A Holistic Exploration of Energy Decentralization

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CLAREMONT MCKENNA COLLEGE

A HOLISTIC

EXPLORATION OF

ENERGY

DECENTRALIZATION

SUBMITTED TO DR.EMIL MORHARDT

AND

DEAN GREGORY HESS

BY

POOJA REDDY KANIPAKAM

FOR

SENIOR THESIS IN SCIENCE AND MANAGEMENT

SPRING 2010

26 APRIL 2010



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A B S T R A C T

This study explores the issues surrounding our current energyproduction and distribution infrastructure. Conventional wisdom indeveloped and urban areas holds that companies and households needto be connected to the grid. This grid is in evolution as it is bothinefficient and unidirectional; energy is flowing from producers toconsumers in only one direction. In both the US and Europe we areslowly moving towards a smart grid with smart metering; whereeverybody becomes a consumer and producer of electricity. Althoughrestructuring will take a long time, given the current state of renewableenergy technologies, urban areas will gradually move towards thelocalization of electricity production through the use of distributedenergy generation (DG). These are small energy utilities located closeto the end users and within the electric distribution system, eitherconnected to or isolated from the grid. This study identifies three majorareas of conflict: reliability of supply, environmental sustainability, andeconomic efficiency. In addition it addresses the voices of severalnotable leaders in the energy scene, but specifically illuminates theviews of theorist and futurist Alvin Toffler; who believes that the “Thegreat growling engine of technology” is coming face-to-face with asociety that is unable to keep up with technology’s speed and, in turn,

scarring t he face of our earth’s environment and climate. Hypotheseslike these make it clear that change is occurring and necessary and oneof the best ways to approach our crisis is through restructuring ourenergy production and distribution systems. I focus primarily on DGusing clean technology and renewable resources. From my study, Idiscover and convey that though there are several drawbacks to DG,especially in lieu of the desynchronized nature of technologicaladvancement, societal demand and governmental implementation, DGhas the potential to bring about a wealth of benefits for society.



TABLE OF CONTENTS

Abstract ......................................................................................................................................... i

Introduction ............................................................................................................................... 3

Chapter 1: Observing Trends in the Electricity Scene ............................................... 7

Introducing Holistic Thinking ...................................................................................................... 7Historical Patterns and Waves ..................................................................................................... 9A Time of Centralized Energy ..................................................................................................... 12

Chapter 2: Analyzing DG in Parallel with Centralized Generation .................... 18 Outlining Energy Generation and Distribution ................................................................... 18Defining Distributed Generation ............................................................................................... 20Identifying the uses of Distributed Energy Resources .................................................... 22

Analyzing the Issue of Power Quality ................................................................................. 24Analyzing the Issue of Transmission and Distribution ............................................. 27Analyzing the Issue of Reliability ......................................................................................... 29Analyzing the Issue of Efficiencies ....................................................................................... 30

Applying DERs to Individual Households.............................................................................. 33A “Smart” way of Wrapping up the Issues ............................................................................ 34

Chapter 3: Environmental Issues with Today’s Energy: An Important

Tangent ...................................................................................................................................... 38

Environmental Impact ................................................................................................................... 38Water: Identifying Future Electricity Tradeoffs in the United States; Based on-a study By Sovacool and Sovacool .......................................................................................... 39

Air: The Reality of Emission Reduction Required for-Stabilizing Climate Change ......................................................................................................... 43Making Sense of it All ..................................................................................................................... 45

Chapter 4: Cost Analysis Cuts Corners .......................................................................... 47

Discussing Distributed Generation Expenses...................................................................... 47Case: The Unfortunate Situation of Photovoltaic Energy Generation Costs .......... 48My Stance on Economically Valuing DG and Avenues for Further Studies ............ 52

Conclusion: Reintroducing “Prosumer Culture” ............................................................ 55

Appendices ............................................................................................................................... 69



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ACKNOWLEDGMENTS

I would like to express my sincere appreciation for Dr. Emil Morhardt for hismentorship in the preparation of this thesis and patient listening of my thesis relatedstressed rambling. In addition, I would like to thank to Dr. Cutter whose familiaritywith the needs and ideas of my topic was helpful especially during the initial stages of my thesis development. I would also like to give a special thanks to Srihari Boregowdafor spending a lot of time with me discussing my topic and inspiring me to think about the bigger picture of our society’s current energy issues and each of our personalresponsibilities to think and act towards a environmentally nurturing future. It wasSrihari Boregowda that first encouraged me to read A Revolutionary Wealth by Alvinand Heidi Toffler; which changed the way I think about all of the environmental issueswe face today. I would also like to thank my professors and friends who talked methrough some of the complexities of my subject matter: Dr. Alexander van de Putte,Dr. Scott Gould, and Dr.McFarlane. Thanks also to Ayesha for her support, advice, andencouragement: which served as the impetus behind my thesis; Meghana for latenight tea breaks and discussion; and Siya for companionship, peer editing, andmidnight munchies. Finally, thanks to my parents (Praveen, Bhanu and Priya) forbeing extremely supportive and caring throughout the semester. I wouldn’t have beenable to complete this study without all of your support. Thank you.



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I N T R O D U C T I O N

This study explores the issues surrounding our current energy production and

distribution infrastructure. Conventional wisdom in developed and urban

areas holds that companies and households need to be connecting to the grid.1 This

grid is in evolution as it is both inefficient and unidirectional; energy is flowing from

producers to consumers in only one direction. In both the US and Europe we are

slowly moving towards a smart grid with smart metering, where everybody

becomes a consumer and producer of electricity. Although restructuring will take a

long time, given the current state of renewable energy technologies, urban areas will

gradually move towards the localization of electricity production through the use of

distributed energy systems (DESs). These are small energy utilities located close to

the end users and within the electric distribution system, either connected to or

isolated from the grid. For such a large system makeover to be possible, a smart grid

will be critical. Through the following discourses, we identify three major areas of

conflict in the energy: reliability of supply, environmental sustainability, and

economic efficiency.

In more rural areas, being grid connected may not be the right solution. What

is important here is that the most geographically relevant energy technologies

(hydro, solar, wind, etc.) are being deployed. India, for example, is still quite rural

and grid connecting these rural areas would be a waste of time and resources. This

1 Definition of the grid: The grid is an interconnected network that connects distributes energy from suppliers to consumers.



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doesn't mean that rural areas have to continue to experience energy poverty.

Energy poverty is the lack of energy supply for basic needs such as warmth. This

poverty is a product of post-second wave effects when we abandoned the agrarian

economy to embrace the industrial economy.2 Muscle power, (domesticated

animals, humans) and other natural sources of energy (water solar, wind) were

replaced by large scale energy plants to accelerate growth of industrialization.

These plants were guzzlers of fossil fuels and other unsustainable resources. Energy

poverty can be reduced quite dramatically in both urban and rural areas. The

chosen solution depends on the local availability of energy resources and the degree

of urbanization. We are at a juncture where our energy needs may not be fulfilled

which, in turn, paves a path towards energy poverty: a manmade problem.

It is clear that issues revolving around climate change and energy management

are global ones, but to simplify the understanding of this macro issue; I

predominantly focus on the grid’s current situation in the United States. The main

objective of this thesis is to help my reader understand why it is important to look at

the foreseeable decentralization of America’s energy systems from a holistic

perspective. A holistic perspective incorporates all forms of thought from economic

and scientific to socialistic and humanistic. This holistic perspective is best

represented by the notable author and futurist, Alvin Toffler, who believes that:

The central question, then, is not whether we will overcome the energy disasterheading toward us but how soon. And that will depend on the outcome of waveconflict between vested interests still benefiting from our industrial-era energy

2 Refer to page 4 for a definition of the “second wave”.



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system and the pioneers researching, designing and fighting for breakthroughalternatives.3

Through an exploration of the ideas of several intellectuals such as Toffler (primarily

regarding his monumental work, A Revolutionary Wealth), in conjunction with an

examination of select case studies and academic papers in the rapidly changing field

of environmental research, this thesis is able to make certain valuable claims by

merging the voices of academia and futurists.

Chapter 1 outlines patterns and trends observed in the history of electricity

generation and distribution while also introducing you to the definition and

importance of holistic thinking. Chapter 2 delves into the technical aspects of DG and

its benefits specifically by looking at the current dilemmas faced by the today’s grid

system. Chapter 3 reminds you of the negative impact our demand for energy and

electricity currently has on the environment. Chapter 4 looks at the costs of DG

implementation: an area of high controversy.

