Distributed Generation and Micro-Grids Thomas E. Hoff and Christy Herig Robert W. Shaw, Jr. Howard J.

Wenger* National Renewable Energy Aret Corporation Pacific Energy Group Laboratory P.O. Box 1299, 32 Valla Ct. 1617 Cole Blvd. Center Harbor, NH 03226 Walnut Creek, CA 94583 Golden, CO 80401 Abstract Distributed generation technologies, such as fuel cells and photovoltaics (PV), can relieve capacity constraints on an electric utility's transmission and distribution system. This has been an active area of research in recent years. Distributed generation technologies can also exploit a market opportunity in the newly emerging regulatory environment: micro-grids. A micro-gird is an elect rically isolated set of generators that supply all of the demand of a group of customers. Micro-grids ar e not burdened with the costs of the existing system (which can result in a cost savings) but they must reliably supply all of the demand without the benefits of a diverse set of loads and generation technologie s (which can result in a cost increase). This paper develops a method to evaluate the technical and econo mic feasibility of micro-grids. It concludes that the use of distributed generation in a micro-grid has the potential to be economically attractive. Introduction Distributed generation technology development has been largely driven by two for ces. Utilities have pushed development as a potential new and effective way to solve transmissi on and distribution system capacity constraints and to improve electric grid operation (Shugar 1990; Weinberg, Iannucci, and Reading 1991; Orans, Woo, and Horii, 1994; Wenger and Hoff, 1995, Hoff 1996; Wenger, Hoff, and Pepper 1996). Customers have also pushed distributed generation development by demanding lower cost and more reliable sources of electricity. Distributed generation manu facturers have responded to and pursued these market forces with partial success. The newly eme rging regulatory environment will create new opportunities that will spur development and lower t he threshold to distributed generation penetration. One potential opportunity is referred to as micro-grids. * Thanks to Karl Knapp of Stanford University for his comments on this paper.

What is a Micro-Grid? A micro-gird is an electrically isolated set of power generators that supply all of the demand of a group of customers. One possible example of a micro-grid is a group of twenty re sidential homes that are totally disconnected from the existing utility grid that have their loads ma naged through load control and their power supplied by twenty 2-kW rooftop photovoltaic (PV) systems and fi ve 10-kW fuel cells. A potential advantage of a micro-grid is that it may have a lower cost than the existing service. This is because the micro-grid is not burdened with the cost of the transmission and distribution system as well as other existing stranded investments. A potential disadvantage of a mi cro-grid is that it has to reliably supply all of the demand without the benefits of a diverse load profile (since there fewer customers) and a diverse generation profile (since there are fewer generators). Objective The objective of this work is to develop an approach to assess the technical and economic feasibility of micro-grids and then to illustrate how to perform a simple analysis. The firs t part of the paper lays out the analytical approach. The second part of the paper demonstrates how to ap ply the approach in a simple situation. There are several key variables that will affect its technical and economic feas ibility of micro-grids. These include: 1) types of customers (e.g., residential, commercial, a combination, etc.) 2) number of customers 3) types of distributed generation technologies (e.g., fuel cells, load control, PV systems, etc.) 4) generation unit size 5) number of generation units 6) level of system reliability1 The goal is to select the variables that maximize profit as a function of the nu mber and types of customers. Approach This section develops an approach to formulate the problem. The approach is laid out in a series of steps. These steps include: estimating peak demand as a function of the number o f customers; estimating firm capacity as a function of the generation unit size, the number o f generation units, and level of system reliability; combining the results to determine the number of ge nerating units versus the number of customers on the system; and then incorporating economic data to selec t the system configuration that maximizes profit.

