Chapter 1

Distributed Generation
and Microturbines

There are various definitions for the term distributed generation. For this publication,
distributed generation is defined as the use of modular-type electricity generators (such
as wind turbines, microturbines, or photovoltaic cells), used independently or as part of
a larger system, by utility customers, utilities, and merchant or independent producers
whose customers are utilities or utility companies.
The purpose of these generators may be solely to provide electric power or to
provide heat and power in combined heat and power (CHP) applications. A prime char-
acteristic of distributed generation is that it does not rely on large transmission lines or
a grid as much as conventional power generation does.
Frequently, there may be a tie-in to the local grid for “backup” or “peaking” periods
by the end user. The tie-in also allows the small producer to sell power back to the grid,
when that producer makes power in excess of its requirements. The primary advantage of
distributed generation is the much smaller size of a distributed facility versus a conventional
power plant, and therefore its affordability.
Examples of distributed generation include the following:

● A small remote process plant operates using a microturbine solely for its power needs
because there is no nearby grid.
● The residents of a Danish village form a cooperative to buy and operate a wind turbine
to provide their power needs and have a grid tie-in for when more power is required.
● A Swedish town burns biomass fuel at its local CHP facility that supplies most of its
heating and power needs; backup power may be a bank of diesel-fueled generator
sets. Note that for CHP applications, the positioning of the buildings supplied with
heat is crucial for heat economy: the buildings are normally clustered closely around
the primary heat source.
● A restaurant in California uses photovoltaic units on its roof to supply its primary
power needs, but maintains a tie-in to the local grid.

Figure 1-1 depicts distributed generation technologies and their applications.

The performance of various distributed generation methods differs in accordance
with their best available technology. Figure 1-2 illustrates the market and performance
of these methods as of 2000.
Distributed generation is not always the most economic option for power genera-
tion, depending on a variety of factors including the logistics of the end-user application
in use and the current state of the application’s best available technology. Figure 1-3
depicts utility costs in a vertically integrated utility for various production methods in
a new production facility as of 2000.
Other factors, such as global conditions at the time (e.g., fuel costs, war or political
upheaval in progress) will also change these figures considerably. Additionally, specific

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 4 Microturbines

High- Low- Small

Reciprocating
Microturbines Temperature Temperature Gas
Engines
Fuel Cells Fuel Cells Turbines
Onsite Generation—Baseload1
Onsite Generation—Peaking2
Combined Heat and Power3
Standby / Backup
Power Quality
T&D Support
Technology Fit
Note: Fit represents current technology application, except for High-Temperature Fuel Cell
information, which represents projected applications.
Low High
1. Fit is based on system capabilities and electricity rate structures.
2. Refers to power production only.
3. Microturbines and Low-Temperature Fuel Cells cogenerate hot water.

FIGURE 1-1 Distributed generation technologies and their applications. T&D = transmission
and distribution. (Source: Arthur D. Little. 1999. Distributed energy: understanding the econom-
ics. Arthur D. Little, Inc. Cambridge, MA.)
Remote / Off-Grid
Grid-Distributed

Typical Unit
1999
Commercial

Size Range
Residential

Distributed

Installed Efficency Commercial

Industrial

(installation
Capital Cost (%) Availability
size can be
($/kW)
larger)

Microturbines1 1 1 1 2 25 – 300 kW 750–900 28 – 33 1999

Reciprocating Engines 1 1 1 1 1 5 kW – 20 MW 400–6002 28 – 37 NOW

High-Temperature Fuel Cells 1 1 1 2 100 kW – 1 MW A3 45 – 55 2005

Low-Temperature Fuel Cells 1 1 2 1 1 2 – 250 kW 2,000 – 3,000 30 – 40 NOW5

Small Gas Turbines 1 1 2 500 kW – 20 MW 650 25–404 NOW

1. Recuperated microturbine
2. Large, gas-fired reciprocating engine 1 Primary Target Market

3. Not available
4. Forty percent efficiency achieved with advanced turbine cycle
2 Secondary Target Market

5. PAFC only; PEM available in 2000

FIGURE 1-2 Distributed generation technologies—market and performance. PAFC =

phosphoric acid fuel cells; PEM = proton exchange membrane. (Source: Arthur D. Little.
1999. Distributed energy: understanding the economics. Arthur D. Little, Inc. Cambridge,
MA.)

system features and characteristics, as well load type (e.g., peaking, base) will alter fig-
ures in any reference period. The assumptions made by the data source in constructing
Figure 1-3 are described in Table 1-1.
In Figure 1-3, central plant (x axis) refers to the traditional power plant model
with generating and transmitting power from a central location. Distributed genera-
tion (x axis) refers to small power generation installed in the distribution system on the
utility side of the meter.
Constraint(s) with reference to utilities means that the utility does not have enough
capacity to meet the demands placed on it, so investment is required for it to do so.
Constraints may occur with respect to generation, transmission, and/or distribution (see
Figure 1-3).

