John F. Paul, RealEnergy
On August 14, 2003, the world found out what many of us in the energy industry have known for some time: our domestic power infrastructure is fragile and inadequate. More than 50 million people in the U.S. and Canada were plunged into darkness when the electricity grid failed that day. With the fabric of our daily life—from the light bulb in the refrigerator to the workings of our global economy—reliant on 24/7 power availability, this event was a startling reality check. By installing ultra-clean micro-power sources right where power is used, we can do much to take back control of our energy future.
During the blackout, at least 100 power generating plants operated by 16 utilities— including nine nuclear plants—were shut down automatically to prevent damage to equipment. As we know now, the blackout halted subways and airports, closed Michigan auto plants, and cost the economy an estimated $6 billion. New York City was without full power for 29 straight hours.
Barely one month later, Hurricane Isabel left behind a path of massive destruction. More than 4.5 million customers who live between coastal North Carolina and Southern Ontario, Canada, lost power during the storm.
Even if we had clear skies and plenty of reliable power plants, getting the power to where we need it still would be a problem. The Electric Power Research Institute says U.S. power demand soared by 30 percent during the past decade, while transmission capacity grew by just 15 percent. On August 15, President Bush said the blackout was a “wake-up call” to fix the nation’s antiquated transmission grid, which, in many areas, is 50 to 100 years old.
As recent events have demonstrated, blackouts are highly unpredictable, and the delicate nature of the transmission grid can spread hurt over large areas. With projected costs of upgrading the existing transmission grid averaging $1 million per mile—and estimates of the total cost somewhere north of $100 billion—reliability will be a long time in coming.
Years ago, we learned that placing computing power right where it was needed, via the PC revolution, was a lot more effective than having centralized data centers. As our country moves forward with plans for a more reliable energy grid, the same concept is taking hold: using smaller, localized power plants distributed where electric power is needed. Small, efficient micro-plants located on-site—or distributed generation (DG)—solves multiple power problems at once.
New technology means new users and new pricing models
While the concept of DG is not new, in recent years smaller systems have become more compact and economical. A natural gas fueled, on-site system can now occupy the unused space of a basement or rooftop, and provide power to an individual building.
During the past two years, small-scale DG—also called on-site generation—has been embraced rapidly by commercial real estate owners across the country. These small units are an excellent fit for commercial real estate users because they reduce dependence on the grid. Also, since most of these systems use clean-burning natural gas, the waste heat is usually captured and used as thermal energy for the building (called combined heat and power, or CHP). According to a U.S Department of Energy study, on-site CHP is up to 65 percent more efficient than power generated in a distant power plant and traveling many miles over the grid, and most users can reduce their energy costs anywhere from 5 to 15 percent.
In the last two years, dozens of major commercial office buildings, hotels, shopping malls and industrial buildings have made the switch to on-site generation, and now are realizing a significant economic benefit. With this increased interest in generating power on-site, there are also a variety of business models now available to companies.
In the past, companies had to invest millions of dollars to install and operate their own DG equipment. Today, there are options available whereby building owners can have third-party companies take all of the investment, technology and operating risks, and simply receive the energy security and savings these DG systems generate.
These third-party options are particularly attractive to the investment community. Many major pension funds and institutional investors such as CalPERS, CalSTRS, General Motors Asset Management and others have decided to place on-site distributed generation systems into properties in their real estate portfolios. The on-site system actually increases the value of their asset, while reducing operating costs.
On-site DG systems can also provide blackout response
An additional benefit of on-site DG systems is that they can generate power when the grid fails. Although not typically thought of as backup power, these on-site power systems can take over most of a building’s critical load during an extended power disruption. And because these plants are run every day and do not rely on limited diesel fuel tanks stored on-premises, these natural gas CHP plants will operate reliably and indefinitely during a blackout. Many property owners and managers are realizing that being able to provide power to their tenants in an outage is a major safety and security issue, as well as a service that some tenants may demand in the future.
It will be a long time before our national energy grid is truly reliable, but the requirement and solution for secure, 24/7 power exists right now. Many forward-thinking property owners have already taken control of their energy future by the installation of on-site distributed generation systems.
John F. Paul is the CEO of RealEnergy Inc., a provider of on-site generation systems. For more information, please visit their Web site at www.realenergy.com.
