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Highlights

• Greenhouse gases from the electric power sector can be reduced through more efficient electric generation technologies and by increasing the quantity of distributed generation, which is the generation of electricity at or near to where it will be consumed.
• In 2010, 67.7 percent of the primary energy produced, primarily at centralized electricity power stations, for the residential and commercial building sector was lost during generation and transmission. The majority of the energy loss occurs during the conversion of a fuel into electricity and is in the form of heat loss. Electricity is also lost during transmission and distribution; and on average about 7 percent of the electricity generated in the United States is lost during transmission.
• Increased direct use of natural gas in commercial and residential space heating and cooling, water heating, cooking as well as wet (clothes) cleaning could replace less efficient electricity end use.
• Increased use of higher efficiency distributed generation technology (e.g., natural gas-fueled solid-oxide fuel cells and microturbines) by residential and commercial end-users would result in less primary energy demand and fewer greenhouse gases emissions.
• High upfront capital costs are likely to discourage investment in new generation technologies, especially at a time when low natural gas prices are putting downward pressure on energy bills. Several states, however, provide financial incentives for residential and commercial consumers who install distributed generation systems, and the federal Investment Tax Credit helps to defray capital costs for commercial entities, 30 percent of the cost or up to $3,000/kW.[1]

Introduction

Technological advances in the exploration and production of natural gas have dramatically increased the quantity of economically recoverable reserves in the United States. The U.S. Energy Information Agency (EIA) estimates that there is enough natural gas to last more than 90 years at current consumption rates. The growing supply has put downward pressure on natural gas prices, making it an attractive and affordable energy source. Therefore, it is likely that natural gas consumption will increase in all sectors.

In 2010, residential and commercial buildings used natural gas for nearly 21 percent of their energy requirements (Figure 1). Electricity, created from various energy sources, is 61 percent of the natural gas was used in the residential sector and 39 percent was used in the commercial sector (Figure 1). Out of these totals, natural gas was used for 69 percent of residential and 50 percent of commercial space heating needs (Figure 2 and Figure 3). The other direct uses of natural gas are water heating, cooking, wet cleaning (clothes washing and drying) and space cooling to a much lesser extent. the most used energy form in these sectors.

Lower prices increase the likelihood of even greater use of natural gas for space heating and water heating, displacing home heating oil and some electricity use. Additionally, there will likely be renewed interest in natural gas air conditioning

systems, which are a very small portion of the current market (Figure 3). Future direct use of natural gas in the residential and commercial sector will probably be very different from today, particularly with regard to electricity generation. New distribution and end use generation technologies have the potential to change the way residential and commercial users approach natural gas, and many of these ways will significantly reduce greenhouse gases. Distribution technologies include distributed generation and microgrids. End use technologies include specific natural gas-fueled electricity devices like fuel cells and microturbines.

Distributed Generation

Distributed generation systems (also referred to as self-generation) consist of smaller electricity generating units located at or near where the electricity will be consumed. In the commercial and industrial sectors, where the majority of distributed generation occurs, natural gas-fueled electricity comprised approximately 54 percent of the total net generation in 2010, followed by renewable sources at around 22 percent and coal-fired generation at nearly 13 percent.

Distributed generation has many benefits compared to centralized electricity generation including: end user access to waste heat, increased electric system reliability, reduced peaking power requirements, reduced greenhouse gas emissions and reduced vulnerability to terrorism.[2] These benefits derive, in large part, because distributed generation technologies are better able to utilize more of the energy in the fuel. In 2010, 67.7 percent of the primary energy used for electricity generated for the residential and commercial building sector was lost during generation and transmission.[3] Converting primary energy at a central power station into electricity produces a large quantity of heat energy, which generally is not captured for productive use and is therefore lost. Additional energy is lost as the electricity is delivered from power stations to end users. U.S. annual electricity transmission and distribution losses average about 7 percent of the electricity that is transmitted.[4]

Line losses depend on the following factors: line voltage, line load, weather, altitude and the distance travelled; the higher the line voltage the fewer losses that a line will experience.[5] For example, for a 765kV line, the highest voltage currently used in the bulk transmission system, electrical losses are on the order of 0.6 to 1.1 percent for a 1000 MW line load travelling 100 miles in normal weather.[6] A 345kV line under the same conditions would see a loss on the order of 4.2 percent.[7] Since most local distribution companies operate below 35kV[8], losses as high as 10 to 15 percent are possible in these networks.[9] Not all of these local line losses are the result of transmission physics. Some losses result from meter inaccuracies and energy theft; although it is difficult to quantify these losses, and they are highly variable from region to region. All else equal, higher line loads, higher ambient temperatures or longer distances travelled, all lead to higher line losses.