Through engaging with a variety of primary resources, including recent

scientific journals, groundbreaking interviews and critical discussions between

Toffler and many other notable leaders in the energy industry, I hope to ultimately

convey that the slow but ongoing movement towards distributed energy systems

(DESs: small energy utilities and adaptive systems, such as solar photovoltaic panels,

3 Toffler, Alvin and Heidi Toffler. Revolutionary Wealth. New York: Alfred A. Knopf, 2006.



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wind, and biomass, located close to the end users and within the electric

distribution system) has the potential to bring about a wealth of global benefits.



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C H A P T E R 1 : O B S E R V I N G T R E N D S I N T H E E L E C T R I C I T Y

S C E N E

Introducing Holistic Thinking

To step foot into the complex topic of distributed generation, I invite you, my

reader, for a moment, to journey through a Toffler paradigm. Although entirely

disconnected from the authors Alvin Toffler and Heidi Toffler themselves it is

interesting to ponder the energy scene through Tofflerian insights. It is particularly

through the ideologies of Alvin Toffler that I am able to understand, in a more holistic

sociological manner, why we are heading towards a decentralized future and the

importance of this movement. The term Holistic as defined by Aristotle is “where the

whole is greater than the sum of its parts”. I believe that this is the right approach to

solve the problem from a societal viewpoint and against the second wave or industrial

era of thinking; a way of thinking that divided the energy problem at a purely

technical point of view4.

Alvin Toffler is popularly known as a futurist and refers to himself as an

American writer. His most famous publications include: Future Shock, The Third

Wave, and his most recent novel: Revolutionary Wealth. Though he discusses

paramount ideas regarding the communication revolution, digital revolution and

technological singularity, I believe that the fundamental ideas in his writings prevail

in our complex societies today and are extremely relevant. His ideas particularly

emphasize on the power of change and knowledge. He narrates our present

4 Refer to page 4 for a definition of the “second wave”.



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complexities and hopeful future through his doctrines of change and knowledge. “The

great growling engine of technology” (Toffler, Alvin) is a cannibalistic element of our

society that feeds upon itself only to grow more and sometimes escalating multiple

problems in our society. 5 This is apparent by observing our evolving energy systems

in response to increasing energy demand, decreasing energy resources, and

decreasing societal synchronization (particularly in the relationship between citizen

demands and governmental response to citizen demands).

It is easy to apply the Toffler concepts to current events of today. For instance,

in March 2010, the Obama administration proposed to open up vast areas of water off

the eastern coast in the United States, north Alaskan coast and eastern Gulf of Mexico

to oil and natural gas drilling for the first time in US history. This proposal stood as an

environmental compromise and a short term economic gain, which of course stirred a

conflict of interest amongst several people. “Future shock is the shattering stress and

disorientation that we induce in individuals by subjecting them to too much change in

too short a time.” (Toffler, Alvin) The words of Toffler resonate in the recent

phenomenon of off shore drilling. The rapid economic, social, technological and most

importantly climate change is smothering individuals faster than their ability to

counter balance the change. Thus, the Obama Administration’s proposal to unleash

offshore drilling was likely in hopes to slow down the rapid rate of change. A more

bipolar response would be to ban use of all non-renewable energy resources in the

name of energy security. But, I believe, with its existing strong dependence on coal




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and oil, our society would not be able to withstand such a drastic change. This may, in

fact, be the explanation behind the more middle-ground, moderate political

approaches on environmental problems being taken today. In the President’s own

words:

Ultimately, we need to move beyond the tired debates of the left and theright, between business leaders and environmentalists, between thosewho would claim drilling is a cure all and those who would claim it hasno place, because this issue [energy crisis] is just too important to allowour progress to languish while we fight the same old battles over andover again.6

As experts have said in mass media, the good oil is almost over. The deep shore oil

and others sources we may explore is, again, not infinite and not going to be as cheap

as Gulf oil. Thus short term solutions are not beneficial to our society as a whole in the

long run.

Historical Patterns of Innovation and “Waves”

An interesting element of Toffler’s work is his approach towards historical

development. He understands history in a series of disconnected time periods or

‘waves’: each of which contributes to the colonization of the next wave to a certain

degree while also pushing older cultures and societies aside. It is important to

understand and identify each of these waves to realize certain historical patterns that

similarly pertain to the evolution of our energy systems over time.

6 Broder, John M. The New York Times. 31 March 2010. 18 April 2010<http://www.nytimes.com/2010/04/01/science/earth/01energy.html?src=un&feedurl=http%3A%2F%2Fjson8.nytimes.com%2Fpages%2Fscience%2Fearth%2Findex.jsonp>.



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The First Wave is a movement out of hunter-gatherer cultures and into an

agricultural era. People discovered how to farm and produce for themselves. Drastic

change was in place as family structures changed, people learned a new way of

earning, and most importantly people obtained agricultural knowledge which allowed

them to digress from their nomadic lifestyles.

The Second Wave was the progression into the industrial revolution (this refers

to the both the 18th and 19th centuries when several changes in mining,

transportation, and manufacturing were being made causing immense changes in

socioeconomic and cultural conditions). The 18th century splurged with innovation; in

particular the introduction of steam power which primarily utilized coal. The

industrial revolution then furthered in the 1850s with the introduction of steam-

powered ships, railways, and later in the 19th came the internal combustion engine

and electrical power generation. The power of innovation during the 19th century

plagued the agricultural societies of the first place and replaced them with societies

keen on production, consumption, and monetization of everything produced. The

1950s was the opposite of dull. In addition to production and the growth in the

nation’s blue collar (factory workers) population, the white-collar (semi-professional

workers) population boosted even further. In their homes, one began to find the

presence of televisions, a technology that was rapidly being universalized. Finally on

the larger scale of things, was the initiation of the space age. The Soviet Union had

launched the very first earth orbiting Satellite, Sputnik, on October 4th 1957. Though

the launch was a triumph for Russia, it served as a humiliation for the United States,



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as the country was now being perceived as being “technologically behind”. Yet,

Sputnik became United States’ new found impetus to accelerate scientific and

technological innovation. Till that point in time, the government and academia did not

walk hand in hand as the government only felt the need to work with academics

during limited periods of time; like during wars. Through financial funding, an

increased stress was placed on education in the physical sciences while social

sciences weren’t provided with similar financial benefits. Twenty years later, in 1977,

a quarter of the Federal budget was going towards prestigious colleges and sixty five

billion dollars was invested in space. As one can see, the nation was working hard to

be in synch with the rapid changes in their society. Perhaps at the time, in the 18 and

19th centuries, the country was working towards maintaining their global prestige.7

But with our problems today, in the 21st century, we are once again faced with rapid

change (specifically in terms of climate change), but this time we are working towards

maintaining the well being and health of our global human population.

Finally there came a Third Wave; the wave we, the people of the 21st century,

are currently riding. After years of production and capitalism, societies were

becoming dependent on intangibles. The term intangibles refer mostly, in this case, to

knowledge. Though Toffler does mention in his book that the beginning of a

knowledge based industry began a long time ago in the 1960s, society’s awareness

and involvement in it has immensely increased and knowledge is now a product of

7 Utley, Brian. Technology Evangelist. 3 October 2007. April 2010<www.technologyevangelist.com/2007/10/the_sputnik_shock_wa.html>.



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society that is often shared without a price tag. The blogosphere may be the biggest

example of this involvement. The blogosphere is only one example of our increasingly

networked societies. Bloggers are using the internet to do what journalists are paid to

be doing. Toffler explains that the intangible component of property is protection and

as long as property is unprotected, it is not property.8 What this means is that we have

built ourselves a knowledge based economy; one with several lucrative components

because of the inability to price a lot of the intangibles (knowledge) involved.

This movement into the third wave has created a phenomenal transformation

in our way of life. Just through defining the three waves, we see that societies have

always tried to adapt accordingly to the change. When people discovered farming,

they created a system of exchange or trading agricultural produce. Once people began

trading, they developed a monetary system. Once they created a monetary system,

they began developing a more complex institutional structure by driving federal funds

in the right direction. If humans have adapted so efficiently to changes in social

structure over time, why then does it seem that America is spending so much time

growing around an aged stagnant structure of energy production and distribution?

A Time of Centralized Energy

Surprisingly very little has changed on the fundamental level of our current grid

system since the 1950s when Thomas Edison introduced the first commercial power

grid in the United States. Black and white televisions during the 1950s and 1960s in

8 Toffler, Alvin and Heidi Toffler. Revolutionary Wealth. New York: Alfred A. Knopf, 2006., pg384



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America blared with the tiny voice of electric utility provider PG&E’s bubbly cartoon

icon Reddy Killowatt.

