INTERNATIONAL ENERGY AGENCY COGEN EUROPE ANNUAL CONFERENCE 2002 Ct,9eııeratioıı, Was� raoiw'l!ll!ifi!Ji6fif4 & tl•silı! . (Jptu� Energy Agency. it surveys the current situation and market status of distributed generation in selected OECD countries, including the impact of current energy policies. it examines the economic, environmental and energy security implications of wider deployment of various distributed generation technologies as well as the implications tor the operation of electricity transmission and distribution networks. it makes general recommendations on accommodating distributed generation in liberalised electricity markets. Distributed generation technologies Reciprocating diesel or gas engines and gas turbines are well-established commercial distributed generation technologies. lndustrial-sized diesel engines can achieve fuel efficiencies in excess of 40% and are relatively low cost per kilowatt. Engines over 1 MW constituted most of the distributed generation capacity with approximately 16 GW ordered in the year 2000 alone or 8% of total generating capacity ordered worldwide. Although over halt the capacity ordered was tor standby units, most of the remainder (7 GW) was ordered tor continuous operation, mainly fuelled by oil, with an additional 1.5 GW of capacity ordered tor peaking use (Figure 1 ). 30MW Engine Capacity Ordered for Peak/Continuous Operation (MW) 1000+------------------ oooo-1----- ----- ----- 00.'01 JlM lı: While this amount is relatively small compared to some technologies (gas turbines, including combined cycles, accounted tor two-thirds of global orders), it is stili significantly larger than the wind power orders or nuclear power capacity that began construction during the year. Micro turbines represent a new technology that converts natura! gas to electricity at relatively low emissions but capital cost is higher than tor natura! gas engines and fuel economy is similar. Fuel cells are undergoing intensive research and development, primarily tor transportation applications, have been deployed tor power generation in a limited way but capital costs will need to fail by halt to be competitive. PV costs, while stili high, are expected to continue to fail over the next decade. Economics of distributed generation Distributed generation, particularly tor on-site power production, has some economic advantages compared to the grid. First of ali, on-site power production enjoys the advantage of avoiding transmission and distribution costs tor delivery of electricity, an overall average cost of 30% of the cost of generated electricity. The possibility of generating and using both heat and power generation in a combined heat and power (CHP) plant can create economic opportunities. Distributed generation may also be betler positioned to take advantage of low cost fuels (such as landfill gas). Against this, distributed generation economics must deal with higher unit capital costs per kilowatt than a large planı, lower fuel economy (unless used in CHP mode) and a more limited selection of fuels. For photovoltaics, operating costs are very low but high capital costs make it uncompetitive with grid electricity. Given the importance of fuel prices tor tossil-fired distributed generation, the relative prices between retail electricity and fuel is critical to the competitiveness of a distributed generation option. This varies greatly from country to country. in countries like Japan, where electricity and natura! gas prices are high, distributed generation is only relatively attractive tor oil-fired generation. in others where gas is inexpensive compared to electricity, distributed generation can be economically attractive Ratio of Retail lndustrial Fuel to Electricity Prices in Selected Jurisdictions ...ı------------------- o.ool------------------- "" (Figure 2). However, conventional economic assessments of generating options tend to understate the value of flexibility to the owner of generating planı. Many distributed generation technologies can be flexible in terms of their operation, size and expandability. A distributed generation planı can operate during periods of high price and then switch off during low electricity price periods. The relative ease of installation of distributed generation can also mean that capacity can also be expanded readily to lake advantage of anticipated high prices. Portability of some distributed generation assets means that generators can literally "tollow the market". New analytical techniques, such as real option valuation, can be used to quantify the economic value of flexibility. in addition to these general opportunities, the distributed generator may have additional value to offer depending on its location in delaying the need to upgrade a congested transmission or distribution system, in reducing distribution system losses, or in provision of network support or ancillary services to the loca! distribution network. CHP should offer relatively attractive economics tor distributed generation ECOGENERATION WORLD LiL
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