Distributed Generation

From Open Energy Information

Distributed Generation

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Distributed generation (DG) refers to a variety of modular power generating technologies installed at or near the point of power consumption, such as wind power systems, solar power systems, micro-turbines, load curtailment technologies, battery storage systems, diesel engines, internal combustion engines, combined heat and power, and fuel cells. In contrast, the conventional approach involves generation of power at a centralized power plant and transmission through power lines to the consumer. Conventional power generation typically suffers from low efficiencies, emissions concerns, the need for costly transmission infrastructure, and high capital costs for the utility. A DG system located near the consumer avoids these drawbacks, improves power quality and reliability, offers higher generation efficiencies, and provides a choice of generation technologies to the customer. DG can operate at a variety of scales, from residential to larger and more complex integrated systems. Depending on the location and type of technology considered, consumers have the option to own and operate their DG system, have it owned and operated by a third party, or split the responsibilities as they see fit. DG is expected to be used when the installation and operating costs are less than the combined cost of centralized generation, and the costs of upgrades or expansion of the transmission and distribution system that would be needed to meet additional load growth.

Benefits of Distributed Generation

  • Operations
    • Improved power quality and reliability
    • Provides peak power and energy-related cost savings for regions with high electricity rates
    • Provides standby power
    • Fast ramping within the distribution system, ability to reduce harmonic distortions at customer’s site
    • Generate power for remote and off-grid customers
    • Permit efficient use of waste heat in combined heat and power (CHP) applications
    • Significant reduction in fuel disruption risk
    • Potential for more modular, routine analysis for capital expansions
    • Ability to redeploy portable resources as demand profiles change
    • Higher system efficiency reduces ratio of fixed-to-variable costs
    • Potential for lower unit costs for replacement parts
  • Energy Security
    • Provides energy security to mission-critical loads
  • Construction and Financing
    • Benefits the local utility by offsetting the need for capacity and distribution improvements, and reducing congestion in transmission and distribution systems
    • Increased local, small-business development and taxes vs. overseas manufacturing
    • Shorter lead times reduce risk of exposure to changes in regulatory climate
    • Reduced exposure to interest rate fluctuations
    • Reduced site remediation costs after decommissioning
  • Job Creation
    • Local job creation for manufacturing, technician installers/operators
  • Environmental Benefits
    • Shorter construction times
    • Reduced financial risk of over- or under-building
    • Reduced project cost-of-capital over time due to better alignment of incremental demand and supply
    • Offset land use for large power generation plants and new transmission lines right-of-way development


DG technologies can be used for various applications, including peak shaving, base-load power reduction, improving power quality, backup power provision, and cooling and heating provisions.

Peak Shaving

Industrial, commercial, and campus-based facilities are generally charged a high rate per unit of power demand based on the local utility's time-of-use rates or capacity constraints. Peak demand charges can sometimes make up most of a customer’s electric bill. Using DG to reduce these peak charges can generate significant cost savings. Peak shaving benefits the customer by saving money and benefits the utility by offsetting the need for dispatching expensive generation. Peak shaving also helps reduce the likelihood of grid outages, and mitigates the need for costly generation and distribution upgrades. Figure 1 depicts peak shaving operation using an energy storage system (battery). The battery is charged at night (in red), when the system load is low, and then discharged during the day, when the system load peaks. This helps reduce the customer’s peak demand cost.

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Base Load Power

For customers with a significant base load, DG can be used to offset such load, thereby reducing the customer’s utility cost per unit of energy, and peak demand cost per unit of power. Any additional power required by the customer is supplied by the grid.

Backup Power

Grid outages can occur for a variety of reasons, including:

  • Poor maintenance of generation equipment
  • Poor maintenance of transmission and distribution equipment
  • Overloading of transmission and distribution systems
  • Faulty or oversensitive protective equipment

Also, regions with high load concentration are susceptible to grid outages. Frequent outages can lead to damage of utility and customer equipment, disruption of commercial/industrial services, and lost worker time [1]. A standby distribution generation resource can provide power during periods of outage and during a grid event, such as voltage/frequency distortion. In the case where a load is considered mission critical, a dedicated DG resource may be used. In this scenario, the DG equipment would run in base-load mode, providing prime power for critical equipment, with the grid acting as a backup source.