I wash and dry your clothes, play your radio, I can eat your coffeepot! I am always there, got lots of power to spare ‘cause I am ReddyKillowatt!9

This melodious uplifting jingle played during an era when power supply was

thought to be bottomless. Kilowatt provided American citizens with their initial

understanding of the fundamentals of the electric grid by emphasizing on use and

consumption. A few decades later of course, the single black out that turned lights off

in Eastern USA and all the way up to Canada for around fifteen million people sparked

America’s first major concern on its electricity supply systems.

The biggest predicament with the existing grid system in the United States is

the fact that it was built in the industrial era: a time when the nation was highly

structured and highly regulated to ensure relatively fair access to all citizens. Though

we do not have a national grid, the monstrosity of what evolved into three

interconnected power grids (see Figure 2) have developed a cloud of complexity in

physics, politics, and academia. The United States started out with over 4000

9 Reddy Kilowatt Commercial . 4 August 2007. 10 April 2010 <www.youtube.com/watch?v=PnZ3mL00>.



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individual isolated electric utilities in the start of the 20th century. Appropriate to the

electricity demand of the time period, these utilities tended to use low-voltage

connections between generating plants in the vicinity and the distribution lines to

customers. Unlike high voltage lines, low-voltage lines are extremely inefficient at

transmitting electricity and as demand began to increase, more so in the post-World

War II era, the infrastructure began to evolve accordingly. Utilities began

interconnecting their transmission systems and using high powered lines along with

transformers to step down voltage to a lower level prior to reaching homes and

offices. 10 Interconnection was a sublime introduction in the grids’ history. Utilities

began building larger power plants by sharing the benefits of larger generators to

serve combined consumer demand at significantly lower costs (a benefit from

increased economies of scale). In order to maintain reliable supplies of energy,

utilities stored extra capacity to hedge their service. Interconnectivity allowed this

stored capacity to be reduced just by reducing the number of duplicative power

plants available. Developments were also being made in the organizational structure

of generating companies soon after the 1965 blackout in the eastern coast of the

United States. Before the blackout, each company maintained its own standards and

policies regarding safety and generation relative to their consumers and demand. Yet,

as interconnection increased, the policy structure had to be homogenized to maintain

10 Step down transformers are required to reduce the primary supply voltage so that the voltage from electrical outlets can be

used by consumers (e.g. step down transformers can be used to decrease a supply voltage of 220 V to a product of 110 V)



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coordination between utilities. This development of interconnected systems was a

sign of an industrializing society delving further into centralization.

Figure 1: Map of Interconnected Power Grids in the USA

Source: EIA

Today, in the 21st century, amidst the continuous growth of the global energy

crisis, a new means of thinking is essential for environmental well being. At the start

of the 21st century, world energy markets were buying and selling about 400

quadrillion BTU of energy every year.11 Around 40 percent of this energy was

produced for non renewable resources such as oil. By looking at data from the

Department of Energy (DOE) which lists the total production and consumption of

energy in the United States, we find that the majority of the domestic energy




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production in 2008 is composed of non renewable energy resources (petroleum and

coal). This is not including the Net Imports of energy which is composed of only non-

renewable energy resources. What this means is that our hurdle into climactic

distress is greatly affected by this kind of energy consumption and will worsen as

consumption is forecasted to increase 14.5 percent by 2035.12Assuming that a

predicted increase in consumption is proportional to increase in demand, the DOE

reassures the United States that fossil fuel prices will “remain relatively low” and in

addition convey that alternative energy resources will not be much competition in the

energy market unless governmental policies are appropriately changed.13 When it

comes down to rapid development in the energy industry, Alvin Toffler says that we

should “expect nothing too exciting”.14

Currently, the Kyoto protocol “calls for greenhouse gas emissions that are 5%

below 1990 levels by 2008 and 2012” 15 But, in fact, though this does represent efforts

of emissions via policy implementation, it is actually much less than what is necessary

to attain an emission-free scenario. Firstly, our communities have become immensely

dependent on CO2 as a by-product of how our civilization is powered. Secondly, large

emission cuts are feared by countries as a large economic burden and precisely why

the United States withdrew from the Kyoto Protocol in 2001. Finally, countries don’t

12 U.S Energy Information Administration. "Annual Energy Outlook Early Release Overview." IndependentStatistics and Analysis. 2010.



15 Martin, Hoffert L. "Advanced Technology Paths to Global Climate Stability: Energy for a Greenhouse Planet."Science AAAS 298 (2002): 981-987.



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feel they have technologies capable of bringing down emissions by an

environmentally desired degree. But, it is still argued that the preeminent way to

reduce CO2 emissions is through modifying the way we produce, store, distribute, and

convert our energy. It is here we begin to discuss the relatively neoteric idea of

decentralized or distributed energy systems16.

16 At an even smaller note, we have what is called “nano-generation”. In India, for example, mobile phones are being built with

small solar panel that allow the phone to charge in a remote location where there is no access to the grid or any other

electricity soure.



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C H A P T E R 2 : A N A L Y Z I N G D I S T R I B U T E D E N E R G Y

G E N E R A T I O N I N P A R A L L E L W I T H C E N T R A L I Z E D

G E N E R A T I O N

Outlining Energy Generation and Distribution

Figure 2. General Picture of how Electricity Reaches Households

Source: EIA

It is important to think about how power grids work in order to identify problem

areas and point to solutions or possible alternatives.

Think about how electricity reaches your house today. Though the grid’s wires

are spider webbed out in the public for everyone to see and produce an essential

intangible product, electricity, most people do not ponder about its presence and how



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it makes their light bulbs glow until the lights turn out and electricity goes missing.

The fundamental structure of the grid can be divided into three functions: generation,

transmission, and distribution. Electricity starts off from a power plant producing

power for residents in your area and flows through transmission lines after which the

electricity is stepped down to a lower voltage and travels within distribution lines to

get to your house. Though there are several different kinds of power plants (e.g.

nuclear, hydroelectric, coal, amongst many others: refer to Appendix A. to see a map

of all the major power plants in the USA), all power plants contain some form of a

spinning electrical generator. This spinning generator can be spun in a multitude of

ways: by gas turbines, diesel engines, water wheels in hydroelectric dams, or most

commonly by a steam turbine (refer to Appendix B). In the latter case, nonrenewable

resources such as coal, oil, and natural gas are used to heat water and produce steam

that ultimately turns the electrical generator which always generates three-phase

alternating current (AC) power. What you receive from the outlet in your house is

single-phase power which is generally 120-volt AC current. Alternating current is

what is naturally produced by electric generators, so it would not make sense to use

an extra step in the process to convert current into DC, or direct current, for

transmission and distribution. In particular, transformers cannot operate unless the

current flowing through the grid system in alternating, and without transformers,

voltage cannot be stepped up and down to appropriate levels for transportation and

consumption which would result in huge efficiency failures. In addition to

transformers, regulator banks are located along the lines (either underground or in



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the air) in order to avoid undervoltage and overvoltage within the lines. This is one of

the challenges faced by the grids: significant amounts of energy cannot be stored, so

the amount of electricity generated must always equal the amount used. If this

balancing act fails, electricity outages can occur.

After miles of traveling, electricity finally reaches the poles near your home. At

this point, electricity is at 7,200 volts. A small transformer drum usually sits at the

top of these poles in order to step down the electricity even further: from 7,200

volts to 240 volts. Regardless of whether these distribution lines are above or below

ground (the latter often found in suburban neighborhoods), the same procedure

occurs from generation sites to load sites, or lighting up your home.17

Defining Distributed Generation

As defined by Ackerman et al., “Distributed generation is an electric power source

connected directly to the distribution network or on the customer site of the

meter”.18 A more official definition set by The International Council on Large

Electrical Systems, says that DG is:19

17 Electric load is the demand or power requirement for any devices that convert electrical energy into any other form of energy

(mechanical, chemical, thermal, light)

18 Martin, Jeremi. Distributed vs. centralized electricity generation: are we witnessing a change of paridigm? . Thesis. Paris, 2009.

19 Nadarajah, Dr. Mithulananthan. "Interconnecting Industial DG to the Main Grid." Asian Institute of Technology, 07 September 2006.



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Not centrally planned;

Not centrally dispatched;

Usually connected to the distribution network;

Smaller than 50-100 MW;

For the purposes of this study, we will also assume that the DG being discussed uses

clean technologies and renewable resources.

Unlike large centralized energy generation systems, DERs do not have to be

connected to the central grid but rather can be remotely located (island DG).

