Our Chief Operating Officer, Jim McDonnell, was the lead-off speaker for the first session of the Maryland Clean Energy Center’s Energy Economy Speaker Series. The topic was State of the Sector: Impacts of Covid-19 on the Energy Economy. Jim provided a broad energy market update and then focused on the differential impact of the pandemic on energy usage in various industry sectors. The recording can be found at the following link:
In the earliest days of electricity, generation happened close to where the electricity was used. A small hydro facility might have been used to power a single factory, or a coal-fired generator might have electrified a small town. As demand for electricity grew and we developed the capability to move it over long distances, power plants were often built in more remote areas. This allowed us to leverage distant resources such as waterfalls, build larger plants that could not be accommodated in denser areas, and keep pollution from population centers. Generation now may be coming full circle, with increased interest in Distributed Energy Resources (DER) – that is, a source or sink of power, whether located on the electrical distribution system or behind a customer meter, that operates near the facility in which it is used.
DER can provide power to one building, a campus, or even a town. In many cases, DER are connected to the grid to ensure stable, efficient power availability. If the distributed resources are not producing all the electricity the facility needs, the facility can pull power from the grid. Likewise, if the distributed resources are producing more electricity than the facility needs, the excess, in some cases, can be sold to the grid. Some systems are able to be disconnected from the grid, or “islanded,” in the event of an emergency. This means that if the rest of the grid goes down or experiences blackouts, the facility can still operate on its own, potentially at a reduced level. In some cases, the facility is permanently islanded, and therefore is disconnected from the grid entirely. This is less common, but can be an option for facilities operating in remote locations or requiring extra security.
Types of Distributed Generation
Depending on the energy requirements of the facility, the characteristics of the surrounding environment, and any organizational preferences, distributed generation can be composed of a variety of resources. The most basic type of resource might be a generator, providing emergency power in the event of a grid outage. From there, solutions can get increasingly complex, and may include one or multiple types of generation.
Solar, a common distributed resource, must be balanced by either grid connectivity or other resources, due to its intermittent nature. Natural gas-fueled microturbines can be used, and a combined heat and power system can enable capture of waste heat from those microturbines, for space or water heating. Combined heat and power also can be leveraged in conjunction with industrial processes that have a thermal load.
Microgrids may incorporate battery storage in order to store excess electricity for times onsite generation is not producing. The list of possible distributed generation resources goes on: wind, hydropower, geothermal district heating, geothermal heat pumps, waste biomass conversion to renewable natural gas, waste incineration, anaerobic digestion, and more. Careful consideration should be given when developing a system to ensure that the selected type(s) of generation is/are robust, reliable, and efficient.
Benefits of Distributed Energy Resources
As the costs of DER resources fall – either through reduced equipment costs or decreases in fossil fuel prices – there can be cost savings to implementing distributed generation resources. Energy costs may also become more predictable if not tied to wholesale electricity prices.
One hidden source of cost savings with distributed generation relates to the fact that, when transmitting power over long distances, some of the electricity is lost in the form of heat. These transmission and distribution line losses are less of an issue when power is generated close to where it is used (i.e., in distributed generation). Though consumers do not directly pay for this lost electricity (approximately 5 percent of generated utility electricity), it is wrapped into the total cost of energy. When generation happens behind the meter and close to a facility, the consumer does not end up paying for lost electricity. Less wasted energy also means less unnecessary pollution.
Microgrids, or distributed generation that can operate separate from the utility grid, can improve reliability and be integral to disaster planning. When a facility is no longer fully reliant on the grid for power, it is less susceptible to issues like grid outages and brownouts. If a facility is equipped to draw power from distributed resources, storage, and the grid, it benefits by having a fallback in case one power source fails. It is important to note, however, that some causes of grid outages, such as severe weather, natural disasters, or an electromagnetic pulse, can simultaneously damage distributed resources and grid resources. In addition, it is important to note that utilities may add “standby” charges in order to provide fallback power.
In addition to enhancing reliability, DER can also enhance security. Especially for facilities that require 24/7 uptime, distributed resources can provide a backup in the event that utility grid service is unavailable. These distributed resources may be as simple as backup generators, or may be a complex microgrid with multiple power sources, including storage. Facilities that require the utmost security may choose to be able to island, becoming reliant exclusively on distributed resources.
Incentives exist to implement some types of distributed generation, though they can vary over time. For example, there are incentives to support the installation of onsite photovoltaic (PV) solar arrays, but they are changing. The federal investment tax credit (ITC) for PV solar dropped to 26% of capital cost this year; it drops to 22% in 2021 and further to 10% in 2022 and thereafter.
Particularly taking into account incentives, the financial benefits of distributed generation can be quite compelling. Here is an example of a planned 2,000 kW onsite solar PV generation system. Electricity produced via solar PV creates solar renewable energy credits (SRECs), which can be (I) retired, (II) sold to electricity load serving entities (LSEs) that must comply with state renewable portfolio standards (RPS), or (III) sold to end users who wish to further green their supply. The sale of SRECs in this case generates income each year. In the first year, these SRECs are worth approximately $113,704. The initial investment cost is just over $3.6 million. However, after accounting for the federal investment tax credit (ITC); bonus depreciation; the SREC income; and the energy savings realized by generating power onsite, the actual first year cost of the project is just over $1.7 million – less than half the total price tag. The breakeven point – the time at which the project is expected to have paid for itself – is six years. Given that the lifespan of solar panels is approximately 25 years, this leaves plenty of time for significant cost savings.
The value of onsite generation might be measured by more than just its financials, however. We also calculated that, over the estimated 25 year lifespan of the solar panels, the facility would save on carbon emissions equivalent to: more than 45 million pound of coal not burned; nearly 14,000 tons of waste recycled rather than landfilled; more than 4.6 million gallons of gasoline not consumed; or 679,763 tree seedlings grown for 10 years. This analysis indicates not only the financial upside of the project, but also the long-term carbon savings it enables.
