U.S. Department of Energy - Energy Efficiency and Renewable Energy
Distributed Energy Program
Power Industry Drivers
The 1980s witnessed a complete reversal in a 50-year trend of increasing economies of scale in electricity generation, from community-sized systems in the 1930s to large, centralized power plants in the 1970s (see graph). Economics no longer favor building only large generating units to meet increases in demand. Smaller plant sizes make the ownership of generating capacity possible for a wider group of people, including energy consumers.
In addition, by using the cogeneration capabilities of some distributed power systems located at energy consumers' sites, the overall energy conversion efficiency of such generators now approaches 80%, considerably higher than the roughly 30% efficiency of traditional, steam-based central power plants (once line losses are taken into account).
 Recent improvements in small, modular generating plants have reversed the traditional economies of scale in electricity production and brought the optimal size of a power plant down to a range more suitable for distributed power applications than central power generation. (Source: Based on Charles E. Bayless, "Less Is More: Why Gas Turbines Will Transform Electric Utilities," Public Utilities Fortnightly, 12/1/94) |
The demand for power is growing. For example, before personal computers arrived 15 years ago, industry pundits could see little prospect for growth in electricity demand. Today, the increasingly widespread use of computers, business machines, and other electronic equipment is creating a resurgence in demand for electricity—high-quality electricity. Total U.S. demand for electricity is projected to grow more than 1 trillion kWh over the next 20 years, requiring the addition of roughly 300 GW of generating capacity by 2020.
Load reduction measures are the least expensive way to avoid adding new generating capacity to a utility's service area. But if demand continues to grow beyond the capacity of existing generation in a particular locale, it can sometimes be cheaper and easier to meet by adding new generators close to the load instead of adding transmission and distribution capacity. Small, modular power plants can be approved and sited close to a new load in a matter of months. Transmission line upgrades would take several years.
Transmission and distribution networks are also inherently expensive to build and maintain. Overall, one utility company estimates that it spends $1.50 to deliver power for every $1.00 it spends producing it. Power transmission also incurs some electricity losses. The Energy Information Administration estimates that approximately 9% of the power produced at a central generating plant is lost in delivery.
Power companies can avoid or defer some of these costs by investing in distributed power systems.
The threat of litigation could also encourage power providers to embrace distributed energy for its potential to improve electric power reliability. Following the rolling blackouts on the East Coast in July 1999, the city of New York filed a law suit against the local utility company and claimed it endangered the welfare of more than 200,000 people and caused millions of dollars in property damage and economic loss. New York's mayor said that the utility should have upgraded old feeder cables in its distribution network long before they failed under the pressure of increased demand for electricity during that month's heat wave. In August the same year, the mayor of Chicago threatened similar action following a series of power failures there, including a 17-hour outage that led to an estimated $100 million in losses to the local community.