Estimate Peak Demand The first step is to estimate demand as a function of the number and type of cus tomers on the microgrid. This estimation needs to be performed for each time of the analysis (e.g., hourly if the analysis is performed on an hourly basis). Figure 1 illustrates what the results might look like at a particular point in time. The key characteristic of the figure is that the demand does not increa se at a linear rate as the number of customers increases. This is due to the benefit of diversity (e.g., no t all refrigerators for a 1 It is assumed that the reliability calculation is performed on a time basis, n ot on an energy basis and the reliability measure is a loss of load expectation (LOLE). Thus, a system that has an LOLE of 1 day in 10 years (99.97 percent reliability) means that it is expected that there will be sufficient generation system capacity to satisfy all of the electricity demanded for all but 1 day in 10 years. While the LOLE technique does not differ entiate between small and large capacity shortfalls, it is the most widely used probabilistic approach at the present tim e (Billinton and Allan 1996).

group of residential customers all likely to cycle on an off at the same time; r ather, there will be some load balancing that occurs). Estimate Firm Generation Capacity The second step is to determine how many generating units need to be installed t o obtain a given level of reliability as a function of the size and number of generation units. T his can be determined by evaluating the binomial probability distribution of system capacity (Lyman 1947; Seelye 1947; Billinton and Allan 1996; Hoff and Herig 1997).2 Figure 2 is a sample of what the results might look like. The two key characteristics of the figure are that the firm capacity is initially ze ro but begins to increase at approximately a linear rate as the number of generators increases and that a hig her reliability level translates to a lower firm capacity. Figure 2 needs to be developed for a range of generation unit sizes. Varying the size of the units changes only the magnitude of the firm capacity; t he shape of the curves do not change. Estimate Number of Units versus Number of Customers The third step is to combine the results from Figure 1 and Figure 2. This allows one to determine the reliability level for a range of customers, number of plants, and sizes of p lants. Figure 3 illustrates how many units of a particular size need to be installed to obtain an LOLE of 10 days in 10 years for different numbers of customers. Figure 1. Demand versus the number of customers Figure 2. Firm capacity versus n umber of units Figure 3. Combine Figures 1 and 2. 2 It is assumed that the unit failures are independently distributed.

This process is repeated for all levels of demand throughout the time period und er evaluation. System reliability is the average of the value that is calculated. Figure 4 pres ents the result of doing this for all customer and generator combinations for a given size of generation. This process is repeated for all generation unit sizes. Figure 4. Number of generating units versus number of customers. Determine the Micro-Grid Cost The final step is to determine the cost of the micro-grid. The optimization is t o tradeoff the number of units versus the cost per unit to meet a given level of reliability. One then incorporates customer preferences to determine the optimal level of reliability. This is based on how much customers are willing to pay for power at different reliability levels. The cost will include all capital, O&M, and fuel costs. It will be a function of the number and type of customers, the number, ty pe, and size of the generating units, and the desired system reliability. This cost is then compared to the other alternatives. Two particularly interesting comparisons will be the status quo and distributed generation backed up by the existing grid. Results Finding the optimal micro-grid configuration as outlined in the previous section can be complicated because of the number of variables. A simple case that will begin to enable us t o assess the economic feasibility of micro-grids is to assume that demand is constant. This represents a best case situation for base load distributed generation technologies, such as fuel cells, because the m aximum benefit from a diverse load base is obtained. It is assumed that there is a constant 100 kW loa d (so that the optimal number or type of customers is not considered), that the desired level of system reliability is that demand will exceed supply 1 day in 10 years (so that this is a cost minimization proble m rather than a profit maximization problem), and that the distributed generation technology is fuel ce lls. Required Capacity (Binomial Distribution Approach) System reliability depends on a variety of factors, including the number, size, and forced outage rates of the plants and the level of demand. To illustrate, suppose that we have a 100 kW system with plants that have a 5 percent forced outage rate. Figure 5 presents the results o f a detailed binomial probability distribution analysis of plant capacity. It presents the cumulative probability distribution. It presents three possible system configurations: a system with 5 plants (each plan

t is 20 kW), a system with 25 plants (each plant is 4 kW), and a system with 100 plants (each plant is 1 kW). All three systems have the same average capacity but are quite different in terms of their expected reliability. As

