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Energy Journal Issue

The Energy Journal
Volume 18, Special Issue

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What's in the Cards for Distributed Resources?

Johannes P. Pfeifenberger, Philip Q Hanser and Paul R. Ammann

DOI: 10.5547/ISSN0195-6574-EJ-Vol18-NoSI-1
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The electric utility industry is in the midst of enormous changes in its market structure. Mile the generation sector moves towards a truly competitive market, the utilities' transmission and distribution functions are undergoing a transition to unbundled services and prices. These changes will affect the competitionbetween distributed and central-station generation technology. Although the ultimate market potential for distributed generation may be significant, the market will be fragmented and heterogeneous. Distributed generation will likely succeed in some small and only a few medium-sized market segments, each narrowly defined by the segment's unique operating requirements. The largestpotential market segment is for distributed generation technology with operational and economical characteristics suitable for peak shaving. Unbundling of utility costs and prices will make base-load and intermediate load equipment, such as fuel cells, significantly less attractive in the largest market segments unless capital costs fall substantially below $1,000 per kilowatt.

Distributed Electricity Generation in Competitive Energy Markets: A Case Study in Australia

Deepak Sharma and Robert Bartels

DOI: 10.5547/ISSN0195-6574-EJ-Vol18-NoSI-2
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The electricity industry in Australia has recently undergone significant restructuring. Generation, transmission and distribution have been unbundled and placed under private or public corporate ownership. Industry restructuring, together with concerns about the environment, have resulted in a noticeable increase in distributed electricity generation, especially small-scale generation. This development has important ramifications for the electricity industry and the wider economy. This paper provides an empirical analysis of the recent growth in distributed electricity generation in Australia, and analyzes the factors driving this resurgence of interest. The paper also attempts to identify the underlying factors contributing to the development of distributed generation. Past and current distributed generation projects are classified according to which technical or institutional factor was dominant in the realization of each project. This enables us to identify changes over time in the rationale for distributed generation. A comparative analysis of the developments in the different Australian states provides additional insights into the roles played by factors such as geography, the availability of low-cost industrial by-products for fuel, and the introduction of competitive markets.

Defining Distributed Resource Planning

Charles D. Feinstein and Jonathan A. Lesser

DOI: 10.5547/ISSN0195-6574-EJ-Vol18-NoSI-3
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The concept and objectives of distributed utility planning, sometimes called distributed resource (DR) planning, are unclear, This paper provides a cogent definition of DR planning and explains some of the emerging fallacies over its purpose. The objective of DR planning should be to meet customers' capacity needs at the lowest expected future cost by determining an optimal investment strategy for a given area. Many advocates of DR planning have erroneously defined the objective as deferral of "traditional" transmission and distribution facilities, and have developed methodologies to determine maximum deferral times. Defining the DR planning objective in this manner will always lead to higher than necessary costs, because cost-minimization is not addressed in an appropriate manner. In general, deferral methodologies have misspecified the objective function, used quantitative tools inappropriately, and, perhaps their most critical shortcoming, failed to incorporate the effects of uncertainty on the optimal investment strategy. The solution is to treat deferral as a consequence of developing a least-expected-cost distribution plan, rather than treating deferral as an objective in itself.

Using Distributed Resources to Manage Risks Caused by Demand Uncertainty

Thomas E. Hoff

DOI: 10.5547/ISSN0195-6574-EJ-Vol18-NoSI-4
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This paper presents a method to calculate the cost of satisfying transmission and distribution (T&D) system capacity needs as a function of investment modularity and lead-time. It accounts for the dynamic nature of demand uncertainty, the decision-maker's risk attitude, and the correlation between costs and firm profits. Results indicate that the modularity and short lead-times associated with the distributed resources can increase their attractiveness in comparison to long lead-time, large-scale T&D investments. Results also suggest that distributed resources can operate as a type of "load growth insurance" if demand growth is positively correlated with profits (so that costs are incurred when profits are high) and if the distributed resource costs are part of a larger portfolio that cannot be diversified.

Capacity Planning Under Uncertainty: Developing Local Area Strategies for Integrating Distributed Resources

Charles D. Feinstein, Peter A. Morris and Stephen W. Chapel

DOI: 10.5547/ISSN0195-6574-EJ-Vol18-NoSI-5
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This paper presents a methodology that helps DR planners evaluate strategic investment policies under uncertainty. Application of the methodology will not only lower utilities' costs, but also help them prepare for the future with contingency plans and a deeper understanding of the opportunities and risks they face. The formulation responds to the need to evaluate future options as uncertainty unfolds over time. For such problems, the joint consideration of dynamics and uncertainty makes the problem much too large for conventional probabilistic analysis methods and places it beyond the scope of conventional deterministic engineering analyses. The problem is formulated as a dynamic optimization problem under uncertainty. A practical solution technique for solving the problem based on a compact specification of the system state is introduced. An example, taken from actual practice, is presented. The potentially large economic value of DR investments in providing managerial flexibility is quantified. We demonstrate that the optimal level of DR investment found by our approach is superior to the level of DR investment specified by existing methodologies. Although the concepts are presented in the context of electric utility distributed resources planning, they are more widely applicable to other strategic investment problems.

