Dennis Randall has had it up to here with California's rolling power blackouts, the result of the state's beleaguered deregulation effort. "If you can't rely on basic infrastructure, people will start leaving the area," says the senior director for real estate at Opus U.S. Corp., which last year developed more than 29 million square feet of commercial space. "You just cannot rely on the grid."
So Randall has stopped trying. At Opus Center, a large office building under construction in downtown San Jose, Randall plans to install a mini electric-power plant consisting of natural gas-fired engines and small generators known as microturbines. When the grid goes down, his tenants won't go with it. Offering reliable electricity is a "significant market advantage," he says, adding that onsite generation may become a standard offering for the Minnetonka (Minn.) company.
TURBOCHARGED. All across California and the country, companies such as Opus are taking steps to insulate themselves from the vagaries of the power supply. And their efforts have turbocharged a movement long cherished by energy experts and environmentalists--a concept known as distributed power (DP). The goal, in a nutshell, is to reinvent the energy grid from the bottom up. Instead of producing electricity at central plants and channeling it in only one direction to consumers, distributed power means offering at least a modicum of energy independence to companies--and ultimately to individual consumers. It can also open the system to potentially millions of small suppliers.
Under the DP model, power is produced by myriad small systems using everything from diesel engines, gas-powered turbines, and fuel cells to windmills, solar panels, and geothermal generators. Since the plants are closer to the end user, there are fewer opportunities for outages, 95% of which are caused by line problems.
Under such an arrangement, consumers can still buy electricity from the grid. But they can also sell extra power they generate to the utility. In addition to boosting the capacity of the entire system, this approach promises new efficiencies. Power plants, for example, normally lose two-thirds of the energy they produce in waste heat. But with a DP setup, the heat can be captured and used. Tallying these virtues, many energy analysts and market watchers predict that distributed power could account for as much as one-fifth of all electric generation in the U.S. by 2010.
That's the dream, anyway. As the DP camp readily concedes, there are many hurdles that must be jumped. For starters, solar arrays, microturbines, and other power-producing devices are pricey, often costing thousands of dollars to install. And except in the case of "green" sources such as wind and solar, there are fuel costs, too.
The logistical problems are even more daunting. If a million minipower plants were to spring up, managing the interconnections with the existing grid would be a nightmare. Every state has different rules governing such connections, as do each of the 3,000 utilities in the U.S. On top of that, utilities have put up obstacles in some regions, complaining that they get saddled with the cost for "standby power"--meaning energy to cover small producers in case their distributed systems encounter a glitch.
Nonetheless, fans of distributed power remain optimistic. One by one, they say, the big issues are being addressed. The Institute of Electrical & Electronics Engineers (IEEE) is fast-tracking the development of national interconnection standards, backed enthusiastically by the Energy Dept. Last January, Energy announced a new Center for Distributed Power at the National Renewable Energy Laboratory in Golden, Colo. The IEEE hopes the standards will be ready as early as yearend. "We're beyond the planning stages. This is real," says Richard DeBlasio, the Center's director, who is spearheading the IEEE effort.
Despite the difficulties, distributed power has already made some major inroads. More than 3,000 megawatts (Mw) were installed in California during the 1990s, says energy analyst Amory Lovins of the Rocky Mountain Institute in Old Snowmass, Colo. Most of that came from small projects in the 30-Mw range vs. 500-700 Mw for a typical new power plant. An additional 7,000 Mw of distributed power were added to states in the Western grid, from which the Golden State also draws power. Together, that's enough juice to power 10 million homes. "It's what's been keeping the lights on," says Lovins.
While utilities have traditionally resisted these ideas, some are now pursuing their own versions of distributed power. Their goals, generally, have less to do with buying surplus power from customers than with localizing power production. The New York Power Authority, for example, is installing natural gas-fired turbines around New York City to supply an additional 400 Mw, in an effort to head off a predicted energy shortfall this summer. Alliant Energy Corp. in Madison, Wis., is beefing up capacity at power distribution points, known as substations, in Minnesota. And in Los Angeles, the Power & Water Dept. is turning to DP to avoid shortages down the road. Ripping up streets to upgrade infrastructure in densely populated areas "just isn't practical," says Mahmud Chaudry, assistant general manager of the utility's Power Distribution unit.
Waiting for new power plants to come onstream is not necessarily the solution. It takes years and may not provide as much relief as everyone hopes. In California, you can blame the wretched condition of the power-transmission system--the wires and transformers that transport power from the plants to local substations. "New power plants could find themselves all revved up with no way to send electricity," warns Kurt Yeager, CEO of EPRI, an industry research group in Palo Alto, Calif. "Building new plants will only put more pressure on the lines."
Many experts believe distributed power can ease some of the pressure on the transmission system while stabilizing energy costs. And that has piqued the interest of investors. Analyst James LoGerfo of Banc of America Securities LLC sees the sector growing from less than $20 billion in sales worldwide today to at least $100 billion by 2010. According to Nth Power Technologies Inc., a San Francisco venture-capital firm specializing in distributed power, U.S. investment in this sector has more than quadrupled, from $150 million in 1998 to an estimated $800 million last year.
VENTURE FUNDING. Money feeds technological innovation, helping to fuel the proliferation of DP venture businesses. One startup, Encorp Inc. in Windsor, Colo., produces software and hardware to connect DP systems to the grid. It has raised $10 million from investors, including Enron Inc. And it expects another big block of funding as it expands its roster of blue-chip clients such as Chase Manhattan Bank and Qwest Communications, companies whose critical computer systems can't tolerate any outage-related downtime.
Some states, including Texas and New York, are now easing some barriers to distributed power, including equipment installation rules. "It saves infrastructure," says Pat Wood III, chairman of the Public Utility Commission of Texas. "If you have to build transmission to handle peak loads, you're wasting your money."
Progress is piecemeal, but there are encouraging precedents in other industries. In the 1980s, computer and software techies predicted that personal computers would render giant mainframes obsolete. It turned out there was a need for both types of computers--but over time, PCs changed the whole infotech landscape. If this analogy holds, there will always be a role for centralized power grids. But the impact of distributed power will be nothing short of revolutionary. And in that kind of power shift, everyone's a winner.
By Janet Ginsburg in Golden, Colo.
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