Power Quality

Outdated electrical equipment and equipment that is energy intensive (such as a heating or cooling system) can be highly inefficient, and lead to degradation in the customer’s overall power factor. Frequency-sensitive equipment, such as computers, adjustable-speed drives, and motors, can be highly susceptible to changes in power quality [1, 3]. Load and generation changes and equipment switching, on both the utility and customer ends, can adversely impact power quality. Some symptoms of poor power quality include voltage sags and swells, frequency deviations, momentary outages causing complete interruption of electricity, and harmonic distortions. Distributed resources, such as a capacitor bank or voltage controller, can be used to attenuate voltage sags/swells. DG technologies, such as uninterruptible power supplies (UPS), static VAR compensator (SVC), and a battery system, can be used to address issues related to voltage sags/swells, frequency deviations, power factor correction, and harmonic distortions.

Cooling and Heating

Cooling and heating loads typically form a significant portion of the electric bill for large facilities. Thermal mass-based systems use the thermal inertia of a large mass to reduce fluctuations in temperature over the course of a day. Lower temperature fluctuations lead to lower cost for heating and cooling for the customer. Another example of distributed thermal load fulfillment is combined heat and power (CHP). The simultaneous production of electrical (or mechanical) and useful thermal power from a single source is referred to as a CHP process, or cogeneration. CHP plants are typically located at or near the load they serve because it is not practical to run expensive steam piping for long distances. This ensures greater reliability, potential for better power quality, reduced emissions, increased energy security for the end user, and greater stability for the grid. In addition, there is the potential for increased fuel efficiency, less complicated transmission requirements, reduced transmission losses, market participation, and black-start functionality. In the case of a CHP system, there is a marked increase in overall process efficiency.

Stand-Alone Systems

DG resources can be very cost-effective in remote areas where utility power may be expensive to access or not accessible altogether. The cost of extending transmission lines can be significant, ranging anywhere from $10,000 to $40,000 per mile depending on the location [1]. Another challenge, especially in remote locations, is the availability of fuel for DG. Hybrid technologies can increase reliability, provide redundancy, and protect against outages. Certain applications for DG, such as backup operation, can be more expensive in stand-alone mode. Backup systems in stand-alone configuration typically get used only when utility power is lost. Batteries are used to provide power on cloudy days or when the wind doesn't blow. A backup engine generator may only get used for a few hours every year. Such systems can prove to be costly on a per kilowatt-hour basis [1] but necessary nevertheless.

Grid Interconnection

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DG can also be operated in grid-connected mode. Grid interconnection offers owners the benefit of exporting unused power back to the electrical grid for a price. Grid-connected DG resources also support and strengthen the distribution and transmission systems by reducing the peak load for local feeders and major customers. In some locations, utilities can remotely operate the distributed generators as dispatchable resources to ensure balance between generation and demand. However, the intermittent and variable nature of some DG technologies can add uncertainty and even reduce reliability of the grid. Increasing penetration of DG resources can escalate these uncertainties. Electric utilities place high priority on the reliability of their electrical systems and the safety of their workers. Typical utility systems are designed to shut down (even partially) in the event power begins to flow back into the grid. Systems may also be required to temporarily shut down in the event of electrical failures by employing protective equipment against high deviations in voltage and frequency, phase and ground overvoltage, phase and ground overcurrent, among other reasons. Without guidelines in place, grid interconnection can therefore be a barrier to DG installation [3]. To overcome the interconnection barrier, various standards have been established, or are underway, for grid interconnection. The Institute of Electrical and Electronics Engineers (IEEE) has developed a series of standards that address interconnection. The standards are built upon the base standard IEEE 1547 (Standard for Distributed Resources Interconnected with Electric Power Systems). IEEE 1547 provides requirements relating to the performance, operation, testing, safety considerations, and maintenance of the grid interconnection [3]. Additional standards in the series address interconnection system testing, applications, monitoring, information exchange and control, intentional islanding, and network systems.

Barriers to Adoption

Lost Utility Revenue

For customers with a significant base load, DG can be used to offset such load, thereby reducing the customer’s utility cost per unit of energy, and peak demand cost per unit of power. Any additional power required by the customer is supplied by the grid.

Cost of Natural Gas

Natural gas-based DG systems installed at a customer’s site are generally charged at a residential or commercial rate for natural gas. Larger natural gas-based plants and energy-intensive facilities are typically supplied natural gas via lower wholesale rates.

Utility Competitive Rates

Before investing in new DG technology, a customer will generally compare its total cost and benefits to continuation of service under the existing utility contract. The loss of demand and capacity sales to customers will imply loss of revenue to utilities. Hence utilities often offer special reduced (competitive) rates to retain the customer, thereby deferring development of the new DG facility [2].

