Projected Costs of Generating Electricity - OECD Nuclear Energy ...

Chapter 6
Other Generation Technologies
This chapter summarises the information collected and the results obtained for power plants relying on
various technologies and energy sources besides the plant types covered in Chapters 3 to 5. Cost estimates
calculated for those plants are presented below in five sections on distributed generation (3 plants), waste
incineration and landfill gas (3 plants), combustible renewable (2 plants), geothermal (1 plant) and oil
(1 plant). In the light of the limited number of data for each technology or energy source, the costs should
be considered as indicative only and not necessarily representative of average trends.
Distributed generation
Distributed generation refers to the production of electric power at an electricity consumer’s site or at
a local distribution utility substation and the supply of that power directly to the on-site consumers or to
other consumers through a distribution network. Distributed generation technologies include electric
power generation by engines, small turbines, fuel cells and photovoltaic systems and other small renewable
generation technologies such as small hydro or small wind systems. Although some small wind, solar
and other power plants for which cost data were reported for the present study could be considered as
distributed generation, only the United States chose to categorise some power plants (3 gas-fuelled fuel
cells) in the category distributed generation.
Owing to the small number of distributed generation plants included in the present study, it is not
possible to carry out a robust analysis of their specific economic characteristics. A comprehensive review
of the economic benefits and drawbacks of distributed generation may be found in the IEA publication
Distributed Generation in Liberalised Electricity Markets (IEA, 2002). Key issues on this topic are
addressed briefly below, drawing from the IEA publication.
Distributed generation has some economic advantages over power from the high-voltage grid. It avoids
transmission costs and reduces distribution costs, reduces distribution losses, enhances reliability of
supply and adds flexibility to the overall generation system. Conventional cost assessments of generating
options tend to understate the value of flexibility to the owner of a generating plant. Many distributed
generation technologies are flexible in operation, size, and expandability. A distributed generator can
respond to price incentives reflected in fluctuating fuel and electricity prices. When fuel prices are high
and electricity prices are low, the distributed generator purchases from the electricity market. In the
opposite situation, the producer supplies to the market. In other words, the availability of on-site power is
a physical hedge for the customer against volatility in electricity prices. Thus, distributed generation is
generally more economical for peak periods than for continuous use.
Chapter
6
Market liberalisation greatly increases the value of flexibility of the distributed generator. In a liberalised
market he can sell his excess production to any consumer in the same distribution network. That
ability may allow the distributed generator to justify the purchase of a larger generating plant, which can
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