Operation and Control in a Competitive Market: Distributed Generation in a Restructured Industry

Judith Cardell and Richard Tabors

DOI: 10.5547/ISSN0195-6574-EJ-Vol18-NoSI-6
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The prospect of independent ownership for distributed technologies is, being encouraged by the current deregulation of the industry, and it is possible that the new generators will be independently operated as well as independently owned. The siting of numerous small-scale generators in distribution feeders is likely to have an impact on the operations and control of the power system, a system designed to operate with large, central generating facilities. In response to the new and potentially conflicting economic and technical demands of a growing number of independent players, the power system may require new means for coordinating system operations. Price signals are one mechanism available to coordinate the operation of the power system in the emerging competitive market. This paper discusses the integration of distributed generation into the operations of the distribution system. It first discusses the engineering concern that numerous distributed generators might adversely impact system stability and reliability, and proposes methods to address these issues. The paper then demonstrates the ability of the distributed generators to participate in the competitive energy and ancillary services markets, by responding to a price signal that coordinates both the engineering and the economic aspects of distributed generator operation in a restructured power system.

Integrated Local Transmission and Distribution Planning Using Customer Outage Costs

Greg Ball, Debra Lloyd-Zannetti, Brian Horii, Dan Birch, Robert E. Ricks, and Holly Lively

DOI: 10.5547/ISSN0195-6574-EJ-Vol18-NoSI-7
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Changing regulatory incentives in the electric power industry are forcing utility transmission and distribution (T&D) planners to change their approach to investment planning. To minimize the risk of over-investment, utilities need to perform an analysis of system capacity limitations which goes beyond traditional peak load and temperature planning, and routinely consider a variety of alternate incremental capacity expansion measures. Existing engineering tools are inadequate for determining the potential cost advantage of deferring an expansion, or for evaluating the net benefits of distributed resources (DR). Conversely, integrated resource planning (IRP) tools often underestimate or ignore important DR siting restrictions and operational impacts. This paper describes a process to identify T&D capacity constraints, evaluate conventional and alternative capacity additions and DR applications, and explore the risk of operating beyond limits imposed by current reliability practices. The process uses hourly load-flow information to quantify the total annual energy and customer outage costs. The same information is used to build plans incorporating and dispatching DR where they have the greatest impact on minimizing expansion needs. A detailed case study demonstrates the process by quantifying the economic benefits of deferring an expansion with a do-nothing plan. The study reveals both unforeseen advantages and impracticalities of DR use.

Winners and Losers in the Transition to a Competitive Electricity Industry: An Empirical Analysis

Robert G. Ethier and Timothy D. Mount

DOI: 10.5547/ISSN0195-6574-EJ-Vol18-NoSI-8
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The objective of this paper is to show how the treatment of strandable assets, constrained by industrial customers' access to distributed generation technology, affects the prices paid by different classes of customers and the corresponding level of electricity sales. Competitive electricity rates are likely to be shaped by the regulatory need to recover strandable costs. The choice of recovery method (i.e., the structure of rates charged to customers) and the size of recovered costs will affect both total sales of electricity and consumer welfare. The availability of new turbine technology will limit the design of effective rate structures by giving industrial customers a credible threat to self-generate. A dynamic model using a complete Generalized Logit demand system coupled with an electricity supply system is used to evaluate the effects of different rate structures. The results show that stranding some assets is the best way to improve the welfare of all classes of customer and simultaneously increase the need for new generating capacity.

Regulatory Policy Regarding Distributed Generation by Utilities: The Impact of Restructuring

Jay Morse

DOI: 10.5547/ISSN0195-6574-EJ-Vol18-NoSI-9
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Electricity industry restructuring is only now beginning to focus on the role of utilities in distributed generation (DG). This paper examines whether, as restructuring unfolds, regulators may permit investor-owned distribution companies to own DG, and if so, under what terms. Concomitantly, the paper explores how ownership of DG by distribution companies impacts electricity restructuring. The paper concludes that regulated utilities should readily obtain approval to install DG on utility sites as long as the utility remains vertically integrated. Approval is also possible for vertically integrated or restructured utilities to provide DG at customer sites if it is shareholder-funded and connected on the customer's side of the meter. However, distribution company ownership of DG at utility sites or on the utility's side of the meter conflicts with electricity industry restructuring. Regulatory approval under restructuring is therefore highly problematical. Should regulatory approval be granted, the need to mitigate vertical market power is likely to precipitate the disaggregation of the distribution company.