Optimism is in the air as industry experts weigh in on their opinions of the state of the distributed-generation industry. Improvements in technology, a slowly reviving economy, and a greater spirit of partnership between public and private entities are granting distributed-generation projects a second look. A renewed interest on both the state (California, New York, Connecticut) and federal (Department of Energy) levels means tax incentives to build a better bottom line.

In short, the industry is moving toward an upswing.

With the current price of natural gas, smaller cogeneration projects remain an elusive option. But like other types of distributed-generation projects, the outlook on future possibilities is bright. Robert Miller, a third-generation mechanical contractor and one of the pioneers of cogeneration, says he has always found the concept not just intriguing but also viable. In 1988, he designed a cogen package under his former company, ISI.

"The economics are nontraditional, and the concept of cogen is still not universally accepted," Miller says. "Too many projects are tasked with trying to do a simple payback in two years, and that's just not realistic. But things are tipping more in favor of this industry. With natural-gas prices through the roof, they will cycle back down at some point, making cogen more favorable. And there is still a lot of pressure on utilities to ease up on regulations, and many of them are doing it. That helps too."

Michael Edwards is the founding principal for the Power Recruiting Group. With 12 years of industry experience, he developed cogen projects before founding his staffing firm in 1998. Having developed strategic and staffing plans for distributed-generation companies, he cites a number of reasons why distributed-generation projects are very viable, stressing that they just have to be managed with caution:

"To be successful in cogeneration, firms almost have to become a mini utility, but they can't have personnel who have a utility-type mindset, and by that I mean the lack of experience of performing in a hypercompetitive arena," Edwards says. "They fit very well into the demand side, but on the supply side - especially the small supply side - most personnel have not had the experience in being so aggressive with the installation and operational/maintenance cost in every single project. Similarly, those with an IPP background can also have a difficult time because those projects are so much larger and there is more wiggle room to manage the project economics, and that's how they have been raised. But with small distributed-generation types, you don't have the luxury of making even a small economic mistake. It will kill the project financially."

Straddling the fence between utilities and public and private entities is no easy task, but Dan Rastler, technical leader of the Distributed Energy Resource Program at the Electric Power Research Institute (EPRI), is working hard to create strategic partnerships to result in what he calls "a win-win for everyone." He is currently leading improved market integration pilot programs with selected utilities, with the goal of improving integration of distributed-energy resources within the electric enterprise.

"[EPRI] polled end-use customers - mostly commercial and small industrial - last year, and we're finding that the 300-kilowatt to less-than-10-megawatt customers are more favorable to the idea of distributed-generation power than they were the previous year," Rastler says. "Historically, customers cite energy savings as the biggest driver, but we're also seeing two others: more reliable power and more predictability in energy costs."

Part of the growing acceptance of distributed-generation power is an increase in the quality of the packages, which in turn makes for a more reliable power source.

"The quality of packages has come a long way since the early days," Miller says. "The engines are more durable; the control systems are state-of-the-art. Efficiency is vastly improved, probably around 25% on each project. In the past two years, for example, Mann introduced a new line of really great engines, especially as more people have gotten into the natural-gas business of engines. Marathon has some very efficient generators built specifically for cogeneration. There are just simply better and more-efficient components being built now."

David Olson, senior vice president for business development at NexGen Power, a generation-project private equity firm and a 27-year industry veteran who counts EPRI, New Energy, and Honeywell as previous employers, consults on a wide range of distributed-generation projects. Currently many of his clients are working to combine renewables with distributed generation, including finding new ways to use such enhancements as digester gas technologies as sources of alternative fuel.

"Certain types of food-production facilities are absolutely ideal for this type of application," he says. "'I'm working on a project at a dairy plant right now that originally had just a cogen component to it. We are looking to add a production waste digester to the project to capitalize on the organic waste, enhance the financial returns, and make it a renewable-energy project. And [the client] is just ecstatic."

Adding renewable components to distributed-generation projects might yield tax credits, "green tags," and other enhancements, such as carbon or emission credits, Olson notes, adding that such incentives "can only aid and abet the project's bottom line."

Edwards agrees. "Many firms go into this with the intention of building power plants strictly for commercial buildings," he says. "You need something with a 24/7 load profile, such as a hospital or data center or a light- or heavy-industrial facility. If a project has little heat recovery, economically that model doesn't pay out in a reasonable amount of time. And if you can add a renewable component to it, it's a slam-dunk. The economics will be much better."

Distributed generation often is cited as a panacea for an aging grid system, which, coupled with the California "rolling blackouts," brought the challenge of power production into the American consciousness.

"Some of our clients are looking at a T&D [transmission and distribution] grid support application," Rastler explains. "They have been squeezed so much in the past few years that they don't have the money for infrastructure improvements. Distributed power can be a potential solution for certain applications."

"Just try to build a new major power plant today, anywhere, and nobody wants you. People throw rocks at you," Miller adds. "Really big rocks. But guess what? This also means there is a lot more opportunity for the distributed-generation people, and distributed generation can offer an awful lot of solutions."

"Our long-term vision is the integration of distributed generation into the electricity enterprise," Rastler concludes. "DG projects will provide an important role in enhancing grid reliability and enabling end users to reap energy efficiency and other benefits of onsite power interconnected with the grid. We envision the future enterprise optimized with other types of power, including nuclear, coal, and renewables - all of which will have an important part in providing power solutions."

Based in Austin, TX, BONNY BLOCK writes on a variety of technical and energy-related topics.

DE - May/June 2004