Cogeneration And Decentralized Electricity Production

Technology, Economics, And Policy

Michael D Devine

• Publisher: Routledge
• Year: 2019
• ISBN:
  9780429712463
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

New federal and state laws providing tax credits and markets to independent producers of electricity have created widespread interest in the development of small, dispersed power plants using cogeneration processes, waste, or renewable resources. Recent legislation also promotes decentralized electricity production by allowing unregulated, non-util

1
An Introduction to Decentralized Electricity Generation

Background

Until the mid-1970s, the electric utility industry experienced approximately 30 years of steady growth in demand at an annual rate of about 6 percent. During this time the real price (i.e., adjusted for inflation) of generating electricity fell as economies of scale improved and the real cost of fuels declined or remained stable. This combination of cheap fuels, improved economies of scale and increasing demand led to larger and larger generation plants. By the early 1970s, a typical electric power plant was 1,000 MW in size and fueled by either fossil fuels or nuclear fission. However, the 1973 Arab oil embargo and increasing environmental concerns beginning in the late 1960s led to important changes for the utility industry: (1) the cost of fossil fuels and producing energy in any form increased dramatically; (2) the costs of constructing new facilities escalated as a result of stricter environmental regulations and rising interest and inflation rates; (3) the emphasis on conservation slowed the rate of growth in demand, making historical demand patterns less reliable for planning in either the short- or long-term; and (4) support for the use of renewable energy resources and smaller scale technologies gained prominence.

In the midst of this "energy crisis," the nation's attention turned to unconventional electric power generation alternatives, including cogeneration (i.e., the co-production of electricity and useful thermal energy) and the use of renewable resources (such as wind or solar) and waste fuels (such as garbage) as possible solutions to the rising cost of electricity. However, individuals or companies who wished to produce power using these technologies faced several obstacles, including: (1) utilities either refused to purchase electricity from these sources or offered very low prices; (2) utilities charged excessive rates for back-up power provided to self-generators; and (3) existing federal and state utility regulations were burdensome for these small generators.

In order to promote power generation using cogeneration, renewable resources, or waste fuels-referred to throughout this book as "decentralized electricity production" or DEP-the federal government and some states enacted legislation to remove institutional barriers and to provide financial incentives. The most important federal legislation was the Public Utility Regulatory Policies Act (PURPA) of 1978. Section 210 of PURPA removed the major obstacles to nonutility electricity generation by:

• - Requiring utilities to purchase the power output of certain "qualifying facilities" based on the incremental cost of alternative electricity supply;
• - Requiring utilities to offer just, reasonable, and nondiscriminatory rates for sale of backup power to these facilities; and
• - Exempting qualifying facilities from certain federal and state laws and regulations.

Federal and state tax credits were also important. For example, a small wind power system in Oklahoma costing less than $10,000 could receive combined federal and state tax credits equivalent to 75 percent of the cost of the system.

These incentives have stimulated an active interest in electricity generation from small-scale hydropower, wind power, geothermal, biomass, solid waste, and cogeneration. This is indicated by the record of filings for "qualifying facility" (QF) status kept by the Federal Energy Regulatory Commission (FERC) and by the number of installations actually in place. As shown in Table 1-1, the 1,460 QF applications filed with FERC represented 20,872 MW of capacity; about 23,000 MW of capacity was already in place in the mid-1980s for these four resources. Neither is a precise measure of PURPA stimulated development. For example, the capacity of existing facilities includes some built prior to 1978 which thus cannot be attributed to PURPA. In addition, not all facilities for which QF applications have been filed will be built. Nevertheless, Table 1-1 does reflect the fact that PURPA has caused considerable decentralized power development. These capacity figures represent about 3.3 percent of the total present U.S. generation capacity. Although this level of capacity is a relatively small contribution to total U.S. electricity generation capacity, it is significant because it has occurred in the nation's most capital intensive industry during a short time period when

TABLE 1-1: Installed Capacity (Estimated) and QF Applications (as of 12/31/84)

Resource	Estimated Capacity (MW's)^a	OF Filings^b
		Capacity (MW's)	# of Facilities
Cogeneration	12,000	16,461	496
Small-Scale Hydropower	6,400	1,058	375
Wind	1,120^c	952	390
Waste/Biomass	3,400	2,401	199
TOTAL	22,920	20,872	1,460

Source: Federal Energy Regulatory Commission 1985.

^aSome of this capacity existed prior to PURPA and this cannot be attributed to PURPA stimulated development.

^bThese filings cannot be considered a precise indicator of the existing or probable installations of alternative electric power sources. Owners and operators of these facilities are not required to file with FERC unless they seek benefits under PURPA's Section 210; filings may be delayed for some facilities, usually small-scale hydropower facilities, until they go into operation; and, some of the proposed facilities which have filed may never be constructed.

^cAs of the end of 1985.

many conventional generation projects have been cancelled and few new projects initiated.

Why Decentralized Electricity Production is Important

The development of decentralized electricity production has important implications for the technological and the institutional structure of the electric power industry. From a technological perspective, the generation units are relatively small, 1 kw to 80 MW, (and larger for cogeneration), and geographically dispersed. This is in strong contrast to the large centralized plants (typically 1,000 MW)¹ that have dominated most utility capacity expansion programs. Power may be fed into the transmission distribution network at many different points; environmental impacts are widely dispersed, including being located within population centers rather than being highly concentrated in relatively few, often isolated areas; and adding capacity in small increments is valuable in the face of uncertain demand forecasts.

Many new generation technologies are being introduced into the utility system with varying performances on measures of reliability, cost, and environmental impacts. For example, some decentralized generation technologies are dependent on intermittent, renewable resources such as the wind and the sun. Yet, utilities must be able to meet demand even when the wind is not blowing or the sky is cloudy. Although the utilities' overall generation mix should be coordinated with intermittent sources to minimize electricity costs for consumers, these limitations in the technology or resource makes planning difficult for utilities.

PURPA has had important institutional impacts because it provided an opportunity for ownership of generation units by nonutilities and thus opened the policy system to a new set of interests. In the past, only utilities were involved in the process of adding capacity and, although public utility commissions were responsible for reviewing costs allowed in the rate base, there was often little controversy and public scrutiny. Now, an opportunity exists for more pluralistic decisionmaking about new generation sources. In summary, DEP policies have expanded the range of options available for meeting future energy needs and enhanced public participation in and scrutiny of utility planning.

The Utility and Regulatory Context

Only a few utilities have shown a strong interest in DEP. Although it is difficult to generalize about utilities since they are so different, anecdotal accounts strongly suggest that many utilities have delayed good faith negotiations with third-party producers. A survey conducted by the Electric Power Research Institute (Moore 1983) suggests that most utilities expect only a small contribution from renewable resources and are not likely to include technologies such as photovoltaics, geothermal, or wind in their own generation expan...

Table of contents

• Cover
• Half Title
• About the Book and Authors
• Title
• Copyright
• Contents
• List of Tables
• List of Figures
• List of Abbreviations
• Acknowledgments
• 1 AN INTRODUCTION TO DECENTRALIZED ELECTRICITY GENERATION
• 2 CONTEXT OF THE ELECTRIC UTILITY INDUSTRY
• 3 FEDERAL AND STATE ROLES IN DECENTRALIZED ELECTRICITY PRODUCTION
• 4 THE ECONOMIC ENVIRONMENT FOR DECENTRALIZED ENERGY PRODUCTION
• 5 COGENERATION
• 6 WASTE AND BIOMASS
• 7 SMALL-SCALE HYDROPOWER
• 8 WIND POWER
• 9 SUMMARY AND CONCLUSIONS
• INDEX