The DER Niche Market

By Lewis Tagliaferre | Jun 15, 2003




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Electrical contractors working for utilities or interested in a growing niche market might do well to investigate opportunities in distributed energy resources (DER). They are parallel and stand-alone electric generation units located within the electric distribution system at or near the end-user. Various technologies are available for distributed generation, including turbine generators, internal combustion engine/generators, microturbines, photovoltaic/solar panels, wind turbines and fuel cells. DER can be beneficial to electricity consumers and, if the integration is properly engineered, the energy utility avoids or reduces the cost of transmission and distribution system upgrades. In addition to these quantified estimated benefits, utilities using distributed power obtain qualitative benefits by adding small generation capacity increments instead of large ones, by low capital investments, and by enjoying short lead times to construct a facility. Other drivers include fuel efficiency and environmental gains.

Some of the primary applications for DER include:

Premium power—reduced frequency variations, voltage transients, surges, dips or other disruptions

- Standby power—used in the event of an outage, as a back-up to the electric grid

- Peak shaving—the use of DER during times when electric use and demand charges are high

- Low-cost energy—the use of DER as baseload or primary power that is less expensive to produce locally than it is to purchase from the electric utility

- Combined heat and power (cogeneration)—increases the efficiency of on-site power generation by using the waste heat for existing thermal applications

Users of DER have differing power needs. Hospitals need highly reliable backup power and premium power quality due to the sensitivity of equipment. Industrial plants typically have high energy bills, long production hours and thermal processes, and would therefore seek DER applications that include low-cost energy and combined heat and power. Computer data centers require steady, high-quality, uninterrupted power. Campus buildings need lower energy expenses. DER technologies are either available now or are being developed to meet these needs.

Potential DG market size

The potential market size forecast for distributed generation (DG) varies by application. The reference table indicates the approximate size of some key U.S. markets, for a few of the customer applications. Any forecast depends greatly on the expected DG capital cost, future fuel cost and the technology’s energy efficiency. As all these variables are changing rapidly, so any market forecast depends on how quickly regulatory barriers and other development issues are addressed. Nonetheless, these numbers provide an indication of the size of the potential market for years 2003-2010.

Interested electrical contractors should follow energy companies, equipment suppliers, regulators and financial companies by studying each market application for specific regions and for specific industrial, commercial or residential customers.

Barriers to growth

In the United States, common standards needed for interconnecting DER devices into the utility system do not presently exist. The lack of common standards is considered a barrier to the wide acceptance and installation of DER technologies, because without net metering, cost recovery diminishes. The installation and interconnection of DER devices require a transfer switch. During a power outage, the transfer switch opens the connection to the utility to prevent backfeed of electricity from the DER device into the utility’s electric distribution system, which creates a dangerous situation for utility line workers and may also damage equipment.

There is a wide variety of transfer switches presently available, based on the type and size of the DER device to be installed and the type of application. The traditional interconnection approach, frequently used for backup generator sets, requires an electrical permit and a licensed electrician to install a transfer switch and a breaker sub-panel. In this configuration, the manual or automatic transfer switch is wired between the main breaker panel and the new sub-panel. When an outage occurs, the DER device is connected by the transfer switch and only the circuits fed from the sub-panel can be powered by the DER device.

Other types of switches allow for the entire electric load of a building to be transferred to the backup DER device during a power outage. In this type of installation and interconnection, the transfer switch is wired between the meter and the breaker panel and a sub-panel is not required. When an outage occurs, the DER device either automatically or manually provides electricity to all of the circuits.

In addition to traditional transfer-switch devices, which allow only for grid-independent interconnection of backup DER devices, a number of companies are developing grid-interconnection equipment that permits two-way power flow when the electric grid is operational. When an outage occurs, the interconnection device operates in the same manner as a traditional transfer switch. These devices allow DER equipment to operate in a grid-parallel mode (e.g., operation of the DER device and the grid at the same time), giving users the opportunity to sell electricity back to the grid through net-metering programs.

National efforts in the development of utility interconnection standards come from the Institute of Electrical and Electronics Engineers (IEEE). In 1999, the IEEE formed working group P1547 to establish common practices for the grid interconnection of DER. The IEEE P1547 working group is supported by of hundreds of representatives from industry trade organizations, electric utilities, DER equipment manufacturers, and national laboratories. The goal is to complete a consensus vote on the final standard during 2003. In addition, the Federal Government is promoting DER through the Department of Energy (

Electrical contractors interested in this niche market could begin by contacting your local utility company to ascertain its plans for marketing DER systems. Also, contact The Distributed Power Coalition of America to develop potential alliances with equipment suppliers. EC

TAGLIAFERRE is proprietor of C-E-C Group. He may be contacted at 703.321.9268 and e-mail [email protected].


The Distributed Power Coalition of America (DPCA) is an advocacy group for distributed generation of electricity. Members of the Coalition include electric and gas utilities, end users, power equipment manufacturers, pipelines, electric and gas marketers, and research organizations. Information about distributed generation can be found on the home page at Additional information is published by Resource Dynamics Corporation at


About The Author

Lewis Tagliaferre is proprietor of C-E-C Group. He may be reached at 703.321.9268 or [email protected].





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