Examples of distributed generation technologies include compressed air or fuel

reciprocating engines, gas turbines, fuel cells, and renewable sources. One example

of island DG using a renewable source would be the implementation of solar panels

on leased rooftops of warehouses, corporate buildings, or residential buildings. A

recent case in Marina Del Rey, California exemplifies the usage of solar DG

technologies. The United States Postal Service (USPS) located in Marina Del Rey has

worn its vintage façade of energy infrastructure since 1776. In effort to follow the

president’s executive order 13123, this federal facility hopes to reduce its energy

consumption by 30%. Thus in 2001, to do this, they chose to implement on-site

solar panel powered generation along with “demand control measures” which helps

them manage the on-site demand, and in turn decrease energy consumption. The

panels on the rooftops of the facility spread over more than 15,000 square feet



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which is enough energy to power 120 or more homes. This is tactfully the amount of

energy being produced using USPS’ untapped assets (rooftops and parking

structures). Additionally, due to the installation, they are able to save 80% of their

usual demand charges on their utility bill. This combination of DG energy

technologies and standards were then mirrored in three different USPS sites in

Oakland, San Francisco, and Sacramento which is predicted to reduce carbon

emissions by over 4000 tons in 25 years. The prestige of a facility such as the United

States Postal Service, which handles 42% of global snail mail, helps promote the

importance of encouraging other facilities, companies, and individuals to do the

same.20

Identifying the Uses of Distributed Energy Resources

The positive results in the Marina Del Rey factually prove the potential for

individual households, institutions, or company buildings to establish similar

efficiencies. However, there is a lot more to understand about the logistics and

technical reasons that make DERs an appealing option.

There are several benefits to using DERs. The following list includes a few of

its several advantages and will be explained in greater detail by looking through the

lens of current day problems we face with energy generation and distribution. As an

exception to the rest of the factors in the list, a more in depth analysis of

20 SunPower. United States Postal Service. 2006. April 2010 <http://us.suncorp.com/business/success-stories/united-states-postal-service.php>.



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environmental issues will be discussed in chapter three instead of in chapter two. In

identifying the problem areas, we find that there is a pressing need to search for and

implement alternative means of production and circulation. I have summarized the

advantages of DG in the following diagram:

Figure 2. Benefits of Distributed Generation (DG)

Source: Kanipakam, 2010



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Analyzing the Issue of power quality

On March 19th 2009, the president of the United States was heard stating the

following:

So we have a choice to make. We can remain one of the world's leading importers of foreign oil, or we can make the investments that would allow us to become the world'sleading exporter of renewable energy.21

Currently, one of the biggest problems with our centralized distribution systems is

its lack of potential to capacitate an increased amount of energy generation from

renewable energy resources. Unfortunately, this setback does not work in favor of

the President’s proposed benefits from the $6.3 billion dollars to be invested in both

state and local efforts in increasing renewable energy use and energy efficiency.22

The technical problems with our grid system are traced back to the fact that that

renewable energy generation is usually located in rural and remote areas in which

there often exist very weak grid infrastructure. Take wind energy resources for

example. The primary technical constraint for connecting wind generated power to

a weak grid system is its effect on voltage-quality. In his research paper, researcher

John Tande from the Norwegian Electric Power Research Institute conveyed the

major concerns with regards to the technical constraints of connecting wind power

to weak grids. Firstly, it affects the steady-state voltage level. Wind turbines are

dependent on the location and speeds of the winds in its area. Thus the output,

21 U.S. Goverment. the White House. 2010. March 2010 <http://www.whitehouse.gov/issues/energy-and-environment>.

22 U.S. Goverment. the White House. 2010. March 2010 <http://www.whitehouse.gov/issues/energy-and-environment>.



26

instead of being steady, is always variable, resulting in voltage fluctuations .

Normally, voltage level is only allowed to flu (Teal)ctuate ±10% of its nominal value

when delivered to customers. This range is not maintained when a larger amount of

power is injected into a weak grid network. As a result, voltage waveform

distortions can be created by wind turbines with the electronic converters.

Figure 3 visually represents the effects of input voltage disruptions on 3-

phase voltage oscillations in the grid: the creation of sags and surges (also referred

to as dips and swells). Disruptions such as these can be really problematic in your

home. Whether the voltage stress is due to low or high voltage, devices in your home

may suffer from function failure, overheating, or erratic operation.

Figure 3. Voltage Disturbance (or Voltage Sag) in one Phase of the Current

Source: Teal, 1999

Voltage regulation is critical, especially for power systems and supplies, in

maintaining a constant voltage over a large span of load conditions. Back in the

1970s most devices were far more sensitive to voltage stress and were powered by



27

Linear Power Supplies which required highly controlled input voltages. These

devices usually did not have any internal voltage regulation and thus was extremely

dependent on external voltage regulation to maintain reliability of power systems.

To cope with this weakness, it became very common to use internal voltage

regulators. With the advance of technology over time, Switched Mode Power Supplies

(SMPS) started taking the place of Linear Power Supplies. SMPS technologies are

able to produce a stable voltage output over a much larger input voltage range.

Today, we find a plentiful amount of voltage regulation being used by industrial

equipment; thus, most areas no longer use or require external voltage regulation.23

All of these technical issues are faced by all forms of renewable energy

generation being connected to the grid systems in place today. In the EIA Energy

Outlook and Modeling Conference in 2007, it was conveyed that to significantly

reduce CO2 emissions, the grid infrastructure must have the reliability and capacity

to “operate with up to 30% intermittent renewable generation”.24 A great way to

achieve this goal is via using a combination of smart grid infrastructure and

decentralized energy systems. Alternatively, island DG can be implemented as it

bypasses distribution lines, in turn, minimizing consequences of ambiguous power

production incurred by most renewable resources.

23 Teal. Voltage. 1999. April 2010 <http://www.teal.com/newsletter/AppsNote02.pdf>.24 U.S. Energy Information Administration. EIA Energy Outlook, Modeling, and Data Conference. 2007. 2010

<http://www.eia.doe.gov/oiaf/aeo/conf/handouts.html>.



28

Analyzing the Issue of Transmission and Distribution

The major technical problem with centralized grids is that it bypasses the costs of

electricity transmission and land space which are greater in traditional centralized

energy generating systems. Historically, large amounts of energy loss through

transmission and distribution were reduced during the shift from using alternating

current to direct current. Unfortunately, transmission and distribution (T&D) losses

are still relatively high in the United States. According to data from the Central

Electricity Authority of India (CEA), T&D losses in the United States are around 6 to

8 percent. These losses are, in fact, significantly larger in developing countries such

as India (33 percent), Nigeria (38 percent) and Nicaragua (30 percent)25. Several

electricity losses are incurred when electricity is flowing from the transmission

network to the distribution network due the voltage conversion required by

network specifications. Aside from the direct effects of line losses, there are also

implicit costs relating to greenhouse gas emissions. This is because fuel is being

used to generate electricity that is not being used by the end consumer: yet another

economic and environmental inefficiency.

25 Sasi, Anil. The Hindu Business Line: Power T&D loss in India among the highest. 2 Dec 2005. 2010<http://thehindubusinessline.com/2005/12/03/stories/2005120303300900>.



29

Figure 4. Production and Transmission Losses

Source: Alexander Van de Putte26, Kanipakam, Pooja

Dr. Alexander Van de Putte, a senior director and operating officer at PFC

Energy international and a Professor at Cambridge University, created a simple

diagram to visually represent the losses incurred during production and transmission

(Figure 4).27 From this diagram, we see that there are three sources of losses in

electricity generation, distribution and end use from a coal fired plant: generation

losses (62%), transmission losses (about 2%), and heat losses (about 34%). Figure 6

is based on a coal fired power plant which does not have a high thermal efficiency

26 The Diagram was digitally re-created by Pooja Kanipakam according to Alexander Van De Putte explanation during a

personal Interview.

27 PFC Energy. Van de Putte, Alexander. <http://www.pfcenergy.com/contentDispatcher.aspx?id=4589>.



30

(38%). CCGT have much higher thermal efficiencies. However, the general picture of

production and T&D losses portrayed by Figure 5 is still applicable in scenarios

involving any type of power plant.

When asked how these losses can be decreased, Dr. Van de Putte responded:

The generation losses can be reduced by using more efficient power plants, suchas Combined Cycle Gas Turbines (CCGT), while the heat losses can be reducedthrough the use of light bulbs which undergo less heating, such as Light EmittingDiode (LED) bulbs and spots.28

Though all of these methods would improve the efficiencies in our system, Dr.Van de

Putte also vouches highly for the use of DG. Distributed generation can be a useful

way to bypass transmission and distribution lines which rids the significant amounts

of energy lost through electricity transportation.

