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How Does Distributed Generation Improve Reliability? In bulk power supply operations, the probability of a loss of service is directly related to the amount of capacity in excess of the load being served. Making more capacity available to the grid reduces the probability of a shortfall if a single unit fails during a peak load period, or if load exceeds projections. Power providers recognize that customer owned capacity can be configured and controlled to provide power into the grid during peak load periods. By offering incentives such as interruptible rates or capacity buy back programs, the DG owning customer is compensated by the power provider, at least in part, for the capital and other costs incurred to provide backup generation. As a result, all customers benefit from additional capacity, while the cost to the utility is significantly less than installing new generation facilities. In addition, placing production resources closer to the customer load reduces loading on the transmission and distribution facility, cutting the reliability risks associated with overloading. Is Distributed Generation Cost Effective? The operating cost for various forms of DG is highly dependent on the local cost of fuel and operating requirements. In a program intro- duced by Wisconsin Gas, generators in the 5 to 25 kW range are installed for backup power at a cost of $6,495 to $14,995. This equates to a cost of $600 to $1,300 per kW, comparable to the cost of large gas-fired, combined cycle plants but less than the cost of a coal fired plant. However, the operating costs for the DG will generally be much higher than a traditional bulk power generator. Therefore, as a normal supply of power, DG is not expected to be competitive with traditional forms of electric power supply. However, DG may be cost effective when analyzing reliability on an evaluated cost basis. Consider the couple featured in a Milwaukee Journal-Sentinel article that experienced a 17 hour outage after a storm. They now expect this could happen any time severe weather threatens. What might they be willing to pay to avoid this? We can apply an old rule of thumb —the 100 times rule — to arrive at an evaluated cost of the loss of service. In planning power supply resources, it is necessary to recognize that 100% reliability is not realistic. This rule takes that into consideration, assuming the value of lost service to customers is 100 times the value they normally pay. (The 100x rule of thumb may also explain the $6,000/MWh+/- prices charged for hourly wholesale power during peak periods.) If we assume an average monthly usage of 1,200 kWh, a 17 hour outage represents a loss of service of about 28 kWh. At 10 cents per kWh times 100, we compute that the customer would be willing to pay about $280 per month to avoid monthly outages. Based on finance charges listed in the referenced article, the cost for owning the backup unit would be about $173 per month with 5 year financing. In this extreme case, value exceeds cost. In most cases, DG should be considered only when the level of reliability required is well above established standards. A normal System Average Interruption Duration Index (SAIDI) for a municipal system is about 99.99%. This translates to an average outage duration of one hour per year. Using the same basis as the previous example, a customer might be willing to pay about $16 per year to avoid these outages, or $160 for a ten-year technology. Since no options exist at this price, most of us will probably continue to endure outages near the average rate. From the customer’s perspective, DG might be cost effective as a method of reaching reliability goals. However this depends on the level and cost of current service. In order to make an evaluation, it is necessary to know the actual SAIDI index at the customer’s location. Maintaining this information can help in the decision process regarding system improve- ments, and demonstrates the utility’s interest in providing reliable service. In most cases, DG should be considered only when the level of reliability required is well above established standards. Should Municipalities and Municipal Utilities Prepare for Distributed Generation? And How? A proliferation of commercial and residential installations of distributed generation is not expected on the basis of economics. However, the public is not solely motivated by economics. Consideration should be given to all the issues which would allow sufficient time for reacting to developing trends. Municipal Utility Policy Issues: Municipal utilities should be prepared to respond to requests for DG from customers who perceive significant savings from reduced demand charges. Customers need to be educated in the rate making process, since adding DG for peak shaving may force them into a different customer class, with additional requirements and obligations. Depending on the form of wholesale power supply, the annual operating hours required to achieve a savings in demand charges may exceed the demand charge reduction. Reliability concerns may motivate customers to express interest in DG and seek partial com- pensation through programs such as these. First, determine if reliability standards are being met and if interest in DG is a sign of dissatisfaction with reliability. Also, verify that future wholesale power supply agreements are structured to allow municipal utilities to offer the same opportunities for partial compensation of DG costs as other power suppliers — suppliers who are likely to be competing for retail service in the future. State and National Policy Issues: Some customer groups and manufacturers maintain that utilities should not own or control distributed generation on the customer side of the meter. In the previous Wisconsin Update Public Benefits: the Advant By Tim Herlitzka, CPA, Manager and Zak Bloom, Se therlitzka@virchowkrause.com and zbloom@vircho In 1999, a collaborative effort by many interested parties resulted in a comprehensive Wisconsin Energy Reliability Act (the Act). As part of this Act, all Wisconsin electric utilities will be required to begin collecting Public Benefits fees (the fees) from customers. Two “Commitment to Community” programs were also created under the Act. The first is a low- income assistance program. The second focuses on energy conservation and includes renewable energy and related options. All utilities can benefit from an energy conservation program which is defined inPDF Image | Utility Lines Creating Advanced Telecommunications In Your Community: Where to Begin
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