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Gas Research Institute examines DG technologies and benefits.

When Thomas Edison built Pearl Street Power station to provide the first electric service to customers in New York City, he was essentially following a strategy that today would be called distributed generation -- building power generation within the localized area of use. As the young industry grew, many industrial facilities built their own power plants both to serve their own needs and to sell to customers around them, another example of distributed generation. Rapid technology development led to larger and more efficient generation plants built farther and farther from the end user. Large regional power transmission networks delivered this power to the local distribution systems and finally to the end-user. The industry was regulated so that these changes could occur efficiently without wasteful duplication of facilities, and the economic role of distributed generation became much more limited.

Since the 1970s, however, large central nuclear and coal-fired power stations have become increasingly expensive and more difficult to site and build. At the same time, technological development has improved the cost of performance of smaller, modular power generation options -- from 300 MW gas-fired combined-cycle power plants down to individual customer generation of as little as a few kilowatts. The industry is also restructuring to allow customers to competitively select the optimum combination of energy resources to meet their needs.

Energy service providers and consumers can select from a wide range of distributed power generation technologies. Commercial technologies, such as reciprocating engines and small combustion turbines, already are used in a variety of applications from energy power to combined heat and power. Emerging technologies such as fuel cells, microturbines and photovoltaics will provide additional options for distributed power generation.

Reciprocating engines

Reciprocating internal combustion (IC) engines are widespread and a well-known technology. North American production tops 35 million units per year for automobiles, trucks construction and mining equipment, lawn care, marine propulsion, and, of course, all types of power generation from small portable gen-sets to engines the size of a house, powering generators of several megawatts. Spark ignition engines for power generation use natural gas as the preferred fuel -- though they can be set up to run on propane or gasoline. Diesel cycle, compression ignition engines can operate on diesel fuel or heavy oil, or they can be set up in a dual-fuel configuration that burns primarily natural gas with a small amount of diesel pilot fuel and can be switched to 100% diesel. Current generation IC engines offer low first cost, easy start-up, proven reliability when properly maintained, good load following characteristics and heat recovery potential. IC engine systems with heat recovery have become a popular form of DG in Europe. Emissions of IC engines have been reduced significantly in the last several years by exhaust catalysts and through better design and control of the combustion process. IC engines are well suited for standby, peaking and intermediate applications and for combined heat and power (CHP) in commercial and light industrial applications of less than 10 MW.

Combustion Turbines

Combustion turbines (CT), or gas turbines, are an established technology in sizes from several hundred kilowatts to hundreds of megawatts. CTs are used to power aircraft, large marine vessels, gas compressors and utility and industrial power generators. In the 1 to 30 MW size relevant to distributed generation applications, over 500 CTs were shipped worldwide last year, totaling over 3500 MW for electric power generation. Most of these units are sold overseas; the North American market represents an 11% share of these totals. CTs produce high quality heat that can be used to generate steam for additional power generation (combined cycle) or for industrial use or district heating. They can be set up to burn natural gas or a variety of petroleum fuels or can have a dual-fuel configuration. CT emissions can be controlled to very low levels using dry combustion techniques, water or steam injection, or exhaust treatment. Maintenance costs per unit of power output are among the lowest of DG technology options. Low maintenance and high quality waste heat make CTs an excellent choice for industrial or commercial CHP applications larger than 5 MW.


Microturbines, or turbogenerators, are very small combustion turbines with outputs of 30 kW to 200 kW. Individual units can also be packaged together to serve larger loads. Several companies are developing systems with targeted product rollout within the next two years. Turbo-generator technology has evolved from automotive and truck turbochargers, auxiliary power units for airplanes and small jet engine use for pilotless military aircraft. Recent development of these microturbines has been focused on this technology as the prime mover for hybrid electric vehicles and as a stationary power source for the DG market. In most configurations, the turbine shaft spinning at up to 100,000 rpm drives a high-speed generator. This high frequency output is first rectified and then converted to 60 Hz (or 50 Hz). The systems are capable of producing power at around 25 to 30% efficiency by employing a recuperator that transfers heat energy from the exhaust stream back into the incoming air stream. Like larger turbines, these units are capable of operating on a variety of fuels. The systems are air-cooled and some even use air bearings, thereby eliminating both water and oil systems. Low-emission combustion systems are being demonstrated that provide emissions performance comparable to larger CTs. Turbogenerators are appropriately sized for commercial buildings or light industrial markets for cogeneration or power-only applications.