Analyzing the Issue of Reliability

Distance problems are easily addressed by DG as they are able to make use of

a significantly more diverse range of fuels than can be accommodated by traditional

centralized generation. DG allows us to digress away from our dependence of coal,

fuel, and natural gas and opens new avenues of generation using renewable

resources. This is particularly beneficial for rural areas currently suffering from

fickle energy supply. The flexibility of energy supply allows for geographically

convenient energy production to be deployed depending on the local availability of

resources.

28 Personal Interview with Dr.Alexander Van de Putte



31

It is apparent that reliability is inversely related with electricity demand. As

demand increase, plants are more prone to technical hurdles with both the

machinery and the power supply. In large centralized systems, we find that a rather

large amount of extra energy is generated in order to hedge against times of utility

maintenance and other contingencies. Typically, a plant will produce 20 to 30

percent more energy than the annual peak load (or the maximum demand for

energy, usually for short periods of time). 29 Even so, customers of electricity risk

network problems and operational failures of centralized systems. DG is often used

for back up generation; noticeably used in critical locations such as hospitals and

corporate buildings. The characteristics that allow DG to be used for this purpose

(e.g. ability to be isolated from the grid network), make it an ideal candidate to cure

dilemmas surrounding reliability.

Analyzing the Issue of Efficiencies

Circa 1960s, large power production plants were being connected to transmission

networks in order to pool electricity resources that would compensate for each

other’s energy losses, thereby reducing the dependence on each customer’s specific

electricity production facility. At the time, power plants were also benefitting from

economies of scale; marginal gains of energy efficiency increased as the size of the

plant did. However, over time, as population size swelled, and electricity demand

29 McGraw-Hill Dictionary of Scientific and Technical Terms. Electric power generation. Ed. Inc. McGraw-HillCompanies. 2003. 2010 <http:///www.answers.com/topic/electric-power-generation>.



32

increased within power plants, higher temperature and pressure was galvanized

and began wearing out production equipment and machinery. To combat this loss

and increase energy efficiency, cogeneration plants were designed to reuse excess

heat and steam for purposes such as district or neighborhood heating. This type of

merged purpose production plant achieves around 90 percent increase in total

energy efficiency. Contrarily, it increases electricity generation by only around 40

percent. 30 Yet, even with this fact, one can justify using disturbed generation

because the overall benefits of combined cycles are positive, and their byproducts

(heat and steam) cannot easily be transported over long distances. When comparing

Figure 5 to Figure 6, we find that, though the power output remains similar, the

amount of energy waste produced by distributed systems is significantly reduced in

comparison to energy waste produced via conventional systems.

Though large facilities integrated in centralized systems are more capable of

withstanding higher pressures and temperatures of steam used in electricity

generation, it has been shown that the costs of maintenance and operation offset

these benefits.31 In contrary, DG, specifically using clean technologies and renewable

resources, has low pollution costs and high efficiencies.

30 Pearce, Joshua M. and Paul J. Harris. "Reducing greenhouse gas emissions by inducing energy conservation anddistributed generation from elimination of electric utility customer charges." ScienceDirect (2007): 6514-6525.

31 Martin, Jeremi. Distributed vs. centralized electricity generation: are we witnessing a change of paridigm? . Thesis. Paris, 2009.



33

Figure 5. Inefficient: Residential Sector Consumption and Waste Scales

Source: Herig, 2000

Figure 6. Efficient: Residential Sector Consumption with DER

Source: Herig, 2000

Applying DER’s to Individual Households

Though academia, environmentalists, and politicians may have tried to deliver

information on long-term DER benefits through the public, most people still

wonder: What are my short-term benefits? In order to encourage the spread of



34

distributed generation, governments have begun to provide individuals with

financial incentives. Typical distributed power systems follow a Feed-in Tariff (FIT)

scheme in which DERs are provided with long term contracts for the electricity they

produce, guaranteed grid access and energy purchase prices appropriated to the

cost of the renewable energy generation32.

Under FIT schemes, regional or national grid utilities are obligated to buy

renewable energy. The main idea behind FIT schemes are to encourage

governments to adopt renewable energy sources and actively help push the pricing

of renewable energy closer to grid parity, or “the point where [renewable

electricity] rivals or becomes cheaper than conventional nonrenewable

electricity33”. By implementing policies such as long term contracts which subsidizes

the cost of purchasing relatively expensive micro generation systems, national grid

utilities are manufacturing demand for renewable energy. Consumers are also being

convinced that domestic power generation products are great investments with

decent tax-free returns (e.g. around 7-10% in the UK)34. In the United States, the IRS

has listed similar incentives under Section 1122: Residential Energy Efficient

Property Credit . This is a tax credit “will help individual taxpayers pay for qualified

residential alternative energy equipment, such as solar hot water heaters, geothermal

32 Gipe, Paul. Wind-Works.org. 2010 <http://www.wind-works.org/artcles/feed_laws.html>.

33 Vaughan, Adam. Cost of Solar Energy will match fossil fuels by 2013|Environment|gaurdian.co.uk. May 2009.2010 <http://www.gaurdian.co.uk/environment/2009/may/solar-energy-price-fall>. (Hickman)

34 Hickman, Leo. Is it time to generate your own domestic power?|Leo Hickman|Environment|gaurdian.co.uk.8 March 2010. 2010 <http://www.gaurdian.co.uk/environment/blog/2010/mar/01/ask-leo-domestic-microgeneration>.



35

heat pumps and wind turbines. The new law removes some of the previously imposed

maximum amounts and allows for a credit equal to 30 percent of the cost of qualified

property.” Unlike the UK, the USA’s tax incentives for renewable energy use through

using tax credits. Regardless, both countries have developed encouraging financial

incentives to increase the use of micro generation, although the UK did pioneer the

tax-free returns system and perhaps the rest of the world can pick up and follow in

suit.35 (U.S Department of Energy)

A “Smart” way of Wrapping up the Issues

By analyzing just six issues, the advantages of distributed generation technologies

are already very clear. Now, if our society were to use DG technologies more

abundantly, we would come across yet another benefit. Moving from a centralized to

distributed model is to have a self (societal) adaptive system of stabilization of both

demand and supply. During an interview, a futurist and business consultant Mr.

Srihari Boregowda compared this to a simple anecdote from nature:

Coyotes and Foxes have some sense of knowing when the draught season isand their litter size always seems to be proportional to the rainfall as theyhave abundant supply of water.36

Humans must also optimize their resources through similar ways as nature. Until

recently there was very little or no foresight of future power quality or power

35 Note the difference between Tax free (exempt) earnings and Tax credits: Tax exempt earnings (like municipal

bonds) will reduce your taxable income. Tax credits, though reduce income tax liability on a dollar per dollarbasis

36 Personal Interview with Srihari Boregowda



36

outages. The economic losses incurred in blackouts are huge: The Northeast

blackout resulted in $6 billion in regional economic losses.37 Knowing the potential

benefits of DG, countries are developing the “smart grid”. A smart grid is a network

system that allows for efficient and transparent two-way distribution through the

use of digital technology that monitors and controls consumption of electricity.

Through constant real-time metering, distribution management systems increases

insights and communication systems we never had before. This is known as demand

side management. Affordable metering devices such as AwareTM developed by SRI

international are already available for customers to use for remote physical

monitoring. 38

Most people are reluctant to understand the costs listed on their utility bills.

But, with a closer look, they find quite a few delivery costs adding up to the total

amount owed. These costs cover transmission, distribution, transition charges (a

charge that helps cover old costs incurred prior to 1997), and other charges usually

for fund programs financing renewable energy use and energy efficiency.39 All of

these costs are defined as “infrastructure mortgage” and can be up to 33% - 50% of

your utility bill costs.40 With current speculations on increasing energy demand and,

37 U.S Department of Energy. "The Smart grid: An Introduction." 2009.

38 SRI International . Technologies for the "Smart Grid". Washington D.C.: SRI International , 2009.

39 Attorney General Martha Coakley . VIew a Sample Electric Bill . 2010<http://www.mass.gov/?pageID=cagoterminal&L=4&L0=Home&L1=Energy+%26+Utilities&L2=Utility+Billing&L3=Electric+Bills&sid=Cago&b=terminalcontent&f=energy_utilities_sample_electric_bill&csid=Cago>.




