sometimes being purchased again. The focus shifted from getting "deliverables" to a government-funding agency to bringing products to market. With the exception of certain applications such as cogeneration, where efficiencies were high and costs reasonable, the market itself was soft, filled largely with early adopters who are not price sensitive.

Today, increasing wholesale costs of electricity in many regions of the country, concerns over reliability, continuing environmental issues and the experiment with "instant deregulation" in California have had a dramatic and immediate effect on bringing these DG technologies to market. Two new drivers have emerged. The first of these has not been evident before - market demand. The second, a function of the first, is a vigorous interest from the investment community. In combination, these new drivers have shaken the developers of DG technologies out of their comfort zones and begun a race to market. The developers are now becoming, or creating alliances to building/project designers, installers and specifiers. As an industry, we are coalescing into associations and beginning to speak for distributed generation, not just for a specific technology.

I believe that we can now clearly see a product cycle for DG that operates in each technology type. These phases proceed at different rates within technology families. However, in some cases, they overlap and are concurrent.

An Emerging Product Life Cycle

Phase One: Technical Product Development
The first of these phases is technical development of DG products to the point of being commercially viable. This effort concentrates on increasing efficiency and on reducing pollution and cost. Photovoltaics are still in this phase, even as they are beginning to be installed in greater numbers. Efficiencies are rising, and as designs improve and methods of manufacture become more automated, costs have moved sharply downward. We have seen this phase also in micro turbines that are now just emerging into the marketplace. This phase has largely been de-emphasized for reciprocal engines - although there is still significant work being done on pollution reduction and synchronization with the grid.

Phase Two: Integration
The second phase is what I call an integration phase. It emphasizes siting, permitting, interconnection and compatibility with building systems. This phase is a thicket of issues that each technology and manufacturer works through to develop replicable successes for installations.

Phase Three: Optimization
The third is a phase that focuses on optimization of the DG resource for the best benefit of the customer. As new distributed generation technologies emerge in the marketplace, manufacturers and installers look to optimizing these technologies. The elements of this phase are:

  • Use of DG and DSM technologies to optimize load management and reduction opportunities – both to make best use of the on site generation and to reduce grid dependency.
  • Installation of multiple DG technologies to facilitate an optimal air quality profile – usually a mix of renewables, like solar and internal combustion technologies.
  • Use of DG and DSM technologies to enable customers to optimize load shape for both real time pricing as well as tariff conditions for grid power.
  • Deployment of multiple technologies that use diverse fuels to assist in mitigating impacts of fuel price spikes on a customer’s electrical costs.
  • Identification of interface technologies that reduce or eliminate unnecessary conversions from the DG to the end use appliance or device - or that make such conversions as efficient as possible.

These areas represent a set of significant refinements in the deployment of DG. In combination, they offer the ability to provide electric consumers with a sound and reliable energy future with significant benefits to the grid, creating environmentally cleaner projects and cost effective use of DG.

Let us spend a moment on these elements; using DG and appropriate DSM technologies for load reduction and load shaping has two distinct purposes. The first of these is to reduce grid dependence in a manner that increases utilization of the DG resource and facilitates its amortization. The second is to shape building loads in a manner that reduces the costs for the grid power that is used. The latter issue holds great interest.

Load shaping is a critical issue. It is unclear how we will be charged for electricity in the coming months and years. The two generic choices, with significant variation in each, are tariff-based rates and market pricing. Whichever model a customer is presented with or chooses, electric costs will likely be tied to peak use and demand. Whether it is to avoid utility demand charges, time of day-based peak rates, or escalation clauses for peak power in long term purchase agreements - load shaping is critical to the economic equation of DG.

Load Shaping is achieved through a mixture of strategies that include switching discrete electric loads to storage at critical times. Use of thermal storage is also a possible approach in many climates. The use of combined heat and power (CHP) is also becoming more sophisticated. It is likely that we will see, if it is not already being done, the "heat side" of CHP being used flexibly, for low priority uses much of the day, like hot water in restrooms and then diverted to use for space conditioning when electric pricing is more critical. This requires a more sophisticated installation, but could be cost justified based on the cost of peak electric power.

Cost effective storage is also becoming a critical component concern to many of these strategies. In order for storage to be cost effective, it must have reasonable first cost, price per kW/h stored, and have minimal losses getting the electricity into and out of storage and to the load. In its ideal mode, this means moving DC electricity into the storage and out to loads without unnecessary conversions.

Air quality impacts of development are becoming a key element of concern in many areas of the country. To the extent that DG projects can use a mixture of very low or zero emission technologies, it is possible that an emissions credit will result. SB 1298 authored by Senator Bowen of California begins to address this issue by setting a standard for DG emissions. As developers are required to mitigate vehicle trip ends, some DG could be a practical mitigation. In the future, we may consider that one of the elements of optimized value for DG will be its favorable contribution to project permitting.

For decades, we have depended upon the electric utilities to generate or purchase power in an optimum mix that balanced sources for reliability, cost effectiveness and environmental protection. In the more recent past, DG has been deployed as a singular technology. And while we may still see this in some applications, like natural gas fired co-generation, it is more likely that customer will emulate the utilities’ balancing on-site generation to optimize the mix in these areas as well. In particular, I expect that we will see concern for use of differing fuels. If a principal rational for use of DG is to reduce reliance on the grid because it is a single cost-based commodity to the customer, it only makes sense that customers will seek diversification of cost bases in their on-site generation alternatives. This speaks not only of cost, but also of reliability.

A final component of optimization is delivery of electricity to loads without unnecessary conversions and their accompanying losses. In order to best understand this, it is critical to understand that an increasing percentage of our loads are truly DC. Telecommunications, computing, fluorescent and HID lighting and other digital appliances and devices are inherently DC. DG is in the best position to reduce loss through conversion inefficiencies because of two key factors; DG is on-site, and traditional concerns about the safety of long distance high voltage DC transmission are eliminated. Perhaps more importantly, many DG generation technologies are inherently DC. Photovoltaics and fuel cells fall into this category. Other DG technologies, such as micro turbines use a DC cycle in their power electronics and for certain applications use this cycle before its final inversion for traditional distribution within a building or vehicle (as is the case for Capstone’s micro turbine-powered electric busses).


Closing the gap between the source of generation and its end use is going to increasingly become the business of those who manufacture and deploy DG. Enhancing power quality, reliability, efficiency and environmental quality will become a preoccupation of the DG industry in the coming years - driven by a need to maximize the value equation for their customers. As a final comment, you are invited to see how one firm is addressing several of the issues optimization at

Comments at CADER 2000 of Patrick McLafferty,
Vice President - Business Development, Nextek

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