Below are summary financial analyses related to three under development distributed generation (onsite solar PV) projects, including the project outlined above (Project A).
Year 1 Summary
26% Federal ITC
Depreciation Cash Value
Energy Savings (year 1)
SREC Income (year 1)
Year 1 Cash Flow
Pounds of coal not burned
Tons of waste recycled, not landfilled
Gallons of gasoline not consumed
Tree seedlings grown for 10 years
*Over 25 years, carbon savings equivalent to one of the above
When deciding whether to pursue distributed generation – whether through solar, combined heat and power, geothermal, biofuel, or others – it is crucial to work with an independent partner not only to understand the options that best fit your needs but also to identify the equipment or service providers that will most effectively implement your desired approach. Just as with competitive supply contracts for electricity and natural gas, the lowest priced option is not always the best, and it is important to understand all the fine print before making a decision. When implementing distributed generation, it is also important to ensure that you have appropriate contracts in place for supplemental electricity service or to enable the sale of excess electricity back to the grid.
We anticipate continued interest in distributed generation, not only for its potential fiscal benefits but also its potential reliability and security benefits and clean energy credentials. Please contact us if you are interested in learning more.
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When discussing renewable energy, the conversation often revolves around wind and solar. These are very visible energy sources – we often see solar panels in our neighborhoods or wind turbines on hilltops. However, there are many other types of renewable energy resources operating or being developed around the world.
As we try to increase the percentage of renewable energy in the mix, it will be essential to develop technologies that balance each other’s strengths and weaknesses. One of the biggest challenges with wind and solar is their intermittent nature – they will not be able to provide dispatchable power until significant improvements have been made in energy storage technology.
One energy resource that is available throughout the country on a constant basis is the heat that exists in the earth’s crust. In some parts of the country, such as Northern California, high temperatures are found fairly close to the surface, and this geothermal source is used to generate electricity. Outside of the United States, Iceland has significant geothermal resources, which are used to heat 90% of their households as well as for many other uses (https://nea.is/geothermal/direct-utilization/).
Geothermal is actually a very old source of energy for humans. We have used hot springs for warmth and healing for tens of thousands of years. More than a hundred and twenty-five years ago, the first geothermal district heating system was created in Boise, Idaho, where it heated homes and businesses. In 1904, the first geothermal power plant was developed in Tuscany, Italy (https://www.energy.gov/eere/geothermal/history-geothermal-energy-america). Recent and ongoing advances are increasing the range of locations in which geothermal energy can be accessed and used.
The temperature gradient, or rate at which temperature increases as you drill farther into the crust, is not consistent throughout the country. In some areas it is necessary to drill much farther before reaching the temperatures generally required to use geothermal energy to produce electricity. However, innovators are working to hone the techniques and technologies that will allow this renewable resource to be leveraged in more areas. This means developing the capacity to drill farther into the ground, or learning to work with lower temperature geothermal resources. If the geothermal heat is intended to be used for space or water heating, it generally does not need to be at quite as high a temperature as would be required for generating electricity.
The graphic below, from the paper “Integrating Geothermal Energy Use into Re-building American Infrastructure” by Jeff Tester, Tim Reber, Koenraad Beckers, Maciej Lukawski, Erin Camp, Gloria Andrea Aguirre, Terry Jordan and Frank Horowitz, presented at the World Geothermal Congress 2015 (https://pangea.stanford.edu/ERE/db/WGC/papers/WGC/2015/38000.pdf), shows estimated temperatures throughout the United States at a depth of 5.5km. As you can see, by that depth (just less than 3.5 miles), much of the country is estimated to be at a temperature of at least 125 degrees Celsius, which is sufficient for space heating, water heating, and other purposes.
The logistics of an enhanced geothermal system (or one in which water is pumped into the ground to be heated) entail drilling two wells in parallel, several miles into the ground. Water is pumped into one well; once it reaches the bottom, it is warmed by the surrounding rocks. The heated water is then pumped back up the second well. Depending on the temperature, the water may be so hot that it comes out as steam that can be used to turn a turbine to generate electricity, or it may pass through a heat exchanger so that it warms another fluid that is then used to heat buildings or put to other uses.
At Cornell University, researchers are working to develop an enhanced geothermal system, also called Earth Source Heat, that could heat the campus’s buildings using (relatively) low temperatures such as are available throughout much of the country. Though further research and testing are still required, demonstrating the efficacy of such a system could open the door for further deployment of such systems around the country and the world. For more information on the work happening at Cornell, check out their website: https://earthsourceheat.cornell.edu/.
Geothermal energy is often confused with applications involving ground source heat pumps. However, the two are very different. Geothermal energy involves extracting heat from the earth. Some of this heat remains from the original formation of the earth. Some is a result of the radioactive decay over millions of years of elements deep within the earth. Geothermal energy applications are large scale projects that tap into this heat source through wells drilled several miles below the surface of the earth. Ground source heat pumps, on the other hand, are much smaller applications that use the relatively constant temperature of the near subsurface of the earth (10 to 500 feet) as a heat sink for residential and small commercial heating and cooling applications.
Moving to a renewables-based energy mix will require a variety of resources that complement one another and serve the full range of energy needs throughout the country and the world. Geothermal energy has quite a few positives, including that it can provide baseload power, it generates no carbon and basically no pollution, and the generation sites require a very small footprint. It is a great complement to the more intermittent sources of energy as well as those that are only available in limited geographic areas. This is quite an exciting time, as we witness the resurgence of old energy sources and the development of new ones.
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