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Distributed Energy Resources Give You Options

By Evelyn Teel

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.

Case Studies

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).

Project AProject BProject C
Onsite Solar2,000 kW1,700 kW2,000 kW
Year 1 Summary$$$
Initial Investment(3,644,028)(2,872,343)(3,717,150)
26% Federal ITC947,447746,809966,459
Depreciation Cash Value650,459512,713663,511
Energy Savings (year 1)205,732220,028263,612
SREC Income (year 1)113,704130,554367,507
Year 1 Cash Flow(1,726,686)(1,262,239)(1,456,061)
Financial Statistics
Breakeven6.04.82.9
After-Tax IRR13.6%18.9%32.8%
After-Tax NPV$2,210,468$2,995,331$3,898,417
Environmental Offset*
Pounds of coal not burned45,297,59038,502,95241,900,271
Tons of waste recycled, not landfilled13,98311,88612,934
Gallons of gasoline not consumed4,625,8503,931,9734,278,911
Tree seedlings grown for 10 years679,763577,799628,781
*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.

The Avalon Advantage – Visit our website at www.avalonenergy.us, call us at 888-484-8096, or email us at info@avalonenergy.us. 

Please feel free to share this article. If you do, please email or post the web link.  Unauthorized copying, retransmission, or republication is prohibited.

All images copyright 2020 Avalon Energy® Services LLC

Copyright 2020 by Avalon Energy® Services LLC

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Trade-offs are Inevitable: Considerations for Our Energy System

By Evelyn Teel

It is easy to think of energy as simply a commodity that makes our lives easier – by fueling our cars, keeping our homes comfortable, and powering our many devices. However, what if we sought to understand the more fundamental role energy plays in our lives? How would this reframe the conversation around the conflicting demands on our energy systems?

These questions and more are at the heart of Kenneth P. Green’s book Abundant Energy: The Fuel of Human Flourishing. In this small but dense tome, he discusses a variety of topics and encourages the reader to think more deeply about his or her own values and priorities regarding energy systems and the policies that govern them.

First, a few caveats. The book is nearly a decade old (published in 2011), so some of its content and assertions are either out of date or have been proven incorrect in the intervening years. The author also largely sidesteps around climate change issues, which have become more prominent in the past decade. However, this does not diminish the value in understanding the overarching points in the book.

Green starts from the premise that external energy sources are so intrinsically linked with human lives that we have, in fact, evolved along with our use of them. The first power source our human ancestors were able to harness – fire – instigated evolutionary changes that shaped the future of our species. Much of what it means to be human, from our cognitive abilities to our physical structure, our digestive system to our hormonal system to our social structures, evolved in concert with our ability to harness fire and, later, more sophisticated forms of energy.

The book focuses on the topics noted below and encourages readers to think critically about what we take for granted in our energy system, how we can improve that system, and what trade-offs we are willing to make to facilitate those improvements.

Energy Affordability

Whereas we often think of our energy costs simply in terms of our utility bills or how much it costs to fill up our gas tank, the reality is that energy costs impact nearly everything we buy and use. There are, of course, direct costs, like electricity or natural gas service at our house or gasoline for the car. There are also indirect costs, which include the energy used to produce all of the goods and services we consume. There is an inverse relationship between income and the percentage of income spent on direct and indirect energy costs – disproportionately so. This means that any increase in energy prices is borne by those least able to absorb the additional costs. This relationship holds true not only within the United States, but also worldwide – poorer nations are more affected by increasing energy costs than are richer ones.

Energy Reliability

Most of the time, we take for granted that when we need electricity, natural gas, propane, gasoline, or other forms or sources of energy, we’ll be able to access them easily. When these systems fail, we are presented with a stark reminder of how essential they are to our lives.

In the case of the 2003 East Coast blackout, millions of Americans and Canadians were left without power for up to two days. Not just electricity was out – communication and transportation systems were inoperable. Other utilities, such as water, were affected. The event cost the economy billions of dollars. The 2003 blackout is an extreme example, but even much shorter blackouts can have negative effects and incur huge costs.

All of this underscores the importance of energy reliability. Consistent availability of power is what enables our society to function. When applying this thinking to fuel sources and how we can ensure energy availability, it is important to understand the capacity factor of various sources – i.e., the percentage of time a particular type of generation operates at full capacity. Some fuel sources can generate full power nearly full time (such as nuclear), while others operate more intermittently (such as solar). For more information about capacity factor, please check out two of our previous blog posts: https://avalonenergy.us/2014/06/capacity-factor/ and https://avalonenergy.us/2014/06/capacity-factor-part-2/.

Energy and the Environment

The majority of the world’s pollution comes from developing nations, and the best way to help curtail their emissions may be to help those countries expand their economies. Green argues that for every environmental resource – energy-related and otherwise – there is an optimal usage level that balances sustainability and economic growth. A society will generally overshoot that level at first, then correct and moderate its usage over time. The key factor in ensuring that a society can moderate its consumption of a given resource is whether it can afford to do so. With economic growth comes the ability to focus on priorities apart from basic survival, as well as the capacity to develop new, more efficient technologies.

Energy System Inertia and Momentum

All systems have momentum. Once a decision is made to proceed in one direction, each progressive step makes it harder and harder to backtrack. This is resonantly true in our energy system. Our electric generation capacity has been built based on certain criteria, and is intended to last for decades. The workforce has been trained within specific parameters. Our society has developed technology, architecture, manufacturing, and much more around the energy system that is currently available. This is not to say that the way we generate, distribute, and use energy must remain static. It does, however, require an understanding of the secondary effects of any changes, and an evaluation of the cumulative costs associated with those changes.

Green also touches on the topics of energy independence and security and the danger of unintended consequences. He highlights the various trade-offs we would need to be willing to make in order to ensure energy independence, such as ramping up fuel extraction in the US and accepting the environmental consequences of increased energy production at home.

Finally, every decision can (and likely will) have unintended consequences. In the realm of energy policy, these unintended consequences can be huge, affecting the lives of millions of people both domestically and abroad. Perhaps the best way to fully understand, evaluate, and resolve these unintended consequences is to test many, varied possible solutions to a given issue. Implementing broad, sweeping solutions without sufficient testing can bring consequences that may do more harm than the original solution was intended to solve.

Conclusion

The environment, climate change, and energy policy are hot topics these days, and it is important to have a general understanding of the different priorities and trade-offs in the energy realm. Which is more important: reducing carbon emissions; keeping energy costs low, particularly for the sake of our less affluent neighbors; ensuring power is available reliably; something else entirely; or a combination of all of these? Identifying (personal) priorities or guidelines for thinking about energy changes can help focus our thinking on individual topics. This book certainly does not cover every aspect of these issues and the many others we need to better understand (nor could any one book do so). However, it is a good starting point to understand several factors regarding energy policy.

The Avalon Advantage – Visit our website at www.avalonenergy.us, call us at 888-484-8096, or email us at info@avalonenergy.us

Please feel free to share this article.  If you do, please email or post the web link.  Unauthorized copying, retransmission, or republication is prohibited.

Copyright 2020 by Avalon Energy® Services LLC