Tuesday, July 18, 2006

Realities of Distributed Energy

I responded to a post about distributed energy (www.energycentral.com and their EnergyPulse series of essays) at another site with the following. The original post came from an organization that is trying to create awareness about distributed energy within investment circles:

I teach my kids (and anyone else who will listen) to pay as much attention to the source of information as the information itself. In this case, let's be honest, DE Financial Group was formed to give definition and focus to distributed energy (DE) within the investment community. "Not (as Seinfeld's gang would say) that there's anything wrong with that." This is one of those articles that positions DE within the investment community against other better defined sectors (like public utilities, oil/gas, etc). Lumping everything but the kitchen sink into DE does not add clarity to the situation. I define DE as power generating or management devices that function on the customer's side of the meter and tend to exclude large industrial plants mostly dedicated to providng power to a single facility.

Being familiar with, or having direct experience in, every incarnation of DE since the early 1970s (Total Energy, Packaged and Micro-Cogeneration, Purpa and small Power, and now distributed power, let me add some pearls of wisdom:
1. You need high electricity prices and low premium fuel prices to make DE economics work.
2. if the incumbent distribution utility isn't working with you, it is working against you, usually in ways you won't discover until too late. (Who else remembers Purpa-killer rates in Southern California?)
3. The distributed computing model does not seem to be analogous for distributed power. Distributed computing broke the paradigm by being faster, better, cheaper. There was also no "incumbent" supplier to deal with, because there was no supplier at all for "computing."
4. The "customer" usually doesn't care about DE because historically (not currently), energy costs are typically a small component of overall costs. Other value elements like reliability don't resonate because the customer really has no way to bencmark it.
5. Most practical DE options are still fuel based (e.g. natural gas) and therefore do not improve the environmental footprint much, especially in the area of global warming. Just because funding for fuel cells comes from a renewable energy budget item doesn't make today's fuel cells a renewable technology.
6. Creative investment ideas have backslided. We're about to embark on a new round of construction of coal and even nuclear power stations, because that is what the financiers understand. Investment doesn't flow to the best ideas; it flows to the most predictable (at the time of the investment anyway) returns.
7. Practical and confident use of DE depends on energy storage devices and power electronics (PE) more than most observers give credit, and most R&D funders are neglecting. Ultimately, this may be the "Achilles heel" of the sector, unless greater resources and attention are devoted to them.

All that said, I think DE does have a future, in the form of micro-grids. Tying multiple devices together, and own/operating them like a "utility" using advanced automation and power electronics allows you to achieve economies of scale, as long as a utility-like entity is still responsible for the customer interface. Once this model is proven to achieve lower rates for the long term, all of the stakeholders should be mollified.

Our multi-decade strategy for electricity infrastructure development should include a "robust backbone" based on the traditional grid model (large centralized plants, long transmission lines, large energy storage facilities, etc) and micro-grids in high population centers, industrial centers, or special reliability situations (telecom, chip-makers, etc) that unify the DE resources, especially for those areas that truly place a value the benefits DE can bring.