the figure suggests, a system composed of a large number of small plants is more reliable that a system with a small number of large plants. The bottom part of the figure shows that the system with 5 plants has a firm cap acity of 40 kW, the system with 25 plants has a firm capacity of 76 kW, and the system with 100 plan ts has a firm capacity of 86 kW. This suggests (and is confirmed using a detailed binomial distribution analysis) that, in order to get 100 kW of firm capacity, one would need 5 plants that are 50 kW each (20* 100/40), 25 plants that are 5.26 kW each (4*100/76), or 100 plants that are 1.16 kW each (1*100/86). 5 Plants (20 kW) 25 Plants (4 kW) 100 Plants (1 kW) 5 Plants 25 Plants100 Plants0% 25% 50% 75% 100% 0 25 50 75 100 Cumulative ProbabilityFirm Capacity (1 day in 10 years) System Capacity (kW) Figure 5. Probability that system capacity will be greater than or equal to a ce rtain level. Required Capacity (Approximation) An alternative to a detailed binomial probability distribution analysis is to es timate the results of a binomial probability distribution. It can be shown that firm capacity is determi ned by the ratio of system capacity to demand rather than the absolute value of capacity and demand. Equati on (1) is an empirically derived formula based on the detailed binomial distribution. It is u sed to determine the ratio (R) of the capacity of the generation system (the number of generating units tim es their capacity) to the load. The ratio is a function of the number of plants (N), the number of days wh en demand is expected to exceed capacity in a 10 year period (D), and the forced outage rate of each g enerating unit (FOR). BL R =expJA ln 16N where (1)

A = . -0 212 ln16D 120 . + . 2139 16. FOR 6 14 40 - . ln D B 1159 . +01024 ln D =- . 16+ 01689 -0 00512 . ln D ln1FOR 6 . 1. Equation (1) was developed using about 350 data points that were generated using a detailed binomial probability distribution analysis. The inputs to the detailed analysis included: 5 to 1000 plants

(N); reliability levels of 1, 10, and 50 days of outages in a 10 year period (D) ;3 and forced outage rates of 1, 5, 10, and 15 percent. Figure 6 presents the more important parts of the anal ysis. The figure suggests that Equation (1) is a good approximation of the detailed analysis, particularly in the 1 to 1.5 range (this is where the accuracy is most important). 1.00 1.25 1.50 1.75 2.00 Approximation 1.00 1.25 1.50 1.75 2.00 Detailed Binomial Result Figure 6. Binomial analysis versus Equation (1). Plant Cost As suggested above, system reliability increases with the number of generating u nits given that the system capacity remains constant. One disadvantage of having a large number of s mall systems, however, is that the per unit price of each plant ($/kW) is likely to increase a s the plant size decreases. In order to incorporate this effect into the analysis, assume that the price ($/ kW) of each plant, P, decreases by a fixed amount every time the size of the unit is doubled up to a c ertain level; after that, the price is a constant.4 %D + E ln16Size when Size Size P = &L . PL when Size > Size L where (2) DPS - E 16S = ln Size P - P E = LS ln1Size L / Size S . and PS is the price of the small plant size (SizeS) and PL is the price of the l arge plant size (SizeL). Figure 7 illustrates what this curve looks like when the price of a 1 kW unit is $2,000 /kW and the price of a 1,000 kW unit is $1,000/kW. 3 The equation is valid for D greater than or equal to 1.

4 Karl Knapp has pointed out that another approximation that could be used is th at P=D+E/Size. This approaches a constant as the size increases.

0 500 1000 1500 2000 2500 Price ($/kW) 0 500 1000 1500 2000 2500 Price ($/kW) 1 250 500 750 1000 Plant Capacity (kW) Figure 7. Price versus plant capacity. The price as a function of unit size in Equation (2) is converted to the price a s a function of number of plants by dividing the required generation system capacity (the load, L, time s the amount of over capacity, R from Equation (1) required to achieve a given level of reliability) by the number of plants LR * (N). That is, Size = . N Optimal System Design Now that we have a model of how much capacity is required to meet the load at a given reliability level and we have a model of the plant price ($/kW), we can find the number of p lants that minimizes system cost. The capital cost of this system equals unit price of the plant time s the load that must be satisfied (L) times the ratio of system capacity to demand (R). The levelized ca pital cost equals the capital cost times the annual levelizing factor divided by the number of hours p er year plus the O&M cost (including fuel). Y 6 r161+r "PL** Levelized Cost 1$ / kWh = Y #R +CostO&M (3) . ! 161+r -1.