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 Distributed Generation and Microturbines 5

0.24

0.20

0.16

Costs to
Meet New 0.12
Demand
($/kWh)
0.08

0.04

0
Generation, Transmission Generation No Constraints All Scenarios
Transmission, and Distribution Constrained
and Distribution Constrained
Constrained
Distributed
Central Plant
Generation

FIGURE 1-3 Range of utility cost to meet new-demand vertically integrated utility. (Source:
Arthur D. Little. 1999. Distributed energy: understanding the economics. Arthur D. Little, Inc.
Cambridge, MA.)

TABLE 1-1 Assumptions for Constructing Figure 1-3

Option Scenarios Cost Assumptions
1. Central Plant A. Generation, • Generation—Includes capital and operating
Transmission, costs for a combined-cycle gas turbine
and Distribution (20–60% capacity factor)
Constrained
• Transmission—Includes capital construction
costs for new construction and operating costs;
Transmission construction costs based on annual
capital expenditures and transmission additions
for U.S. Investor-Owned Utilities (IOUs)
(20–60% capacity factor) Source:
Statistical Yearbook of the Electric Utility
Industry 1997, Edison Electric Institute
• Distribution—Includes capital construction
costs for new distribution and operating costs;
Distribution construction costs based on annual
capital expenditures and transmission additions
for U.S. IOUs: Operating costs based on annual
operation and maintenance expenses and energy
sales for IOUs: Also includes secondary distribu-
tion system costs for substation upgrades and
new construction; Secondary distribution system
costs based on interviews and quotes from
transformer and substation equipment vendors
(20–60% capacity factor) Source:
Statistical Yearbook of the Bedric Utility
Industry 1997, Edison Electric Institute
(Continued)

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 6 Microturbines

TABLE 1-1 Assumptions for Constructing Figure 1-3— Cont’d

Option Scenarios Cost Assumptions
B. Transmission • Generation—based on marginal costs of
and Distribution electricity in ERCOT, California, and
Constrained NEPOOL and market prices from PJM,
ISO New England, and California Power
Exchange (20–60% capacity factor)
• Transmission—Same as 1A
• Distribution—Same as 1A
• Generation—Same as 1A
C. Generation • Transmission and Distribution—Includes
Constrained transmission and distribution and operating
costs based on annual operation and
maintenance expenses and energy sales
for IOUs Source: Statistical Yearbook of
the Electric Utility Industry 1997, Edison
Electric Institute
D. No Constraints • Generation—Same as 1B
• Transmission and Distribution—Same as 1C
2. Distributed All • Generation—Based on the capital and operating
Generation costs for a large natural gas reciprocating engine
(20–60% capacity factor)
• Distribution—Includes capital costs for the
secondary distribution system—substation
upgrades and new construction; Secondary
distribution system costs based on interviews
and quotes from transformer and substation
equipment vendors (20–60% capacity
factor)

ERCOT, CA = Energy Reliability Council of California; NEPOOL = New England power pool; PJM =
Pennsylvania, New Jersey Maryland.
(Source: Arthur D. Little. 1999. Distributed energy: understanding the economics. Arthur D. Little, Inc.
Cambridge, MA.)

TABLE 1-2 Typical Grid Side Benefits

$/kW-yr ¢/kWxh (at 60% Capacity
Factor)
Avoided Increases in System Capacity 55 1.0
Reduced T&D Losses 50 0.9
T&D Upgrade Deferral 30 0.6
VAR Support 35 0.7
Total EDC Benefits 170 3.2

VAR = volt-ampere reactive; EDC = electrical distribution companies.

(Source: Arthur D. Little. 1999. Distributed energy: understanding the economics. Arthur D. Little, Inc.
Cambridge, MA.)

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 Distributed Generation and Microturbines 7

Vertically integrated with respect to power companies means that they own
generation, transmission, and distribution assets (see Figure 1-3).
The advantages of distributed generation include the following:

● Power reliability is increased because distributed generation can reduce or avoid

outages for specific end users or end-user groups.
● Much of the need for new transmission line system (and associated distribution hard-
ware) construction, is avoided. This then avoids cutting down tracts of virgin rain for-
est and dealing with communities who object to major alterations in their ecosystem.
● Reserve margins are reduced by lowering overall demand levels for grid power.
● Peak demand power values on the main grid are reduced.
● Power reliability is increased by reducing or avoiding outages in areas served by
the main grid.

Table 1-2 attempts to illustrate some of these advantages; however, it should be

noted that site, utility, and application factors can radically change these values at any
reference time.

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