Difficulties Contain Distributed Generation

The Energy Policy Act of 2005 required the U.S. Dept. of Energy (DOE), in consultation with the Federal Energy Regulatory Commission (FERC), to conduct a study of the potential benefits of cogeneration and small power production.

The report, “The Potential Benefits of Distributed Generation and Rate Related Issues that May Impede Their Expansion,” was supposed to recommend a methodology for valuing the benefits of distributed generation (DG). However, DOE concluded, “this task is complicated somewhat because calculating DG benefits requires a complete dataset of the operational characteristics for a specific site, rendering the possibility of a single, comprehensive analysis tool, model or methodology to estimate national or regional benefits highly improbable.”

The report examines evidence on the potential benefits of distributed generation in six areas:

  • Increasing electric system reliability
  • Reducing peak power requirements
  • Providing ancillary service, including voltage support, regulation, operating reserve and backup supply
  • Reducing land use effects and rights-of-way
  • Improving power quality
  • Reducing terrorist vulnerability of the electric system and providing infrastructure resilience

The DOE also was charged to analyze the impact of regulatory mandates, tariffs, rate structures and similar policies on the proliferation of distributed energy technologies.

Consistent with many other studies, DOE found in many states across the country, grid-connected DG is subject to a variety of rate-related and other impediments that can ultimately hinder the installation of DG units. These impediments result from regulations and ratemaking practices that have been in place for many years. In the vast majority of instances, these ratemaking practices are under the jurisdiction of the states.

The most common rate-related impediments that affect DG owners and operators include the potential for lost revenue on the part of utilities and practices such as standby charges, retail natural gas rates for wholesale applications, exit fees and sell-back rates. There are several other somewhat less common rate-related issues, such as payments for locational marginal pricing, capacity payments, cogeneration deferral rates and remittance for line losses.

DOE also found there are several non-rate-related impediments that affect the financial attractiveness of DG, and these include interconnection charges, application and study fees, insurance and liability requirements and untimely processing of interconnection requests. EC

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