$# 1CF*8760. where r is the discount rate (percent), Y is the system life (years), CF is the capacity factor (percent), 8760 is the number of hours in a year, P is the price from Equation (2), L is th e load, R is ratio of system capacity to load from Equation (1), and CostO&M is the O&M and fuel cost. The mi nimum cost is determined by selecting the optimal number of plants, N. Assume that the discount rate is 10 percent, system life is 20 years, the load i s constant so that the capacity factor is 100 percent, the O&M Cost is $0.04/kWh, the desired reliabili ty level is a loss of load of 1 day in 10 years, the load is 100 kW, the unit's forced outage rate is 5 per cent, a 1 kW plant costs $2,000/kW, and a 1 MW plant costs $1,000/kW. Optimizing Equation (3) for the number of plants suggests that 50 plants that ar e 2.5 kW each will result in a system that has a capacity that is about 20 percent greater than the load and has a levelized cost of $0.071/kWh. For comparison purposes, if one were to install a single 100 kW distributed generation plant and used the utility grid for backup purposes, it would have a levelized cost of

$0.059/kWh. Thus, if it cost more than $0.012/kWh for backup from the grid, the micro-grid alternative would be preferred over that distributed generation alternative. Hybrid Systems The previous section assumed that there is a single technology (fuel cells) and a constant load. In reality, the load will probably not be constant and there can be several types o f plants. In order to illustrate how this might work, suppose that the system is composed of fuel cell s and PV plants. In this case, there is the uncertainty associated with the equipment reliability for the fuel cells and the PV plants. There is also the added uncertainty associated with the fuel source for the PV plants. While fuel availability is an uncertainty for fuel cells as well (e.g., a natural gas line can be accidentally broken while construction crews are working, thus interrupting the gas supply), the var iability of the solar resource makes fuel source uncertainty a much more important issue for PV plants . Figure 8 illustrates how to account for these uncertainties when there are 2 fue l cells, 2 PV plants, and 3 levels of solar resource. Notice that the equipment availability uncertain ties are modeled differently than the fuel source uncertainty. The forced outage rates of the ind ividual plants only affect that particular plant so that the fuel cells and PV plants have a binomial distr ibution. In contrast, the solar resource uncertainty has the same effect on all plants. The figure suggest s that there are 27 different states that the system can be in (3 levels of fuel cells equipment ava ilability, 3 levels of PV plant equipment availability, and 3 levels of solar resource availability). This type of hybrid system with fuel cells and PV plants may be attractive when demand fluctuates and there is a high correlation between the solar resource and demand. Suppose, for example, that the daily demand is 50 kW from midnight to 8 a.m., 100 kW from 8 a.m. to 4 p.m. and 50 kW from 4 p.m. to midnight and that the desired LOLE is 1 day outage in 10 years. It can be shown using a detailed binomial distribution analysis of plant outages that 50 fuel cells each rated at 2.5 kW per plant and a forced outage rate of 5 percent will have a n expected reliability of 1 day in 10 years. Figure 8. Fuel cell and PV plant equipment uncertainties and solar resource unce rtainty.

Alternatively, suppose that the system has 25 fuel cells rated at 2.5 kW per pla nt and a forced outage rate of 5 percent and 25 PV systems rated at 2.5 kW per system and a forc ed outage rate of 1 percent (PV systems are likely to have a much lower forced outage rate from an e quipment perspective due to their simplicity). To properly evaluate the uncertainty associated with f uel availability, one would need to determine the correlation between demand and sunlight. For purpose s of illustration, however, we will assume that distribution of energy at any time between 8 a.m. a nd 4 p.m. is the same as was the actual distribution of energy output of the one-axis tracking PV plan t at Kerman, CA during the 8 peak load days in 19945 and is 0 during all other hours. There are 2,704 p ossible levels of system capacity (26 possible fuel cell capacities * 26 possible PV system capacities * 4 levels of solar resource). This system provides the same level of reliability as the system composed of 50 fuel cells. The total cost of this hybrid system will be about the same as the system with 50 fuel cells if the PV capital cost is $2,500/kW and its O&M costs is $0.010/kWh. Conclusions and Future Research Distributed generation technologies, such as fuel cells and photovoltaics, can r elieve capacity constraints on an electric utility's transmission and distribution system. This has been an active area of research in recent years. Distributed generation technologies can also exploit a market opportunity in the newly emerging regulatory environment: micro-grids. A micro-gird is an elect rically isolated set of generators that supply all of the demand of a group of customers. Micro-grids ar e not burdened with the costs of the existing system (which can result in a cost savings) but must relia bly supply all of the demand without the benefits of a diverse set of loads and generation technologie s (which can result in a cost increase). This paper outlined a method to evaluate the technical and economic feasibility of micro-grids. When applied to a simple situation (a constant load met by fuel cells), results indicated that a micro-grid may be economically attractive. Results also indicated that photovoltaics (PV) c ould be profitably included in the generation mix under the right conditions. Distributed generatio n used in a micro-grid may be more economically attractive than distributed generation that is connecte d to the utility grid. This paper has only begun to assess the potential of micro-grids. There is a bro ad range of future research activities that could be performed. One important task is to determine the situations under which micro-grids are preferred to the other alternatives (i.e., the existing gr id or distributed generation