37

in turn, increasing construction of power plants and transmission line expansions,

electricity will only get more expensive. For this very reason, the smart grid will be

coupled with smart meters to provide consumers with luxuries such as “day ahead

pricing” or “hour ahead pricing” that help customers plan their electricity usage

according to price patterns, simply by shifting to lower cost times. This is only more

evidence that using DG is especially beneficial on the demand side of energy

network systems.41

The smart grid allows us to make use of the benefits of DG technology, by

being able to withstand the variability of its output. Furthermore the smart grid will

help stabilize our ever-so turbulent distribution systems today. Today, during

peaking hours or days, grid operators must frantically turn on polluting peaker

plants or turn to expensive volatile spot markets to assure a reliable flow of energy

to their customers.42 We must remember that power plants have already been

environmentally and financially inefficient by storing large reserves of energy for

the purposes of volatile peak loads. The smart grid provides grid operators with a

plentiful supply of information on customer real-time electricity demands. This

helps reduce “traditional peak capacity” and decreases environmental harm.


42 Peaker plants or Peaking Power Plants are power plants that only run during high demand. Because of its

inconsistent operation, peaker plants are usually built to function far more inefficiently that base load plants in

order to meet economic needs.



38

C H A P T E R 3 : E N V I R O N M E N T A L I S S U E S W I T H T O D A Y ’ S

E N E R G Y : A N I M P O R T A N T T A N G E N T

Environmental Impact

You now have a better grasp of the current movement in energy infrastructure and

it’s logistical, technical and financial benefits. But, it is important to step back and

think about the bigger victim of our current energy practices: the environment. This

chapter will emphasize that the dramatic changes in global climate requires us to

change how electricity is produced and supplied. I examine two academic papers to

elucidate the degree of our current environmental impact.

I would like to place emphasize on what I believe are our main energy related

environmental issues at hand. The two biggest problems revolving around energy are

the abuse of our earth’s two other prime, precious perishables, water and

atmosphere. Decades of overexploitation have resulted in surface water pollution,

depletion of our aquifers, biodiversity loss and the words that define our decade:

climate change. Our current problem cannot be solved by continuing to place

immediate economic costs first. It is important to look beyond quantifiable cost-

benefit analyses in order to address the long-term problem of environmental and

societal impact. In order to do this, we must look to add non-monetary value to our

most precious resources, water and air.



39

Water: Identifying Future Electricity Tradeoffs in the United States; Based on a

study by Sovacool and Sovacool

As population continues to grow, so does our demand for energy. The total annual

electricity consumption rate is currently 1.3% which indicates that the demand for

electricity may double before the year 2050. Thermoelectric power plants generate

electricity via the combustion of oil, natural gas, biomass and waste. During the

process, there is a large amount of water withdrawal and consumption; water that is

never returned back to the local water table. Future demand for water in several

basins in the United States will exceed the supply and researchers Sovacool et al.

point out specific geographical locations in the USA that will be hit the hardest by the

adverse effects of water scarcity.43

According to the US Geologic Survey, thermoelectric power plants in the USA

use around 47% of the nation’s total freshwater resources. This is significantly more

than the freshwater used for irrigation, public supply, and industrial or domestic

purposes. This means Americans are using three times more water by their electrical

appliances and lights than by turning on their water taps or watering their gardens.

Thermoelectric power plants are often built with closed loop or recirculating cooling

systems that have the potential to withdraw up to 90% less water. But in retrospect,

since a lot of water is required for cleaning and a significant amount is converted into

steam and evaporated into the atmosphere, these power plants use a lot of water that

43 Sovacool, Benjamin K and Kelly E Sovacool. "Identifying Future Electricity-water tradeoffs in theUnited States." 2009.



40

is never returned to its original source. Studies in New York show that increased

withdrawals from water sources such as the Hudson River is very harmful to aquatic

environments, reducing populations of phytoplankton, zooplankton, and fish.44

Projections of increasing populations and life-spans, and migratory trends

show people moving to water scarce regions like California. Thermoelectric sectors

face great pressure to meet the projected increasing demand in thermoelectric

generating capacity resulting from this population growth and shift in demographics.

Thus, new coal, hydroelectric or nuclear plants may be rejected of their operating

permits as a consequence of their impacts on water depletion. Environmentalists are

convinced that several metropolitan areas will face severe water based challenges

and complexities in the United States, four of them being: Houston, Atlanta, Las Vegas,

and New York.45

Of the four areas considered, Houston metropolitan area reports plan on

adding the most amount of thermoelectric capacity (26,989) between years 2000 and

2025. Houston’s main source of drinking water was initially groundwater, but

unfortunately due to rapid depletion of groundwater supply, only around 67% of

drinking water now comes from a ground water source. Thus the city began to

increase its withdrawals from nearby rivers such as: the Trinity, San Leon, and San

Jacinto. The distribution of surface water such as river water during times of water





41

scarcity unfortunately has a negative impact on agriculture sectors downstream, since

water is diverted away to supply power plants and drinking water systems. Historical

evidence from 1991 recalls a total economic loss of $6.5 billion for Texan agriculture

and agriculture-related industries. In effect, there were large losses in crop

production which contributed to job losses, income drops, and food price inflation.46

Another example of a city heavily affected by water problems is Georgia. In late

2007, Georgia faced serious effects of drought which lead to rewriting navigation

control manuals for US Army corps travelling through shallow waters and federal

government interventions with Georgia and its neighboring states (Alabama,

Tennessee and Florida). Georgia depends on surface waters more so than Houston,

Texas. Lake Sydney Lanier, Chattahoochee River, Chestatee River, and a government

owned reservoir are significant providers of drinking water for Atlanta.

Thermoelectric plants in Georgia consume more than half of the state’s surface water

resources. If Atlanta is unable to sustain itself with its current water resources, it will

have to in tap into shared ground water in the center of the state and involve in more

inter-basin water transfers, which will only lead to further deterioration of water

quality and supply. Political issues have already arisen between Georgia and its

neighbors. Georgia believes that holding back more of the water along its basins may

extend water sustenance. Florida and Alabama on the other hand believe that this

would impede the supply they require for agriculture and fisheries out-of-state.




42

Another concern caused by limitations on Georgia’s water supply is a reduction in

Georgian electricity production which provides electricity to out of state plants; such

as Farley Nuclear Plant, Alabama. This tri-state water issue was resolved after eight

lawsuits by annexing part of Tennessee to Georgia, thereby increasing their water

supply.47

Based on these water challenges, electric utility planners and policy makers of

both the state and the nation are developing suitable modifications in current energy

policies. Energy efficiency and responsibility is very important to manage the demand

side of our problem. But, it may be more important to look at policy reform on the

supply side. One of the main solutions is reduction of water use by thermoelectric

plants. For one, improvement can be made in the cooling cycles and new technologies

can be researched to enable these power plants to produce their own water. Water

vapor can be captured by fly gas, or, heat released from the plants can be reused to

desalinate water. Another option to reduce water depletion by thermoelectric power

plants would be to suspend the construction of all plants using once-through cooling

cycles. Finally, introducing more solar panels and wind turbines would help displace

any new thermoelectric plants that could potentially be constructed. Currently the

United States has 2,998,000 MW of wind and solar PV energy potential, but only 1%

of this potential has been used till 2008.




43

If water management trends continue as we see them today, we will soon face

direct water tradeoffs in the United States. At least twenty two metropolitan cities will

be severely affected, though in different magnitudes and natures distinct to their

regions. Climate change is responsible for the amount and frequency of rainfall which

factors into the severity of drought. But while climate change is far more difficult to

manage, water resources are something we can. It is predicted that power plants will

continue to improve in efficiency. Yet, as population size grows, total demand for

electricity grows as well. Thus, the total amount of electricity the plants will have to

generate in the future will be significantly greater. Research by Sovacool et al., does

not account for other fuel cycles needed by thermoelectric plants like coal mines,

natural gas, oil wells, refineries, cooling ponds and storage. Accounting for these fuel

cycles would increase the magnitude of the adverse affects of current water use

trends even more.48

Air: Discussing the Reality of Emission Reduction Required for Stabilizing

Climate Change

Carbon dioxide induced climate change continues to be a problem with difficult

solutions. The United Nations Framework Convention has been trying to emphasize

on reducing “dangerous anthropogenic interference with the climate system” since

48 Sovacool, Benjamin K and Kelly E Sovacool. "Identifying Future Electricity-water tradeoffs in the

United States." 2009.



44

1992.49 Seven years ago, much thought was put towards the development of non-

carbon emitting primary energy sources. This would involve the development of

advanced technology such as sequestration of carbon from fossil fuels, nuclear fission

and fusion, fission-fusion hybrids and even solar power satellites and geoengineering.

