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Economic Market Potential for Electric Utility Use of Distributed Generation

Economic Market Potential for Electric Utility Use of Distributed Generation. For The Edison Electric Institute June 20, 2001 By Joe Iannucci (925) 447-0604 joe@dua1.com. Introduction Methodology Overview Assumptions: Utility and DG DG Economic Market Potential

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Economic Market Potential for Electric Utility Use of Distributed Generation

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  1. Economic Market Potential for Electric Utility Use of Distributed Generation For The Edison Electric Institute June 20, 2001 By Joe Iannucci (925) 447-0604 joe@dua1.com

  2. Introduction Methodology Overview Assumptions: Utility and DG DG Economic Market Potential Observations and Conclusions R&D Needs and Opportunities Agenda EEI_DG_2001_Results

  3. Utility Economics • lower cost of service • better asset utilization • improved operation • Substation and feeder locations EEI_DG_2001_Results

  4. Economic Market Potential DR Cost Utility Avoided Cost “Value Mountain” Illustration EEI_DG_2001_Results

  5. Peak Load and Load Growth,Load “In-play” • TECHNICAL Potential = Load Growth • NERC Load GROWTH Projections • Increase “Direct” Load Growth to account for Load Diversity • multiply by 1.6, approximate ratio of end-of-line transformer capacity(kVA* power factor) central load(kW) • 2002: 21,822 MW 2010: 22,205 MW EEI_DG_2001_Results

  6. DG Hours of Operation • Peak Load: 200 Hours/year • Base Load: 5,256 hours/year • load factor .6 EEI_DG_2001_Results

  7. DG Fuel Price Assumptions • Base Case • relatively flat gas and coal prices • High Fuel Cost Case • gas price based on futures price, Feb 2001 • assume coal prices “track” gas prices • Natural Gas Volume-based Prices @ Substation: Wholesale On-site: Retail • Transportation Charges per EIA/NEMS, added to Commodity Prices EEI_DG_2001_Results

  8. DG Natural Gas Prices Assumed • DG Natural Gas Prices Assumed • Forward Averaged • Diesel Fuel: EIA Retail Price Forecast EEI_DG_2001_Results

  9. Peak Load Electricity Cost Assumptions • “blend” of common peaking resources’ • capacity cost • O&M • fuel cost EEI_DG_2001_Results

  10. Baseload Electric Energy Cost Assumptions • Base Case and High Case Fuel Cost Cases • “Blend” of combined cycle gas and coal. • Annual Cost $/kW-yr mean high low EEI_DG_2001_Results

  11. Utility T&D Capacity Cost Assumptions • FERC Form 1 T&D Budgets • Load Growth per NERC Forecasts • Statistical Spread Derived Assuming Mean Values of: $/kW-year Transmission $12.1 Distribution $41.9 EEI_DG_2001_Results

  12. Other Utility Assumptions • Value-of service & “Reliability Benefits” • applies at feeder locations • assume cause for 99% of outages beyond substation • outage losses “avoided” • outage rate .029% * 8760 = 2.5 hours per year • Value of service (unserved energy) $3/kWh • TOTAL: 2.5 hours * $3/kWh = $7.50/kW-year • T&D Losses • affects fuel use and grid capacity needs average: 4% on-peak: 7% ~ 8% of total! EEI_DG_2001_Results

  13. Peaking Distributed Generators’ Cost and Performance 2002 2010 EEI_DG_2001_Results

  14. Baseload Distributed Generators’ Cost and Performance 2002 2010 EEI_DG_2001_Results

  15. Economic Market Potential Estimates, Peak 2002 Base Case Fuel Prices High Fuel Prices EEI_DG_2001_Results

  16. Economic Market Potential Estimates, Peak 2010 Base Case Fuel Cost High Fuel Cost EEI_DG_2001_Results

  17. Value Mountain 2002 Peaker, Feeder Location EEI_DG_2001_Results

  18. Observations and Conclusions Peaker DGs • very competitive with respect to total annual cost to serve new load as capacity resources EEI_DG_2001_Results

  19. Value Mountain 2002 Baseload, Feeder Location EEI_DG_2001_Results

  20. Results, Baseload • Markets are essentially zero with two important exceptions. • ATS • all at sub (low cost gas), base case fuel price only 2002: ~29% 2010: <3% • Advanced Fuel Cell • all at sub (low cost gas), 2010 only 2010 base case fuel prices: 68.3% 2010 high fuel prices: 4.1% EEI_DG_2001_Results