that is backed up by the existing grid). Some of the tasks to evaluate this issu e are to apply the methodology to realistic load conditions (load is variable and uncertain and the re are different types and numbers of customers), to include other technologies (e.g., load control), and t o include uncertainty, such as demand, fuel prices, and environmental costs, in the analysis. References Billinton, R. and R. A. Allan. 1996. Reliability Evaluation of Power Systems, 2n d edition. New York: Plenum Press. Brooks, B., et. al. 1997. "Integrating Renewable Energy into a Changing Utility Industry: The PV Value Analysis Assessment," in Advances in Solar Energy Volume 11 edited by K. W . Boer. Boulder, Colorado: American Solar Energy Society. Garver, L. L. 1966. "Effective Load Carrying Capability of Generating Units," IE EE Transactions on Power Apparatus and Systems 85(8): 910-919. 5 The distribution, normalized to the plant's maximum output, was: 95% to 100% o utput - 20% chance, 90% to 95% output - 42% chance, 85% to 90% output - 23% chance, 80% to 85% output - 15% cha nce.

Hoff, T. E. 1996. "Identifying Distributed Generation and Demand Side Management Investment Opportunities, " The Energy Journal 17(4): 89-105 Hoff, T. E. 1997. "Using Distributed Resources to Manage Risks Caused by Demand Uncertainty," forthcoming in a special issue of The Energy Journal. Hoff, T. E., and C. Herig. 1997. "Managing Risk Using Renewable Energy Technolog ies," in The Virtual Utility: Accounting, Technology & Competitive Aspects of the Emerging In dustry, edited by S. Awerbuch and A. Preston. Boston: Kluwer Academic Publishers. Knapp, K. 1996. "Small Scale Power and Economic Growth," International Consortiu m for Research on Energy and Environmental Management and Technology (ICREEMT), Newport Beach, CA, Dec. 5-6. Lyman, W. J. 1947. "Calculating Probability of Generating Capacity Outages," Tra nsactions of the American Institute of Electrical Engineers 66: 1471-1477. Orans, R., C. K. Woo, and B. Horii. 1994. Case Study: Targeting Demand-side Manag ement for Electricity Transmission and Distribution Benefits. Managerial and Decision Econo mics 15(2): 169-175. Seelye, H. P. 1947. "Outage Expectancy as a Basis for Generator Reserve," Transa ctions of the American Institute of Electrical Engineers 66: 1483-1488. Shugar, D. S. 1990. Photovoltaics in the Utility Distribution System: The Evaluat ion of System and Distributed Benefits, Proceedings of the 21st IEEE PV Specialists Conference, Kis simmee, Florida, May. Weinberg, C. J., J. J. Iannucci, and M. M. Reading. 1991. "The Distributed Utili ty: Technology, Customer and Public Policy Changes Shaping the Electrical Utility of Tomorrow," Energy Systems and Policy 15(4): 307-322. Wenger, H. J. and T. E Hoff. 1995. The Value of Photovoltaics in the Distributio n System: The Kerman Grid-Support Project, Final Report, Pacific Gas and Electric Company and the U.S . Department of Energy, San Ramon, CA. May. Wenger, H. J., T. E. Hoff, J. Pepper. 1996. Photovoltaic Economics and Markets: The Sacramento Municipal Utility District as a Case Study, Sponsored by Sacramento Municipal Ut ility District, California Energy Commission, and North Carolina Solar Center. September.