New Ways to Generate Electricity

Microgrids

One distributed generation technology that is increasingly being examined is natural gas powered microgrids. A microgrid is a small power system composed of one or more generation units that can be operated in conjunction with or independently from the bulk transmission system.[10] Microgrids offer the potential to more readily integrate distributed renewable and non-renewable power with energy storage. Also, since the electricity is generated closer to where it will be used, it becomes feasible to use the waste heat in a productive manner, such as heating water or space in nearby homes and businesses. Microgrids can also be particularly attractive if new or upgraded long-distance transmission cannot be developed in a timely or cost-effective fashion.[11]

Fuel Cells

Source: Nationalgrid 2012

Fuel cells are another distributed generation technology. Natural gas fuel cells use natural gas and air to create electricity and heat through an electrochemical process rather than combustion.[12] First, natural gas is converted into hydrogen gas inside the fuel cell in a process known as reformation. When the hydrogen passes across the anode of the fuel cell stack (Figures 6 and 7), electricity, heat, water and carbon dioxide are created. As long as there is fuel, air and heat, the process continues producing energy.

Although there are many types of fuel cells, the type of fuel cell described here and the type of fuel cell that is generally being commercialized for distributed electricity generation is referred to as a solid oxide fuel cell (SOFC). Natural gas-fueled solid oxide fuel cells operate at temperatures about 1,800°F.[13]

ClearEdge Power, based in Oregon and established in 2003, manufactures refrigerator-sized fuel cell microCHP (micro combined heat and power) units that generate baseload or backup electric power as well as provide useable heat for hot water and/or space heating.[14] These units are scalable to suit the energy requirements of individual homes, apartment buildings, hotels or other commercial businesses, and can be installed indoors or outdoors. These units are up to 90 percent efficient; 50 – 60 percent efficient in natural gas conversion to electricity plus useful heat. Therefore, they require less natural gas to

Figure 6: Fuel Cell Stack

Source: U.S. Department of Energy 2011

Figure 7: How Fuel Cells Work

Source: ClearEdge Powe 2011

Fuel Cell Energy is a Connecticut based manufacturer of fuel cells for commercial, industrial, government and utility operations.[19] The company was an early pioneer in fuel cell research and conducted experiments with many types of fuel cells beginning in the 1970s.[20] Their Direct Fuel Cell (DFC) product range generate between 300kW and 2.8 MW, and are currently delivering power at more than 50 installations around the world with electricity conversion efficiencies up to 47 percent.[21]

Figure 8: Bloom Energy Server Outdoor Installation

Source: Bloom Energy 2012

Source: Clear Edge, Bloom Energy, Fuel Cell Energy

Fuel cell technology has been around for a long time; it has been used by NASA on space projects for nearly 50 years. Commercially available SOFCs are capable of operation at very cold and very warm climates (-4° to 113° C), and they have electrical efficiencies around 50 percent.[22]^,[23] They are quiet devices that require a fairly small footprint to operate, and the pure CO₂ emissions allow for easy sequestration. Despite these benefits, skeptics question the durability and reliability of fuel cells. In the past, materials have corroded within months or a few years. Bloom Energy estimates that its current devices will have a 10-year life as long as the fuel stacks are replaced at least twice. However, due to their recent introduction, there are currently no operational fuel cell systems that have approached this age.[24]

Microturbines

Microturbines are small combustion turbines approximately the size of a refrigerator with outputs up to 500kW.[25] These devices can be fueled by natural gas, hydrogen, propane or diesel. In a cogeneration configuration (Figure 10), the combined thermal electrical efficiency can reach as high as 90 percent.[26] Not unlike fuel cells, these devices are able to achieve much higher efficiencies than central power stations since the electricity is generated close to the source where it will be used, and the heat byproduct can be captured and utilized on site or nearby.

