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Distributed power has a wide range of benefits to both consumers and power providers, and many of these benefits are currently difficult to measure. Combined heat and power, energy storage, and energy efficiency measures can be integrated with distributed generators to increase the economic value, and enhance the other benefits, of distributed power systems.
In most cases, distributed power technologies cannot compete on a playing field in which the cost of energy is the only consideration. Instead, the value of their many benefits must be captured and included in the economic analysis of a project's viability.
In a smoothly operating deregulated market, the owner of a distributed power system captures not only the value of benefits to the consumer but also the economic value of the additional benefits created for the local grid through contractual or regulatory arrangements. Under present circumstances, electric utilities cannot capture the full value of grid-side benefits unless they also own or control the distributed asset, and other owners of distributed assets have no way to independently assess the value of these benefits to the grid-owning utility. For this to change, new business models and accounting systems must be developed.
As an example, consider a potential fuel cell installation at a plastics manufacturing facility located on an overburdened power distribution line. Each stakeholder in this situation reaps a different set of benefits.
- The manufacturer gets high-quality power, greater power reliability, and heat that can be used in the manufacturing process.
- The distribution utility receives voltage support and the deferral of distribution line upgrades.
- The general public benefits from reduced emissions and avoided transmission and distribution rate increases.
It is quite possible that the benefits accruing to any one of these stakeholders would not be great enough to justify buying and installing the fuel cell—even though, taken as a whole, the value of these benefits may exceed the extra cost of the fuel cell over the cost of traditional alternatives. The consequence is a market failure in which resources are allocated inefficiently from a societal perspective.
Some companies have already made an effort to determine the financial value of the grid benefits of distributed power systems. The graph below compares the costs and benefits of a PV array in California and shows that distributed benefits can be quite substantial—in this case, representing more than half of the avoided costs resulting from the installation. Unless those benefits are first assigned to the distributed power system, and then captured, the installation appears to be financially unattractive—an inaccurate conclusion.
Distributed power provides the greatest value in energy markets that can fully exploit its many benefits. Over the long term, it is important to establish a market structure and business rules that will catalyze the deployment of distributed power in these full-value markets.
 Costs and benefits of a 500-kW PV system used to support the utility distribution grid in Kerman, California. When the distributed benefits are taken into account, the installation becomes financially attractive. Note that the values assigned to each potential benefit are estimates and highly site-specific. (Source: Pacific Gas & Electric Co.) |
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