  21. Baseload DGs: Observations • Difficult for even superior DGs to compete with grid as utility-owned energy resource, especially with regard to • production cost / wholesale price of electricity • capacity cost for new central generation • Conversely: Viability Very Sensitive to Fuel Price and Efficiency • “Low cost,” efficient fuel cells can compete for “small” portion of load growth EEI_DG_2001_Results

  22. Baseload DGs: Conclusions • May need one or more of the following • more run hours • DGs with even lower cost than expected • DGs with even higher efficiency than expected • CHP benefits • Aggregated/Bulk Purchases of Gas • to reduce fuel cost for feeder/customer locations EEI_DG_2001_Results

  23. Caveats and Considerations • “Economic Market Potential” • based purely on direct cost-effectiveness for meeting load growth • based on utility annual (avoided) cost ($/kW-year) • without regard to institutional challenges • Estimates made assuming that technologies are commercially viable and readily available. EEI_DG_2001_Results

  24. Caveats and Considerations • Baseload and Peaking duty cycles evaluated in isolation. • Each DG evaluated individually • without regard to substitutes(i.e., other types of distributed generation, storage, or geographically targeted DSM) • Assumed fuel access and availability. EEI_DG_2001_Results

  25. Implementation Issuesor, if it’s so good why isn’t it happening? • EXCEPTION: increasing use of DGs for “supply” benefits… …limited regard to “local” benefits (T&D)… ...for now? EEI_DG_2001_Results

  26. Implementation Issuesor, if it’s so good why isn’t it happening? • Complexity • versus planning of “conventional” option: Fuel + G + T + D • Not Standard Engineering Practice • Insufficient Evaluation Tools – engineering – financial • Insufficient Data EEI_DG_2001_Results

  27. Implementation Issuesor, if it’s so good why isn’t it happening? • Financials • utility-owned DGs -- financing and rules? • lease or rent DGs -- strains modest utility expense budgets (especially distribution) • benefits sharing arrangements/partnerships? • Intra-utility Discontinuities • overlapping / divergent missions • uncertain incentives • Emissions Issues EEI_DG_2001_Results

  28. R&D Needs and Opportunities • Utility Markets Topics • Plant Capital Cost Sensitivities • Regional Analysis • Activate Customer-owned Backup Generators as Utility Resource • Intermediate Load DG Operation, i.e., • Peak/capacity DG’s seem great • difficult for baseload/energy DG’s to compete • Air Emissions Implications EEI_DG_2001_Results

  29. R&D Needs and Opportunities • Customer Perspective Market Potential • Bill Reduction • Customer Perspective, segments • commercial – institutional • industrial – IT operations • DR Options –CHP –Targeted Demand Management –Storage EEI_DG_2001_Results

  30. Backups EEI_DG_2001_Results

  31. Comparing Central to DU Solutions Bill and Benefits Comparison DUVal-C cost and Purchasingpower benefits of DG options Customer Economics • lower energy bill • better service--quality, reliability EEI_DG_2001_Results

  32. Institutional Customer Bill Analysis Results Summary EEI_DG_2001_Results

  33. Diesel Gensets, Cost Versus B/C Ratio EEI_DG_2001_Results

  34. Customer Bill Reduction Potential (Economic Benefits) EEI_DG_2001_Results

  35. Customer Bill Analysis with Resulting DG Air Emissions EEI_DG_2001_Results

  36. Emissions Due to Cost-effective Utility Use of DG EEI_DG_2001_Results

  37. DG Gas Price Details EEI_DG_2001_Results

  38. Peaking Generation Cost Details Year 2002 EEI_DG_2001_Results

  39. Peaking Generation Cost Details Year 2010 EEI_DG_2001_Results

  40. T&D Cost Calculations Details • Load Diversity Factors T = 1.2 D = 1.6 • Fixed Charge Rates T = .1100 D = .1100 EEI_DG_2001_Results

  41. Economic Market Potential Estimates Details Year 2002 Base Case Fuel Cost High Fuel Cost EEI_DG_2001_Results

  42. Economic Market Potential Estimates Details Year 2010 Base Case Fuel Cost High Fuel Cost EEI_DG_2001_Results

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