Lack of Locational Marginal Price

Wholesale power markets in the Midwest, the East, and in California and Texas make use of locational marginal price (LMP) to manage congestion on the grid [2]. LMP-based, day-ahead and real-time markets can encourage deployment of DG in areas where transmission congestion is a significant problem. The absence of LMP can be viewed as a hurdle to the development of DG.


Diesel and gasoline-fueled reciprocating engines are one of the most common DG technologies in use today, especially for standby power applications. However, they create significant emissions and noise pollution relative to natural gas or ethanol generators, and their use is actively discouraged by many municipal governments. As a result, they are subject to severe operational limitations not faced by other DG technologies.

Consumer Awareness

Diesel and gasoline-fueled reciprocating engines are one of the most common DG technologies in use today, especially for standby power applications. However, they create significant emissions and noise pollution relative to natural gas or ethanol generators, and their use is actively discouraged by many municipal governments. As a result, they are subject to severe operational limitations not faced by other DG technologies.

Example Systems

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Photovoltaic Generation—NREL Research Support Facility (RSF), CO In 2010, NREL installed 1,800 solar panels on the roof of the RSF, generating 1.6 MW of power. Other DG technologies, such as energy efficiency, day lighting in office spaces, energy efficient work stations, and use of recycled materials, are also being employed for this facility. The RSF adds 222,000 ft2 of office space to the NREL campus but only led to a 6% increase in the campus’ overall energy use.

Hydropower Generation—Cornell University, NY Cornell’s 1 MW hydropower plant was able to meet the needs of the campus and the city of Ithaca when it was first developed in 1904. Now it accounts for about 2% of the campus' annual electricity consumption. The plant is a run-of-the-river type station, which means that no water is stored behind a dam. In 2008, the campus completed control upgrades that increased output by 20%, and the facility now produces over 1 GWh each year.

Microgrid—Santa Rita Jail, CA The Santa Rita Jail opened in 1989 and accommodates approximately 4,500 inmates. The facility has a fairly flat energy load profile and a peak demand of about 3 MW. A 1.2 MW PV system, which covers most of the cellblocks, was installed in 2002. In 2006, a 1 MW molten carbonate fuel cell with heat recovery providing hot water preheating for domestic hot water requirements was added. Recently, a large (2 MW, 4 MWh) Li-ion battery, and 52 single-axis solar trackers producing 275 kW were also installed at the facility. The battery is equipped with Consortium for Electric Reliability Technology Solutions (CERTS) microgrid capability, which allows the facility to disconnect from the grid and run islanded for extended periods of time.

A database of distributed generation systems is available.


  1. Federal Energy Management Program: Distributed Energy Resource Applications, United States Department of Energy http://www1.eere.energy.gov/femp/technologies/derchp_derapplications.html
  2. “The Potential Benefits of DG and Rate-Related Issues that May Impede their Expansion,” United States Department of Energy, February 2007 http://www.ferc.gov/legal/fed-sta/exp-study.pdf
  3. Learning About Renewable Energy: Grid Interconnection, NREL, Golden, CO http://www.nrel.gov/learning/eds_grid_interconnection.html
  4. Solar System Tops Off Efficient NREL Building, NREL, Golden, CO, September 2010 http://www.nrel.gov/news/features/feature_detail.cfm/feature_id=1516
  5. Climate Neutral Research Campuses: Hydropower, NREL, Golden, CO http://www.nrel.gov/tech_deployment/climate_neutral/hydropower.html
  6. Microgrid at Berkeley Laboratory, Current Project: Santa Rita Jail, Washington D.C. http://der.lbl.gov/microgrids-lbnl/santa-rita-jail
  7. Marnay, C., “An Example Commercial True Microgrid: Santa Rita Jail,” Ernest Orlando Lawrence Berkeley National Laboratory, presented at NREL, Golden, CO, October 2012. http://www.nrel.gov/esi/pdfs/wkshp_1012_example_commercial_microgrid.pdf
  8. Eynon, R., “The Role of DG in U.S. Generation Markets,” United States Energy Information Administration, Unites States Department of Energy, Washington D.C. http://www.eia.gov/oiaf/speeches/dist_generation.html
  9. Electric Power Demand – Peak Shaving, NAS Batteries, NGK Insulators LTD. http://www.ngk.co.jp/english/products/power/nas/index.html