Figure 9: Microturbine Schematic

Source: Electric Power Research Institute 2003

Los Angeles-based Capstone Turbine Corporation is a global market leader in the commercialization of microturbines.[27] The company offers individual units in the range of 30kW to 200kW, although greater quantities of power can be achieved by using multiple units, with electrical efficiencies from 25 to 35 percent. Using the heat produced by a microturbine for water or space heating, space cooling (in conjunction with absorption chillers) and/or process heating or drying, increases the efficiency of these units to 70 to 90 percent.[28] Capstone products service the commercial and industrial sectors, and they have installations all over the world, including universities, a winery and 35-story office tower in New York City.[29]

Flex Energy, also headquartered in California, is Capstone’s main competitor. Its 250kW microturbine offering has an electrical efficiency of 30 percent, and it too provides useful heat energy.[30] Flex Energy microturbines can use low quality and unrefined natural gas, making them capable of generating electricity at landfills and hydraulic fracturing sites.[31]

Micro Turbine Technology (MTT), a company in the Netherlands, is currently developing a 3kW electrical with 15kW thermal microCHP for homes and small businesses, which is expected to be ready for market in late 2012 or early 2013.[32]

At 31 percent average electrical efficiency, much lower than a modern natural gas combined cycle plant or fuel cell (both around 50 percent), microturbines produce 1,290 pounds of CO₂/MWh.[33] However, due to their ability to capture and utilize waste heat on-site, they are capable of achieving thermal electrical efficiencies greater than 80 percent. Additional strengths of microturbines include: compact size, small number of moving parts, generally lower noise than other engines, and long maintenance intervals; weaknesses include parasitic load loss from running a natural gas compressor and loss of power output and efficiency with higher ambient temperatures and elevation.[34] According to U.S. Environmental Protection Agency (EPA) data, at 80°F outdoor air temperature, the microturbines are about 3 percent less efficient than at 50°F outdoor air temperature.[35]

Table 2: Microturbine Summary

Stirling Engines

The WhisperGen, developed in New Zealand, is a microCHP technology based on the Stirling engine. The company is currently headquartered in Spain, where the product is being marketed to European customers. The washing-machine sized microCHP technology is designed to produce hot water and space heating. However, under normal operation the unit will provide around 1kW of electrical power.[36]

Policies to Incentivize Deployment of New Technologies

While there is significant potential for new technologies to use less primary

Source: Capstone, Flex Energy, MTT

Figure 11: WhisperGen MicroCHP

Source: WhisperGen User Manual 2007

Net metering programs serve as an important incentive for consumer investment in on-site energy generation.[40] Net metering allows an electricity meter to turn backwards when the site generates electricity in excess of its demand, enabling customers to receive retail prices for their excess generation. 43 states and the District of Columbia have rules supporting net metering.[41] Eligible generation technologies vary; however, fuel cells using any fuel type often qualify and cogeneration or CHP qualifies to a lesser extent.

Grid interconnection provides a source of backup power for sites using distributed generation. According to the EPA, standard interconnection rules establish clear and uniform processes and technical requirements that apply to utilities within a state.[42] These rules reduce uncertainty and prevent time delays that distributed generation systems can encounter when obtaining approval for electric grid connection.[43] As of April 2012, 34 states had interconnection standards for fuel cells and 29 states had such standards for microturbines.[44]

Standby rates are charges levied by utilities when a distributed generation system experiences a scheduled or emergency outage, and then must rely on power purchased from the grid.[45] These charges are generally composed of an energy charge, which reflects the actual energy provided, and a demand charge, which attempts to recover the costs to the utility of providing capacity to meet the peak demand of the facility.[46] Utilities often argue that demand charges act as a strong incentive for system owners to manage their peak demand.[47] The use of demand charges can discourage use of distributed generation. The likelihood of unplanned outages during times of peak demand is low. When approving demand charges regulators should consider the benefits of distributed generation, including increased system reliability and reduced distribution losses, in addition to utilities’ capacity requirements.[48]

Barriers to Deployment

Consumer unfamiliarity with distributed generation technologies will likely slow their deployment. Also, stable utility bills due to low wholesale electricity prices (a result of lower natural gas prices) and, in the short term, uncertainty around the future growth of business activity will probably not motivate consumers and businesses to consider adopting new technologies.

Consumer awareness of low natural gas prices may be spurring those without access (infrastructure and physical connections) to seek how they can gain access to natural gas. Those with access may be considering the costs of owning, operating and maintaining electrical and natural gas appliances, including natural gas distributed generation technologies.

Fuel cells could be cost competitive if they reach an installed cost of $1,500 or less per kilowatt; but, the current installed, unsubsidized cost is approximately $4,000+ per kilowatt.[49] Nevertheless, an analysis by Seattle City Light, shows that with a combination of California state and federal subsidies as well as low natural gas prices, the Bloom 100kW energy server could make economic sense for California companies with high monthly energy bills.[50]

Figure 12: Bloom Energy Server Cost Depends on Gas Price and Subsidies

Source: Seattle City Light 2010