Rebuilding Place in the Urban Space

"A community’s physical form, rather than its land uses, is its most intrinsic and enduring characteristic." [Katz, EPA] This blog focuses on place and placemaking and all that makes it work--historic preservation, urban design, transportation, asset-based community development, arts & cultural development, commercial district revitalization, tourism & destination development, and quality of life advocacy--along with doses of civic engagement and good governance watchdogging.

Monday, October 15, 2012

A negative unintended consequence of district energy systems

There has been a lot of talk in DC about the creation of dispersed district energy production systems, where sub-districts of the city have their own electric generation plant, using natural gas as the feedstock.  This provides a variety of environmental benefits, reduces energy loss via transmission, etc.

Among other places, district energy plants will be implemented at The Wharf development in Southwest, independently of what might happen in the Southwest DC "Ecodistrict," which has a generating plant owned by the Federal Government (and to service non-federal buildings, laws will have to be changed), in the redevelopment of the Walter Reed Medical Campus in Upper Northwest DC, which already has a power plant, and in the creation of buildings above I-395, between Massachusetts Avenue NW and E Street NE, in the development called Capitol Crossing.

One of the advantages of the electrical infrastructure system is that the costs of adding and maintaining the infrastructure are spread out amongst all of the utility company's customers.  And typically, commercial customers--those most likely to be motivated and have the means to create their own power generation systems are more profitable to service than residential customers.

But the greater the number of commercial customers extracted from the grid, the smaller the number of customers over which infrastructure costs are amortized, increasing the cost of maintaining the infrastructure on the remaining base of customers.

Not to mention that the loss of commercial customers will lead to rate increases for the remaining customer base, in order to maintain profitability for the local utility.

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4 Comments:

At 3:58 PM, Blogger Niebylski said...

One of the things that Pepco does, when presenting its Rate Cases to the DC Utility Commission is break down the amortization, revenues, and returns for each of its Rate Classes. (Most if not all other utilities with PUC oversite do the same elsewhere too).

In this sense its not quite as clear cut as saying that costs spread out [equally] over all the utility's customers. A district energy system that takes away Commercial type kWh sales from
the Utility will mostly affect other commercial users (in large part because the Decoupled Rate mechanisms that are in place in the District confine the effects of such revenue losses to other users in the same rate class - precisely so that residential customers dont end up footing the bill for Commercial customer energy efficiency measures.)

The Utility will also deal with Stranded Assets in other ways - especially for a customer who is considering onsite power (like a District Energy System). High Standby power and Demand rates will recoup many of the costs of installed equipment that won't be amortized through traditional kWh sales.

One option that exists is for the Utility to own and add the District Energy system to their rate base.

There are a lot of Cost-Benefit analysis of Distributed Generation and Mini-District Energy Systems ( Microgrids are another term that is being used with more frequency).

There are two main reasons we haven't seen more of these smaller scale Distric Energy/Microgrid configurations to date: Electric Interconnection and the Regulatory Rules.

There are an increasing number of technical approaches to the interconnection issue that will mean greater penetration of medium scale Distributed Generation (the kind big enough to power a Dist. Energy system). The Utilities will slowly have to come around to the fact that customers want to produce their own power and control their energy futures - and they wont let the one-way, top-down configuration of the Utility grid get in the way anymore.
Once the regulatory frameworks catch up to the technical realities, then the rules governing the relationship between Utility and Customer (Energy producer/deliver-er/consumer) will need to be rewritten.

Its a complicated and interesting topic, that's for sure!

 
At 5:30 PM, Blogger Richard Layman said...

Thank you so much for providing these detailed comments.

wrt this point:

One option that exists is for the Utility to own and add the District Energy system to their rate base.

since many utility companies, such as Pepco, have decoupled distribution from energy generation, do you see them getting back in the business, at least as it relates to "microgrid" production?

Note that for obvious reasons in DC, WGL, the gas utility, is a big promoter of the creation of these systems.

 
At 9:35 AM, Blogger Niebylski said...

Its certainly conceivable that Pepco (and DisCos elsewhere) could get back into the generation business - probably at small-medium scall and in a targeted fashion.

Some states allow the Distribution Companies to own generation up to a certain aggregate capacity (in CT, I think the figure is 50MW total)...so the precedent is there.

Re: Gas Companies - you're right, they would certainly stand to gain from increased overall sales, and - probably equally importantly from their standpoint - increased *summer* gas sales.

 
At 1:51 AM, Blogger energie said...

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