Fuel cells

Fuel cells produce power electrochemically like a battery rather than like a conventional generating system that converts fuel to heat to shaft-power and finally electricity. Unlike a storage battery, however, which produces power from stored chemicals, fuel cells produce power when hydrogen fuel is delivered to the negative pole (cathode) of the cell and oxygen in air is delivered to the positive pole (anode). The hydrogen fuel can come from a variety of sources, but the most economic is steam reforming of natural gas -- a chemical process that strips the hydrogen from both the fuel and the steam. Several different liquid and solid media can be used to cerate the fuel cell's electrochemical reactions -- phosphoric acid fuel cell (PAFC), molten carbonate fuel cell (MCFC), solid oxide fuel cell (SOFC) and proton exchange membrane (PEM). Each of these media comprises a distinct fuel cell technology with its own performance characteristics and development schedule. PAFCs are in early commercial market development now with 200 kW units delivered to over 120 customer. The SOFC and MCFC technologies are now in field test or demonstration. PEM units are in early development and testing.


Photovoltaic power cells use solar energy to produce power. Photovoltaic power is modular and can be sited wherever the sun shines. These systems have been commercially demonstrated in extremely sensitive environmental areas and for remote (grid-isolated) applications. High costs make these systems a niche technology that is able to compete more on the basis of envirormental benefits than on economics.

Technology comparison

In a broad sense, all of these technologies compete with each other and with utility and merchant power generation options. In a narrow sense, each technology is aimed at specific and often different market segments, so side-by-side comparisons must be viewed cautiously. Power generation economics depend on first cost, running efficiencies, fuel cost and maintenance costs. Site suitability depends on size, weight, emissions, noise and other factors.

Combined heat and power

Power generation technologies create a large amount of heat in the process of converting fuel into electricity. For the average power plant, two thirds of the energy content of the input fuel is converted to heat. This heat can be utilized by customers, but only if the power generation is located at or near the customer's site. Combined heat and power (CHP), also called cogeneration, can significantly increase the efficiency of energy utilization, reduce global emissions and lower costs. CHP is best for mid- to high-thermal use customers: process industries, hospitals, health clubs, laundries, etc. The approach has been successful in large industrial markets that use significant quantities of steam.

The application of CHP was greatly expanded by the Public Utilities Regulatory Policies Act of 1978 (PURPA). In the past twenty years, over 50,000 MW of CHP capacity has been built. The cogeneration rules in PURPA were designed to increase efficiency of fossil fuel utilization and stimulate the market by requiring utilities to interconnect with cogenerators and buy power at avoided costs that were calculated according to regulated procedures. Some of these rules implemented at the individual state level have resulted in contracts with cogenerators that contained pricing and operating terms and conditions that accommodated the vertically integrated power system, but are not economic under current market conditions. In a competitive power market, more flexible rules will be required to ensure that customers, developer and utilities can negotiate appropriate relationships that optimize the benefits of CHP for each of the participants.

Standby Power

Standby generators are a highly underutilized generating resource. They hardly ever run, they aren't counted as either utility or nonutility generating capacity and they usually are specifically isolated from grid connection. Still, there may be up-wards of 40,000 MW of standby capacity in place today. Some utilities recruit customers with standby generation for peak load reduction programs offering payments or rate relief for limited operation during utility peak periods -- generally fewer than 200 hours per year.

Customer choice of competitive power suppliers may stimulate the economic competitiveness of standby generators and increase the run hours for units in the field. Standby generation can be part of a optimal strategy that minimizes power costs and maximizes reliability through combinations of firm and interruptible power and onsite standby capability.