In 2002, researchers felt that using technology to make energy production,

distribution and consumption more efficient would be the best way to reduce CO2

emissions. The research required for such developments was unfortunately not

emphasized in all countries: for instance, policies in the United States preferred to

place emphasis on domestic oil production over research in energy technology,

mainly as a result of governmental subsidies. 50

Yet, despite developments in energy technology, the reality of the quantity of

carbon emission reductions required for a healthy climate is a dreary one. How much

must the world reduce carbon emissions to stabilize climate? Research from 2008

found that stable greenhouse gas concentrations did not result in stable global

climate. Experiments were carried out using the Victoria Earth System Climate Model

to calculate the amount of change in emissions required to reduce temperatures to a

desired level. The experiments look at anthropogenic CO2 emissions; which were

simulated electronically along with predictions of temperature patterns using a

49 Martin, Hoffert L. "Advanced Technology Paths to Global Climate Stability: Energy for a GreenhousePlanet." Science AAAS 298 (2002): 981-987.

50 Martin, Hoffert L. "Advanced Technology Paths to Global Climate Stability: Energy for a GreenhousePlanet." Science AAAS 298 (2002): 981-987.



45

centennial scale (over centuries of future time). Over 500 years, natural mechanisms

such as ocean and land carbon sinks help remove up to approximately 65% of

atmospheric carbon, but unfortunately anthropogenic carbon has a very long lifetime.

The remaining 35% of initial emissions are predicted to remain in the atmosphere.

Carbon sinks increase CO2 absorption over time and a decrease in atmospheric CO2

results in reducing thermal radiation being forced back onto earth’s surface. Since

Ocean heat uptake also diminishes, the effects are balanced out. Research by Martin

Hoffert found that stable global climate cannot be made by stabilizing radiative

forcing. Instead it is essential to reduce atmospheric green house gas levels. The

extent to which greenhouse gas emissions must be reduced is near zero or complete

elimination. This is perceivably the only way to completely avoid climate warming

caused by humans.51

Making Sense of It All

Disappointingly, the United States is currently responsible for 25% of the world’s

greenhouse gas production even though it makes up only 4% of the global population.

As Al Gore continuously reminds us, “Each passing day brings yet more evidence that

we are now facing a planetary emergency, a climate crisis that demands immediate

attention.”52 Though the term decentralized systems encompasses a large variety of

51 Matthews, Damon H., and Ken Caldeira. GEOPHYSICAL RESEARCH LETTERS." Stabilizing climaterequires near-zero emission. 2008. 201052 The Global Challenge Institute. What the Experts Say . 2010

<http://www.worldinnovationchallenge.org/what-experts-say>.



46

generation options, the only ones that are truly beneficial are those that use

renewable resources. We hear Al Gore tell us to work towards “living a carbon neutral

life”, yet research by Martin Hoffert conveys that this is only impossible with complete

elimination of carbon emissions today.53 Similarly, just as a customer barely thinks

about the origin of the energy lighting his or her desk lamp, or even less so about

using an online carbon calculator, very few think about the less obvious consequences

our energy use has on a resource as imperative as water. Before thinking about the

monetary costs of DG technology, we must think more about a very obvious cost: the

environment.

53 Gore, Al. 15 Ways to Avert a Climate Crises. 2010 <http://www.tedxgreen.com/2010/02/15/al-gore-on-averting-climate-crisis>.



47

C H A P T E R 4 : C O S T A N A L Y S I S C U T S C O R N E R S

Discussing Distributed Generation Expenses

We now come down to DG’s last hurdle: cost competency. It has been extremely

cumbersome for economists to try and justify the value of DG through cost analysis.

First and foremost are the costs of various DG technologies. Figure 7 represents

results from research carried out by researchers Strachan and Farrell.

Table 1. Cost Comparison between various DG Technologies

Source: Stratchen et Farell, 2009

Based solely on the prices listed above, the total costs (capital, fixed and variable

costs) for DG are less than for combined cycle gas turbines (CCGT) and coal steam

turbines (CST); both of which are centralized generation. However, due to the

inexpensive fuel required by the latter, centralized generation technology still

remains competitive. Thus in order to increase the competitiveness of DG, we must

place monetary value on intangible positive externalities. One example of this would

be to place a price on the ability of DG to use combined cycles to produce both heat



48

and electricity. Another example would be to place a price on the ability of DG to

decrease the detrimental effects we are having on the environment today. In order to

get a clearer picture on how economists today value DG technologies, again

particularly with regards to renewable resources, let’s examine the following case

study. After the case make my stance on evaluating the economic efficiency of DG

technologies using methods alike to or similar to the selected case. The following case

summary looks into a cost benefit analysis of solar photovoltaic technology conducted

by a professor and economist named Severin Borenstien.

CASE: The Unfortunate Situation of Photovoltaic Energy Generation Costs

Solar photovoltaic (solar PV) cells capture sunlight or solar radiation and

directly convert it into electrical energy. Solar PV power is very expensive, but the

worth comes from its advantages in relation to timing and location. Solar PV

produces the most amount of energy during peak times when demand is conveniently

the highest. Dr. Severin Borenstein, a professor of business administration and co-

director of the Energy Institute at UC Berkley found that the degree by which solar PV

power increases its value depends on “the extent to which wholesale prices peak with

demand”; which, in turn, varies depending on the proportion of reserve capacity held

within the system.54 Location is another cost benefit of solar PV power as it usually

on-site and close to users reducing shipping and transmission costs (e.g. line losses) of

54 Borenstein, Severin. The Market Value and Cost of Solar Photovoltaic Electricity Production. WorkingPaper Series. Berkeley: CSEM, 2008.



49

electricity and thereby being more cost efficient. In terms of cost, Bornstein found

through his research that in the current US system, which has a significantly large

reserve capacity, the premium value of solar PV power increases by around 0%-20%.

However, if the system was based more on peaking prices (which are extremely high)

and price-responsive demand and, then you would find that the premium value of

solar PV power would increase by about 30%-50%. This is significantly higher in

comparison to today typical prices.

When looking solely at direct costs of solar PV power, it is widely

acknowledged that PV power is, in fact, significantly more expensive than other

sources of renewable energy and fossil fuels. However, advocates of solar PV panels

argue that the temporal and location-based characteristics of solar PV power are

almost always left out of value calculations. One of the biggest advantages of solar PV

power is that it produces the greatest amount of energy during times of highest

intensity of sunlight and sunshine. Conveniently, these are also the times of highest

demand. According to data collected by Severin Borenstein most of the power

produced from PVs in the US is produced disproportionately during times when

electricity is of highest value (Figure 7).



50

Figure 7. Average Hourly System Demand in relation to Hour of Day

Source: Borenstein, 2008

Based on the simple partial-equilibrium supply and demand model, the demand for

energy fluctuates inversely with the quantity of energy available for consumption.

The electricity value is thus much higher when system demand is high. This high

value is caused by two factors: Firstly, when demand is high, the wholesale price of

electricity supplied by the grid is higher. Secondly, the amount of electricity dissipated

as heat (transmission and distribution losses) increases proportionally to the

increased amount of electricity flowing through the lines. These losses are absorbed

with the use of PV power as it is an on-site generating system.

Advocates of PV power emphasize on the on-site characteristic of PV

generation because of the significant reduction in capital investments that are saved



51

and should be accounted for in energy cost analyses. Conventional centralized power

stations require a large amount of investment for the infrastructure required for

transmitting and distributing electricity. Borenstein feels that any cost analysis that

ignores the transmission and distribution savings and uses average costs of energy

generation is actually undervaluing PV power generation.

The intermittency of power supply is another characteristic that should be

accounted for when valuing solar PV power. The productivity of PV panels varies

throughout the day and seasons depending on sunlight availability. Unfortunately,

system operators cannot foresee the amount of power that will be produced by PV

power until one to two days in advance. Secondly, due to the variability in energy

production, grid stability is also affected, especially during times of rapid changes in

the energy outputs from PV panels.

