1. Distributed Generation: Onsite Power Options World Environment Center 3 rd Gold Medal Colloquium “Energy and the Environment: Engineering Sustainable Growth” May 17, 2001 Paul Bautista

2. What is Distributed Generation? Small scale generation resources –less than 25 MW Located at or close to the load –Customer –Utility –Third party Retail market play

3. The New Energy Market Customer Choice in a competitive climate Regulatory Change facilitates competition Product Portfolio enables customer & provider choices The basis of the new business is providing value with customer-focused solutions

4. Why the Interest in On-site Power? Restructuring is opening access to the electric grid system Customers have greater awareness of energy costs and options Technology improvements enhancing performance & economics ESCOs & ESPs opening path to market Federal and state government taking action

5. Opportunities for Wide Range of Stakeholders Customers –Productivity –Energy cost –Reliability –Flexibility Electric Utilities –Deferral of T&D investments –Grid Management –Customer retention Gas Companies –New load –Load management –New energy service Local Governments –Attract new manufacturing and other businesses –Maintain competitiveness

6. Policy Maker Interest  Increased energy efficiency  Reduced environmental impact  Climate change mitigation (CHP)  Improved reliability of the grid  Lower/Stable energy costs  Customer choice

7. Building an Economic Model Capacity Cost Efficiency Reliability Emissions O&M Demand Load Shape Thermal Demand Risk Preference Opp. Cost Electric Price Other TOS Fuel Price and Avail. Power Reliability UDCo Attitude Regulation $ Agents

8. DG Technology Reciprocating Engines (30 - 6,000 kW) Industrial Gas Turbines (500 - 20,000 kW) Microturbines (25 - 300 kW) Fuel Cells (3 - 3,000 kW) Renewables - photovoltaics, wind (1-1,000 kW)

9. Reciprocating Engines Established technology, most common prime mover in the world, distribution channels in place Gas-fired spark ignition engines appropriate for CHP, peak shaving, and direct drives less than 10 MW Diesel engines most common for standby, emergency, and remote applications

10. Combustion Turbines Small turbines (1-30 MW) established technology for many power and direct drive applications Fuel flexible but economics and emissions favor natural gas Good for CHP applications requiring high quality steam in industrial and large commercial applications

11. Microturbines Emerging technology for commercial rollout occurring now Simple designs with few moving parts Distribution, marketing, and service opportunities still exist Good for both small CHP, power only, peaking, and even standby

12. Fuel Cells Electrochemical power production with a space-age heritage -- inherently efficient and clean PAFC in early market applications -- many with economic subsidies Other technologies to emerge in the next 5 years -- market opportunities exist

13. Photovoltaics Technology is available for commercial application Costs are high, Federal and State subsidies are available High costs limit applications to niche markets -- remote areas and environmentally sensitive sites

14. Wind Power Size range: 50-1,000 kW Start-up time: n/a Commercially available Visual, noise and wildlife impacts

15. DG Applications Combined Heat and Power (CHP) –Established market, with renewed interest Peakshaving and Peak Sharing –Potential growth market Premium Power –Ultra-high reliability and power quality Standby –Predominantly a diesel market CHP & Quality Power Arbitrag e Ancillar y Service s Backup & Peaking Load Center Support ISO Energy Service Provider/PX Substation Remote Power

16. Combined Heat and Power CHP systems sequentially produce electricity, thermal or mechanical energy Sites have continuous thermal use Thermal energy is typically LP/HP steam, hot water CHP boasts energy utilization efficiencies up to 85% CHP is an important part of the DG application mix and very attractive from an energy policy perspective CHP Challenge to double US CHP capacity

17. CHP Efficiency Advantage Boiler Central Power Plant DG/CHP Fuel Heat Power Combined Heat and Power up to 85% efficient 50% efficient CHP systems sequentially produce electricity, thermal or mechanical energy. Sites have coincident thermal demands. Thermal energy is typically LP/HP steam, hot water. CHP boasts energy utilization efficiencies up to 85%

18. Combined Heat & Power Criteria for Commercial/Institutional Sectors –Relatively coincident electric and thermal loads –Thermal energy loads in the form of steam or hot water –Electric demand to thermal demand (steam and hot water) ratios in the 0.5-2.5 range –Moderate to high operating hours (>3000 hours)

19. Commercial and Institutional Market Segments

20. Source: Hagler Bailly, OSEC Natural Gas Is the Preferred Fuel for CHP Existing CHP Capacity: 52.8 GW Natural Gas 64% Coal 16% Oil 3% Wood 4% Waste 9% Other 4%