Peak Shaving

The costs for power vary hour by hour depending on the demand and the availability of generating assets. Utilities see these variations, but customers typically do not. Larger customers often pay time-of-use (TOU) rates that convert these hourly variations into seasonal and daily categories such as on-peak, off-peak or shoulder rates. With the advent of wholesale and retail competition in certain markets, more of these cost variations will be transmitted directly as price signals. Both

TOU customers and those participating in competitive power markets could select distributed generation options during high-cost peak periods. Using DG for peak-shaving could reduce the customer's overall cost of power. In turn, this customer capability could reduce the need for the energy service provider to generate or contract to receive and redistribute very high cost power. TOU customers may find that their DG systems are cheaper than the peak TOU rates for much of the year. The closer that the price paid for power matches the actual hourly costs, the greater are the economic benefits to both the customer and the energy service provider in developing a peak-shaving strategy.

Grid support

The power grid is an integrated system consisting of generation, high voltage transmission, substations and local distribution. Selected use of distributed generation can provide system benefits and reduce the need for investment in other parts of the system. Potential benefits include:

* Voltage and frequency support to enhance reliability

* Avoidance or deferral of high cost, high lead time T&D system upgrades

* Reduction of line losses

* Reactive power control

* Transmission capacity release

* Reduced central generating station reserve requirements

* Fuel use reductions when solar, renewable or high-efficiency DG is applied in place of central station power

* Emissions reduction from photovoltaics, fuel cells and clean cogeneration

The evaluation of these benefits and the development of mechanisms whereby DG can provide grid support is an ongoing process. This process will likely occur more quickly in areas where the power industry is being restructured and costs are being unbundled.

Stand Alone (Grid Isolated)

In selected situations, grid-isolated DG may be more economic than integration with the power grid. This would be true in very isolated or remote applications. In some cases, customers with CHP systems have separated from the grid due to an inability to negotiate economic backup power from their energy service provider. It is expected that competitive power access would reduce the need for these customers to isolate the grid.

Favorable Opportunities

As customers and energy providers develop the freedom to contact separately for individual services, there may be greater opportunity to use distributed generation as a means to optimize the sum of services required.

Distributed generation can be designed to meet a wide variety of service requirements and fulfill the needs of many customers and energy service providers.

The Distributed Generation Forum is a membership organization composed of representatives from electric and gas utilities, their affiliate marketing and development companies, and manufacturers and developers of distributed generation and ancillary equipment. The mission of the Forum is to provide its members with technical, regulatory, and market information for their use in strategic planning, market development, internal and external education, and information exchange with trade allies, customers, and regulators. GRI manages the Forum. Onsite Sycom Energy Corporation is a contractor to the Forum.

A complete printed copy of the document excerpted here can be ordered ($5 per copy) through the GRI web site, GRI/Net, at An electronic version of the booklet (pdf) is viewable at no cost from the Distributed Generation Solutions Finder page on GRI/Net, at

Dan Kincaid is the business development manager at the Gas Research Institute, Chicago, Illinois.
                    Economic Comparison of Distributed
                          Generation Technologies
Technology             Diesel        Gas     Simple Cycle
Comparison             Engine      Engine    Gas Turbine  Microturbine
Product              Commercial  Commercial   Commercial   1999-2000
Size Range           20-10,000+   50-5000+      1,000+       30-200
Efficiency             36-43%      28-42%       21-40%       25-30%
Genset Package         125-300     250-600     300-600      350-750 [*]
Cost ($/kW)
Turnkey Cost - no      350-500    600-1000     650-900      600-1100
heat recovery ($/kW)
Heat Recovery           n.a.       $75-150     $100-200     $75-350
Added Costs ($/kW)
O&M Cost             0.005-0.010 0.007-0.015 0.003-0.008  0.005-0.010
Comparison            Fuel Cell  Photovoltaics
Product               1996-2010   Commercial
Size Range            50-1000+        1+
Efficiency             35-54%        n.a.
Genset Package        1500-3000      n.a.
Cost ($/kW)
Turnkey Cost - no     1900-3500   5000-10000
heat recovery ($/kW)
Heat Recovery           incl.        n.a.
Added Costs ($/kW)
O&M Cost             0.005-0.010  0.001-0.004
(*.)Commercial target price
Information current as of
March 1999.
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Author:Kincaid, Dan E.
Publication:Diesel Progress North American Edition
Geographic Code:1USA
Date:Nov 1, 1999
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