Distributed Generation: Electricity Users Invest in Security of Supply

Although most power is produced in large central generation plants, the demand for small “distributed” generation plants has reached unprecedented levels. The International Energy Agency (IEA) published today Distributed Generation in Liberalised Electricity Markets, which analyses this growing phenomenon.

The study finds that the growing need for a secure energy supply is driving power users to invest in distributed generation, using technologies such as small engines or turbines, fuel cells or photovoltaic systems. These technologies already play a key role for applications in which reliability is crucial, as a source of emergency capacity. With distributed generation, customers can not only increase the reliability of their electricity supply, but reduce their energy costs. In some markets, this generation method is actually displacing more costly grid electricity.

Both the economic advantage as well as government policies favouring combined heat and power (CHP) generation, renewable energy and technological development are encouraging investment and should ensure the growth of distributed generation.

The publication focuses on the impact of market liberalisation on distributed generation. It finds that retail market liberalisation is essential if distributed generation is to achieve its full economic potential. Changes to market rules and to environmental regulations are also required for accommodating distributed generation into liberalised electricity markets.

The growing demand for the services provided by distributed generation will act as a gateway for new power generation technologies, such as fuel cells. Distributed Generation in Liberalised Electricity Markets also looks ahead to a future where government policies and further technological developments could lead to a substantial share of electricity being produced by distributed generation. Such a future would require a fundamental redesign of the electricity system: in the technical requirements of networks, in the organisation of electricity markets, and in the roles played by different institutions, particularly distribution utilities.