21. Other Industrial 20% Commercial and Institutional 9% Industrials Represent 90% of Existing CHP Existing CHP Capacity (1999) 52,800 MW Source: Hagler Bailly, OSEC

22. Recip Engine 2% Boiler/ST 34% Gas Turbines Dominate Capacity Existing CHP Capacity: 52.8 GW Source: Hagler Bailly, OSEC

23. Recip Engine 48% Boiler/ST 26% Recip Engines Dominate Sites Existing CHP Installations: 2167 sites Source: Hagler Bailly, OSEC

24. Global Warming Implications of CHP (lb/MWh of Carbon Equivalent) = 10% T&D Losses 658 COAL OIL--------------- NATURAL GAS ---------------- Utility Combined Heat & Power - - - - - Boiler-Steam Turbine - - - - - Combined Cycle Gas Turbine 557 371 252 164 AVG Utility Mix Year 2000 597

25. NO X Implications of CHP (lb/MWh of NO X ) 5.7 AVG Utility Mix Year 2000 5.1 CoalOil 5 MW Gas Turbine (15 ppm) 0.27 - - - - - - Power Generation Only - - - - 2.9 4.6 (U.S. Average in Year 2000) 0.26 - - - - - - - Natural Gas - - - - - - - - - - - - Combined Cycle 200 MW (9 ppm) - - - Boiler-Steam Turbine - - - - CHP Fuel Cell < 0.001 = 10% T&D Losses

26. NOx Emissions of DG Technologies

27. Source:, OSEC Other Industrial 29% Potential for Additional Industrial CHP Estimated CHP Potential: 88 GW

28. Source:, OSEC Other 11% Potential for Additional Commercial CHP Estimated CHP Potential: 75 GW

29. Peak Shaving

30. DG Offers Value for Growth Industries New Demand for Power from “Digital Economy” Current Power Grid may not Provide Power Needs of the new Internet-Based Economy –E-procurement, web-based enterprises and other IT industries require 99.9999% power reliability –“Growth in internet-quality power is expected to account for 40% of the increase in total US power demand by 2010” - BOA Securities

31. Standby Power Provide support for critical systems during a power outage Required by hospitals and some other critical life and safety applications Also used by customers with very high outage costs Two 450 kW diesel gen-sets shown here in the mechanical room of an Albuquerque hospital

32. DG Urban Profile – INGAA Foundation Need for New Capacity –Residential Growth –“New Economy” Industrial and Commercial Markets Constrained Power Delivery System –DOE POST Report highlights Reliability Concerns Environmental/Air Quality Environment

33. DG Urban Profile – INGAA Foundation Electric Rate Structures Favorable to DG –Standby and Backup –Applicability of Competitive Transition Charges –Clear Price Signals to Customers Availability of Natural Gas Regulatory Incentives –PBR –Recognition of all DG Value Streams

34. DG Urban Profile – INGAA Foundation: Potential Emissions Reduction 1 1 Emissions reductions are relative to statewide existing utility power generation capacity. Assumed T&D losses are 5% for baseload and 10% and 7% during peak for Chicago and Austin respectively. Emissions reductions are maximized through the utilization of combined heat and power (CHP)

35. Projected DG Capacity (MW) Additions Source: GTI Baseline Projection

36. Environmental Regulatory/Permitting Issues Requirements differ from region to region Time-consuming permit process Lack of technology information and universally accepted standards Emission standards can be a moving target The overall environmental benefits of natural gas-fueled DG are generally recognized, but at the same time individual units must be deployed under a permitting process that places economic burdens on DG and threatens to depress market opportunities

37. Barriers and Challenges to DG  Deferral rates and practices by utilities  High standby/back-up power costs  Overly strict interconnect requirements  Stranded Cost recovery on kWh generated  Environmental benefits not recognized in permitting process  Siting and permitting delays/uncertainties  Non-core customer investment – this may change

38. Conclusions Market Conditions and Trends Favor DG Technologies, Customer Choice, Energy Costs Environmental Fundamentals ESCOs & ESPs Providing Alternative Paths to Market Federal and State Initiatives Beginning to Recognize DG Benefits and Addressing Barriers Current Electric Utility Resistance and Regulatory Roadblocks Hinder Widespread Implementation Niche Markets & Applications Evolving Around Specific DG Features Once Enabling Market Drivers Adequately Evolve, DG Implementation will be Robust