The supply intermittency is often captured through long-term contracts for

the availability of a certain amount of energy. In addition, fluctuations in energy

production also create short-term price spikes which incent sellers to have more

energy on hand. This is how the intermittency of power supply would capture its

effects in a healthy wholesale market. Borenstein accounts for these effects along with

T&D losses in his empirical analysis of the value of PV produced energy. Yet, in his

valuation, Borenstein found that the market benefit of Installing current PV

technology were significantly smaller than the costs, even after reduced T&D losses

and location benefits into account. In addition, the external or social benefits of

implementing PV technology (reduced GHG emissions) did not compensate for the



52

benefit-cost deficits either. Thus according to Borenstein’s study, under today current

technology and costs of them, investing in photovoltaic technology is not a socially

beneficial investment.55

My stance on Economically Valuing DG and Avenues for Further Studies

I am generally very supportive of Economic Cost Benefit Analysis (ECBA) to assess the

impact of a project on society. However in the case of projects working towards the

health of our environment, I choose to make an exception regardless of my short term

returns. It is common for companies to use Discounted Cash Flow (DCF) methodology

to assess the impact of a project for a particular stakeholder. The premises of both

DCF methods and ECBA methods are similar. Both methods look at cost and benefits

and assess the impact with a particular stakeholder in mind.56 The problem with DCF

is twofold: for one, it does not take societal impact into account; secondly, it considers

the relative short term (around 15 to 20 years). ECBA addresses this problem, the

externalities, as it is concerned much more with society at large. I approve of Dr.

Borenstein’s techniques to incorporate costs of factors that are generally neglected

when calculating the value of DG technologies: benefits and time. However, the

environmental benefits were still not accounted for in the analysis. When thinking

about a sustainable DG project, we must be sure that the project meets both the

shareholder and societal objective (as measured by DCF and ECBA respectively).

55 Borenstein, Severin. The Market Value and Cost of Solar Photovoltaic Electricity Production. Working Paper

Series. Berkeley: CSEM, 2008.

56 The stake holder for DCF is the provider of risk capital, while the stake holder in ECBA was the society.



53

Because this is an area of heavy controversy as many people find it hard to place a

monetary values on intangible benefits such as environmental betterment and

societal happiness or utility.

There are many overall potential cost benefits from using a combination of

third wave technologies such as DG, renewable energy resources and smart

technology. I have summarized the potential cost savings as listed by the DOE in the

following diagram to give us a better idea of how much money we could be saving,

despite the monetary drawbacks as conveyed by studies such as the one by Dr.

Borenstein.



54

Figure 8. Cost Savings with DG, Renewable Energy and Smart Technology

Source: DOE, Kanipakam, Pooja

As a recommendation for further study, it would be interesting to explore the joint

gains between shareholder and societal value from DG technologies implemented in

the near future.



55

C O N C L U S I O N : R E I N T R O D U C I N G “ P R O S U M E R C U L T U R E ”

In the beginnings of the electric power industry in the 20th

century, most

electricity for heating, lighting, cleaning and all other necessities were produced

near the point of consumption. Stepping back even further, we remember the self

sustaining ways of the agricultural-era people. The benefits mentioned in chapter

two along with more benefits integrated and discussed in later chapters of this

thesis make one realize that the best way to move forward in the energy industry is

to move backwards: a return to small scale production.

At present most energy is currently produced in large central power stations.

An increasing demand for electricity by 21st century consumers along with eco-

awareness will lead to an interesting role reversal in our current energy markets. In

all of Toffler’s books, he repeatedly uses the word “prosumer”. Transparent as the

definition may be, a prosumer is a consumer who is also a producer for

themselves.57 Rules such as DOE’s Public Utilities Act (which enforces electric power

utilities to buy back power generated by consumers using renewable electricity

generation) will give birth to a large sum of prosumers.58 In contrary to agricultural-

era-prosumers, contemporary prosumers place an additional interest in production

for other members of society. The advantage here is that a large amount of energy

57 Toffler, Alvin and Heidi Toffler. Revolutionary Wealth. New York: Alfred A. Knopf, 2006.. Revolutionary Wealth. New York: Alfred A. Knopf, 2006.

58 Toffler, Alvin and Heidi Toffler. Revolutionary Wealth. New York: Alfred A. Knopf, 2006.. Revolutionary Wealth. New York: Alfred A. Knopf, 2006., pg. 188



56

will be able to flow backwards from consumers to producers, from cars and homes

working off of fuel-cell technology, for example. Toffler conveys that “two billion

dollars in fuel-cell research and development” has already been invested by large

auto firms. Shai Agassi is the Founder and CEO of Better Place; a company whose

mission is to reduce dependency on fossil fuels by creating a transportation

infrastructure that supports electric cars. Agassi believes that countries around the

world should develop financial incentives to change the minds of consumers, who

may not actively notice their negative impact on the environment. Denmark has

chosen to wean itself off gas powered autos by placing180% tax on gasoline and 0%

tax on zero emission cars; Agassi feels that other countries should do the same.59

The concept of kilowatt-hours on wheels is only one more example of society

becoming increasingly involved in growing a bi-directional system.

The ubiquitous internet that allows you to connect with people also allows us to

connect to devices and systems. Distributed energy systems can thus leverage off the

internet to maximize communication between energy consumers and producers. As

mentioned in the introduction, such technology must be in sync with a smart grid.

During the 2009 Super Bowl games, audiences all over the United States saw GE’s ad

on smart grid technologies with the classic Wizard of Oz song “If I only had a brain”

59 Agassi, Shai. Shai Agassi's bold plan for electric cars. 2010<http://www.ted.com/talks/shai_agassi_on_electric_cars.html>.



57

playing in the background. The ad promotes GEs new priority on ecoimagination.60 I

believe that the misleading aspect of this ad is that it may make consumers believe

that there is a direct correlation between the smart grid and green technology: this

is false. Most renewable resources perform optimally in the day time, thus

electricity used during the night usually comes from polluting coal fired power

plants. This is exactly why this thesis emphasizes the necessity to think about

environmental sustainability and hence provides discourse solely on DG using clean

and green technologies: technologies that are changing in phase with our Natural

Environment.

Contrary to this concept, our aged grids are burdened with rapid demand

growth, yet we see that the United States has built only 668 extra miles of interstate

transmission lines since the year 2000. Research and development in USA’s electric

utilities amount for less than 2% of the total percentage revenue earned. With such

low investment efforts, system constraints will continue to only worsen over time.

“We cannot get trapped in straight line extrapolation. Usually the trend is developed

linearly. That is an extremely naïve way to forecast and rules out big changes that

come and surprise us.” Alvin Toffler said in an interview. His words reflect upon the

fact that we cannot effectively use our current infrastructure as we continue to move

toward higher levels of load demand. We must decentralize.

60Section 10: VAT, payroll tax and environmental taxes. 2008. 2010<http://www.skm.dk/foreign/english/taxindenmark2008/6649/>.



58

None of this is to say that the centralization of power infrastructure at during

the industrial era wasn’t beneficial for society at the time; in fact, it optimized

investment and operation efficiency which produced eminent tangible benefit

(monetary profit). However, change is history’s primary driver. We find that with any

change comes only more change. Famous for his belief that change was the central

element of the universe, an ancient Greek philosopher named Heraclitus said, “You

cannot step in the same river twice, because by the second step it will already have

changed.”61 This doctrine of change is directly applicable to every player and factor in

our current economy and society. Unfortunately, as we see today, a lot of this change

can occur extremely slowly. During a Google Tech Talk in November, 2009, Kristina

Johnson, the Under Secretary of Energy at the US Department of Energy, spoke about

the constraints faced by organizations that play the largest roles in the process of

revitalizing our global energy systems. Three of the biggest constraints being funding,

time, and scale.62 Through climate change, Nature has developed a time constraint we

cannot escape. We must speed up our green movement. Additionally, we must also

think big. A large challenge is permeating the message to consumers to replace and

use renewable energy resources. On the supply side of the scale issue is the fact that

61 Burnet, Josh. Essays on Ancient Greek Philosophy.<http://faculty.evansville.edu/tb2/courses/phil211/burnet/ch3.htm>.

62 Google Tech Talks: Innovation and the Transformation of the Global Energy . 2009.<http://www.youtube.com/watch?v=YYHiN6cWes>.



59

we must also scale our workforce and manufacturing base to meet total load demand

at all times.

To reinstate, the main point of this paper was not to discuss the current

political and economic controversies, but to rather inform the reader of the many

complexities of our energy scene. There is a conflict of interest, a struggle, between

cost benefit and economic health. There is an albatross: the well established

traditional grid system and large industrial era power plants. Yet, as stated in the

introduction, the movement towards a decentralized generation, digitally optimized

consumer-producer communication, and renewable energy usage is inevitable. All we

need to do is ground ourselves in the trinity of holistic thought (Figure 9): think

reliability, think economically and think sustainability.

Figure 9. Creating a Holistic Solution

Source: Kanipakam, Pooja



60



61

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Appendices

A. Map of the Energy Generation Diversity in the USA

B. Steam Turbine

A Holistic Exploration of Energy Decentralization

Documents

Transcript of A Holistic Exploration of Energy Decentralization