0.40 0.35 0.30 025 0.20 0.15 0.10 0.05 0.00 1996 1997 1998 1999 -us -- Japan (gas) -- Netherlands Japan (HFO) -- UK 2000 MAKALE/ ARTICLE some power systems by delaying the need to upgrade a congested transmission or distribution network by reducing distribution losses, and by providing support or ancillary services to the local distribution network. CHP is economically attractive for DG because of its higher fuel efficiency and low incremental capital costs for heat-recovery equipment. The size of the CHP Figure 2. Ratio of retail industrial fuel to electricity prices in selected jurisdictions. Source: IEA statistics system matters: the most economical are those that natura! gas engines, while fuel economy is similar. Fuel cells are the object of intensive research and development, primarily for transportation applications. They have been deployed for power generation in a limited way, but their capital costs will need to fail greatly to be competitive. The cost of photovoltaic systems, while stili high, is expected to go on falling over the next decade. ECONOMICS OF DISTRIBUTED GENERATION Distributed generation has some economic advantages compared to power from the grid, particularly for on-site power production. First, on-site power production avoids transmission and distribution costs which otherwise amount to about of 30% of the cost of delivered electricity. The possibility of generating and using both heat and power generated in a CHP plant can create additional economic opportunities. Distributed generation may also be better positioned to use low-cost fuels such as landfill gas. Against these advantages, unit capital costs per kW are higher for DG than for a large plan!. Fuel economy is lower, unless used in CHP mode, and DG uses a more limited selection of fuels. For photovoltaic systems, operating costs are very low but high capital costs render it uncompetitive with grid electricity. The relative prices of retail electricity and fuel costs are critical to the competitiveness of any DG option. This ratio varies greatly from country to country. in Japan, for example, where electricity and natural gas prices are high, DG is attractive only for oil-fired generation. in other countries, where gas is inexpensive compared to electricity, DG can become economically attractive - see Figure 2. Conventional economic assessments of generating options tend to understate the value of DG's flexibility to the owner of generating planı. Many DG technologies can be very flexible in their operation, size and expandability. A DG plan! can operate during periods of high electricity prices (peak periods) and then be switched off during low price periods. The ease of installation of DG also allows capacity to be expanded readily to take advantage of anticipated high prices. Some DG assets are portable. They can literally 'follow the market'. New analytical techniques, such as 'real option valuation', can quantify the economic value of flexibility. in addition to this technological flexibility, DG may add value to match the heat load. Economies of scale also matter. More than 80% of CHP capacity is in large industrial applications, mostly in four industries: paper, chemicals, petroleum refining and food processing. Even so, much of the CHP capacity in the OECD has been developed as a consequence of supportive government policies. Such policies have also encouraged systems to produce power for exportto the grid. Domestic-level CHP, so-called 'microCHP' is attracting much interest, particularly where it uses external combustion (Stirling) engines and in some cases fuel cells. However, despite the potential for short payback periods, high capital costs for the domestic consumer are a significant barrier to the penetration of these technologies. The provision of reliable power represents the most important market niche for DG. Emergency diesel generating capacity in buildings, generally not built to export power to the grid, represents several percent of total peak demand for electricity. Growing consumer demand for higher quality electricity (e.g., 'six nines' or 99.9999% reliability) requires on-site power production. DG iN JAPAN, THE US, THE NETHERLANDS AND THE UK The status of DG differs in each OECD country. While economics are certainly a fundamental factor, differences in government policy can also affect the role that DG plays. Japan DG is a viable option to many electricity consumers in Japan because of the country's high electricity prices and limited electricity market opening. Oil-fıred engines are commonly used, because of the relatively high price of delivered natural gas, except where excluded by air quality regulations. Over halt the systems use CHP. A survey by the Japan Engine Generator Association (NEGA) estimates that, from 1997 to 2000, installation of DG, excluding emergency power, grew by 2418 MW, about 11 % ofthe amount installed by the utilities during that period. in addition to many independent suppliers, eight of the ten electric utilities in Japan have established subsidiaries to offer DG services. Several regulatory barriers have been removed by Japan in order to encourage the development of DG and, particularly, of CHP systems. These actions include adjustments to fire ENERJi & KOJENERASYON DÜNYASI 53
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