Techreport,

Distributed Generation in Liberalised Electricity Markets

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(2002)

Abstract

Early electric power systems consisted of small generation plants located near consumers. Although most power today is produced in large central generation plants, small-scale “distributed” generation is enjoying a renaissance. Power consumers are using distributed generation technologies to ensure very high electrical reliability, to provide capacity in emergencies and, in some cases, to displace costly electricity from the grid. Network owners are using distributed generation to defer investments in network expansion. This book provides a guide to energy policy makers on this growing phenomenon. It surveys the status of distributed generation in selected OECD countries. It looks at the economics of distributed generation versus central generation. It identifies key regulatory barriers. It discusses the environmental and energy security implications of these technologies. Most of the electricity produced in the OECD is generated in large generating stations. These stations produce and transmit electricity through high-voltage transmission systems then, at reduced voltage, transmit it through local distribution systems to consumers. Some electricity is produced by distributed-generation (DG) plants. In contrast with large generating stations, they produce power on a customer’s site or at a local distribution utility, and supply power directly to the local distribution network. DG technologies include engines, small turbines, fuel cells, and photovoltaic systems. Although they represent a small share of the electricity market, distributed-generation technologies already play a key role: for applications in which reliability is crucial, as a source of emergency capacity, and as an alternative to expansion of a local network. In some markets, they are actually displacing more costly grid electricity. Worldwide, more DG capacity was ordered in 2000 than for new nuclear power. Government policies favouring combined heat and power (CHP) generation, and renewable energy and technological development should assure growth of distributed generation. This kind of generation has the potential to alter fundamentally the structure and organisation of our electric power system.Yet market conditions in some countries pose serious challenges to some generators, particularly those producing combined heat and power.

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