1.4 Usage of Distributed Generation
How Much are Renewable and DG Systems Used in the American Electric Utility Sector?
Despite the immense environmental, technical, and financial promise of renewable energy systems, such generators still constitute a very small percentage of electricity generation capacity in the United States. Throughout the 1970s, some policy experts expected renewable energy systems to be used for much more generation capacity than they have. Dr. Arthur Rosenfeld, one of the five CEC commissioners serving from 2002 until the present, noted that President Carter had told him (during his presidency in the late 1970s) that he expected renewable energy systems to reach 10 percent of national electricity capacity by 1985. However, Carter’s expectation went unfulfilled: excluding large hydroelectric generators, renewable energy technologies in 2003 comprised only about 2 percent of the U.S. electricity generation mix.
The relatively minor use of renewable energy systems has created a general attitude among energy analysts, scholars, and laboratory directors that the technologies are not viable sources of electricity supply. For example, Rodey Sobin, former Innovative Technology Manager for the Virginia Department of Environmental Quality, argues that “in many ways, renewable energy systems were the technology of the future, and today they still are.” Ralph D. Badinelli, a professor of Business Information Technology at Virginia Tech, explains that renewable energy technologies do not contribute significantly to U.S. generation capacity because “such sources have not yet proven themselves … Until they do, they will be considered scientific experiments as opposed to new technologies.” Similarly, Mark Levine, the Environmental Energy Technologies Division Director at the Lawrence Berkeley National Laboratory, comments that despite all of the hype surrounding renewable energy, such systems are still only “excellent for niche applications, but the niches aren’t large.”
DG/CHP technologies have an only slightly better record. In 2004, the Energy Information Administration characterized only 3.1 percent of electricity generation capacity as commercial or industrial combined heat and power (33,217 MW out of 1.49 terrawatts [TW]). The EIA also estimated that in 2002 only 0.9 gigawatts (GW) of distributed generation capacity existed in the United States. Similarly, the EIA’s 2005 Annual Energy Outlook projected that CHP systems are not widely used in the electric power sector, amounting to 0.053% of utility generation (197 billion kWh out of 3,700 billion kWh). Tom Casten, the Chair and Chief Executive Officer of Primary Energy, a manufacturer of fuel processing cogeneration steam plants, notes that even though CHP plants can reduce energy costs for industrial firms by over 40 percent, such plants remain “the exception instead of the rule.”
Why Not Use More DG Technologies?
There are a mulitude of impediments to using DG technologies. A combination of social, scientific, and technical impediments prevent a transition to a more friendly DG future. Both proponents and opponents of DG technologies acknowledge that economic considerations such as capital costs, utility preferences, and business practices tend to deter people from investing in such technologies. DG systems are believed to have higher, comparative capital costs (in dollars per kilowatt) than other generators, which places many smaller, decentralized systems out of the price range of most residential consumers. Moreover, entrepreneurs and business owners argue that the comparative higher capital cost convinces them that investing in renewable or distributed systems is too expensive and deviates from the core mission of their corporate goals. Even electric utility managers generally shun renewable energy technologies, thinking that their power output is more intermittent than their fossil-fueled and nuclear alternatives, thus making them less viable providers of base-load and peaking power. Finally, since renewable and distributed energy systems, by their very nature, are more diverse and context dependent, transmission and distribution operators argue that they tend to be more difficult to permit, monitor, interconnect, and maintain.
Furthermore, many analysts believe that the strong political support for DG technologies, after the energy crisis of the 1970s, inflated expectations among the public that the use of renewable energy resources would grow rapidly. Yet a number of unforeseen events occurred: the Reagan administration shifted the energy policy of the country, fossil fuel prices fell in the 1980s, and conventional technologies continued to improve. Advocates of DG suggest that voters and politicians became disillusioned with renewable energy, and relinquished whatever social capital they achieved after the energy crises to utility managers and system operators. After the 1970s, when the country shifted completely back into the fossil fuel paradigm, inconsistent political support for tax credits created great uncertainty regarding DG technologies. This uncertainty deterred industry investment in renewable and distributed energy systems. As a result, strong utility bias became reflected in numerous state and federal regulations.
Moreover, deep and pervasive social attitudes prevent people from using more DG technologies. The American electricity market shelters consumers from the true costs of electricity generation. Thus, many Americans believe that they are entitled to cheap and abundant sources of electricity, but they lack the necessary understanding of what needs to occur so that they continue to have access to such a supply. As a result, renewable and DG energy systems are often opposed not because they are a poor alternative to fossil fuels, but because people simply don’t comprehend why such technologies may be needed. Far from becoming an unintentional side effect of the “hub and spoke” model of electricity supply, some evidence suggests that public “ignorance” towards electricity is an important—and planned—part of the existing technological system. The lack of public interest in the electricity sector allows utilities and system operators to more easily maintain control over their system.
Thus, higher capital costs are believed to prevent investment in DG technologies; lingering monopoly rules are blamed for continuing to favor utilities and fossil fueled generators; advocates of DG complain that discriminatory practices have become embedded in local regulations.