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Microturbines and Distributed Generation: Implications for the Electricity Marketplace

PFF Roundtable
Woodland Hills, California

Progress On Point
Periodic Commentaries on the Policy Debate
Release 4.8 n Decmber 1997

Cost-effective microturbine generators are no longer in the research and development stage, but are here now, as was demonstrated during PFF's roundtable on distributed generation, which took place in Woodland Hills, California on December 5. As the first droplets of El Niño's wrath began to fall on a California parking lot, one of Capstone Turbine's young engineers flipped the switch on ten 30 kW microturbine generators, demonstrating the possible future of the electricity industry. The mild whirring sound emanating from the casing seemed to defy the fact that ten turbines were spinning at 96,000 rpm's inside. The Capstone tour was the highlight of the second in a series of PFF roundtables devoted to electricity policy. More than 20 industry experts (see attached list) joined us for demonstrations of the Capstone microturbine and a flywheel produced by Active Power (a Texas-based firm), as well as a roundtable discussion on the subject of distributed generation. The discussion was moderated by PFF Senior Fellow Tom Lenard, and began with presentations by Capstone's President Paul Craig, George Minter of Pacific Enterprises, Todd O'Conner of SoCal Edison and Eric Wong of the California Alliance for Distributed Energy Resources and the California Energy Commission.


The Progress & Freedom Foundation's work on the electricity industry has highlighted the significant policy implications of new generation technologies that are now starting to come onto the market. In particular, the development of cost-effective, small-scale gas turbines and other "distributed generation" products has enormous implications for the competitive structure of the electricity marketplace. By making the wires "contestable," these new developments allow us to think more seriously about deregulating the transmission, as well as the generation, component of the industry.


At the heart of a microturbine generator is a single rotating shaft. Capstone's microturbines spin this rod on air bearings at up to 96,000 revolutions per minute; it is literally in flight inside the machine, powered by the combustion of natural gas at approximately 1100º F. Currently, each Capstone unit operates at about 30-percent efficiency and supplies up to 30 kW of capacity, enough to power a single convenience store or several average U.S. residences. The company is also working on a 45 kW model.

Assuming natural gas prices of $3 per thousand cubic feet, the Capstone microturbine can generate electricity at 4.5 cents per kilowatt hour (kWh), without taking into account the value of the recovered exhaust heat which can lower effective costs further. In 1996, the average price paid per kWh in the U.S. was 6.9 cents.

The Capstone generator is also noteworthy for its ability to use not only conventional fuels, but flare gases and biomass products that are often simply burned off. Moreover, its nitrogen-oxide and carbon-dioxide emissions are minimal. In addition to its use as a source of stationary power, the technology can be used as a source of low-emissions vehicular power (a microturbine is planted inside a Mercedes at one of Capstone's facilities).

Roundtable participants also witnessed a demonstration of a new flywheel developed by Active Power, Inc. Flywheels store kinetic energy in a spinning mass and then use that energy for short bursts of "ride-through" power to meet sudden interruptions from the main power supply. Currently, commercial customers that demand high quality energy--such as processor chip manufacturers, for whom a power supply hiccup might result in the loss of hundreds of thousands of dollars in wafers--use packs of lead-acid batteries for a backup power supply. The latest flywheel models, such as the one Active Power demonstrated, are cost-effective, environmentally safe, and compact. They can be used in conjunction with microturbines, to increase the quality of the power supply.


Roundtable participants observed that restructuring has accelerated the pace of development of distributed generation technologies, including microturbines. However, uncertainties concerning the timing, extent and ultimate form of deregulation have induced would-be customers to postpone many investment decisions.

In California (and other states), there is the additional issue of the nonbypassable Competitive Transition Charge (CTC). The CTC obscures the benefits of using microturbines for customers who will be required to pay these charges, regardless of how intensively they use the grid. A number of participants suggested that the CTC should be reformed to avoid creating impediments to the adoption of new technologies.

Participants also noted the negative consequences, for both economic efficiency and distributed generation, of the formation of regional transmission monopolies, with prices often unrelated to marginal transmission costs.

Finally, the deployment of microturbines is further complicated by inspectors who are unfamiliar with the new products and the absence of up-to-date installation standards. The prospect of engaging in a county-by-county education process could slow the movement to more advanced technologies.


There was general agreement that the market for microturbines will be substantial. First, utility companies will use them to alleviate peak load demands and improve reliability while deferring construction of new conventional generation plants, transmission towers and distribution lines. Second, industrial, commercial, and even residential consumers can use microturines to self-generate, although it was observed that the advantages of microturbines become less certain as competition puts downward pressure on electricity prices.

The international demand will also be substantial, especially in parts of the world that do not yet have an electricity infrastructure. Just as telecommunications technology is arriving in some Third World countries via cellular phones--forever skipping the border-to-border construction of elevated telephone lines-micro-turbines may provide developing nations with affordable electricity without requiring investment in centralized generating plants and an elaborate transmission and distribution network.



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