Energizing Off-Grid Power
Blackout Raises Interest in Alternatives
To Nation's Stressed Electricity System
By JEFFREY BALL
Staff Reporter of THE WALL STREET JOURNAL
In the aftermath of last week's power outage, which shut businesses in
the Northeast and the Midwest, an idea once viewed as radical is
generating new buzz: What if enough U.S. buildings could generate enough
of their own electricity to collectively ease the load on the nation's
overstretched power grid?
Proponents of this idea, known as "distributed generation ," have been
advocating it for years. Peddling everything from natural-gas-powered
engines to solar cells to "microturbines" to, more recently, fuel cells,
these companies argue the country is kidding itself if it thinks it can
rely exclusively on a decades-old model of electricity production --
huge centralized power plants connected to consumers and companies by an
aging web of transmission lines -- as the U.S. population, and the
average American's electricity use, continues to rise.
Many of the companies that supply the alternative gear are small and
not-yet profitable. But major players including General Motors Corp. and
even some traditional utilities are getting into the
distributed-generation business. Companies including Dow Chemical Co.
and major commercial-real-estate owners are installing
distributed-generation systems in a bid to cut their energy costs.
Typically, the public's interest in distributed generation -- along with
the stock prices of small publicly traded companies in the business --
surges every time the grid goes down, only to subside just as quickly
when the lights come back on. That was the case with the rolling
blackouts in California a few years ago.
Now, in the wake of last week's more-sudden blackout, the biggest in
U.S. history, distributed-generation backers are arguing that their time
has come. "One couldn't ask for a more exciting marketing and
advertising campaign than what happened in the Northeast," said John
Tucker, chief executive of Capstone Turbine Corp., a Chatsworth, Calif.,
manufacturer of small turbines, known as microturbines, that generate
The popular image of distributed generation is of a feisty homeowner
declaring independence from the grid by slapping solar cells on the roof
or damming a stream to generate power. But if distributed generation is
to perceptibly ease the load on the nation's grid, experts say, lots of
big electricity users will have to adopt it: entire residential
communities, big office buildings and major factories.
Today, distributed generation accounts for a small fraction of the
approximately 900,000 megawatts of electrical-generating capacity in the
U.S. People disagree on the exact percentage because they disagree about
what equipment to count. (One megawatt equals 1,000 kilowatts; the
average house uses one to five kilowatts, depending on its size, energy
Diesel-powered generators are a widespread source of backup power in
some houses and many large buildings and hospitals. But they require
fuel tanks that take up valuable space and that need to be refilled.
Installing the units in major cities is getting tougher because of
increasingly stringent government limits on diesel emissions.
Proponents of distributed generation have grander plans. They envision
newer technologies that produce less in the way of smog-causing and
global-warming emissions. They say using these clean technologies to
generate power at the site where it is consumed can be far more
efficient than generating it centrally. That's because sending
electricity through transmission wires wastes energy while producing
electricity on site allows waste heat from the process to be captured
and used -- for instance, to heat the building -- in a process known as
Still, few advocates of distributed generation believe that large
sectors of the economy will become independent of the grid. Rather, they
hope to get a significant number of customers to produce at least some
of their own electricity. That would reduce demand on the grid
particularly during times of peak use, such as on hot summer afternoons
like this past Thursday.
Distributed generation faces big hurdles, which its backers hope the
attention raised by last week's blackout will help them overcome. Among
their druthers: heftier tax breaks to defray the high initial purchase
price of the electric-generating equipment and government help to get
established utilities to make it easier for electricity users to hook
their generating devices to the grid.
There's also a more fundamental challenge: convincing investors, whose
backing the nascent distributed-generation industry needs to help
finance its projects, that this equipment can be profitable over the
long term. "Among the big challenges is going to be financing these
things," said Dan Reicher, a former assistant energy secretary in charge
of energy-efficiency programs under President Clinton and now executive
vice president of one distributed-generation company, Waitsfield,
Vt.-based Northern Power Systems Inc.
Mr. Reicher has helped found a private-equity fund that hopes to raise
$100 million to finance distributed-generation projects. So far, the
fund has raised only about $1 million of seed money, but Mr. Reicher
said his investors believe last week's blackout will provide a big
boost. "A couple of them wrote to say, 'Wow! This could be a break!' "
Mr. Reicher said.
The idea of producing power on-site where it's needed isn't altogether
new. Before centralized utilities with far-flung distribution lines
sprung up early in the 20th century, some large businesses, ranging from
railroads to steel producers, generated their own electricity at their
own facilities. Eventually, the grid offered an economy of scale that
was tough to beat, and most large industrial users hooked up for at
least part of their electricity needs.
Diesel generators -- internal-combustion engines that are hooked to
alternators to crank out electricity -- account for the bulk of
distributed generation in the U.S. today. Caterpillar Inc., the dominant
player in this business, says about 8% of its $20 billion in revenue in
2002 came from selling generators that run on either diesel or, more
recently, cleaner-burning natural gas.
Its generators range from home backup units that crank out about 5
kilowatts and sell for about $10,000 to 15-megawatt units that sell for
upwards of $1 million and can be strung together to form what's
essentially a standalone commercial power plant. In between are
2-megawatt Caterpillar generators -- each of which is fitted into a
truck-trailer size shipping container -- that kept at least critical
services running during last week's blackout in much of New York's
financial district and at buildings across the country.
Even before last week's blackout, some big companies already were
showing increased interest in generating power everyday on their own.
Equity Office Properties Trust, which owns more than 700 office
buildings nationwide, is installing distributed-generation equipment at
12 buildings in and around Boston, Chicago, Los Angeles, New York, San
Diego and San Francisco, three of which involve Northern Power. The
devices use natural gas to generate 20% to 30% of a building's power
Each of these systems costs $1 million to $5 million. But Equity
believes it can recover the cost over time by reducing the amount of
electricity it has to buy from the grid during times of peak demand, the
hours during which office buildings are busiest and power usually costs
the most, says Thomas W. Smith, vice president of energy operations for
In addition, Equity plans to use the machines as marketing tools to lure
tenants such as financial-services firms that want emergency backup
power for their critical systems. Since last week's blackout, several
Equity tenants have inquired about hooking up to the new
Meanwhile, General Motors and Dow Chemical are involved in a
cutting-edge project. The companies announced in May what they said is
the biggest deal to date to install fuel cells, devices that turn
hydrogen into electricity.
Dow will buy GM fuel cells to use at Dow Chemical's largest factory, in
Freeport, Texas. Each fuel cell will sit on a truck trailer and provide
75 kilowatts of power. Dow Chemical will take hydrogen that is a
byproduct of its chemical-production process and run it through the fuel
cells to produce electricity to help run the plant.
The goal over several years is for GM to provide Dow with enough fuel
cells to generate 35 megawatts of electricity, a small fraction of the
Texas complex's total requirement. For Dow Chemical, whose factory
already makes some of its own electricity from natural gas, the benefit
will be reduced electricity costs, since Dow will be making power from
what is essentially waste hydrogen.
For GM, the objective is to help the world's largest auto maker figure
out how to reduce the cost of manufacturing fuel cells, which GM says it
ultimately wants to crank out in large numbers to power automobiles.
Even some big electric utilities are getting into distributed
generation. Some utilities view these emerging technologies as a threat
to their established businesses. But DTE Energy, whose territory covers
southeastern Michigan and was darkened by the blackout, has been
investing for eight years in on-site generating equipment ranging from
natural-gas-powered engines to turbinesto fuel cells, said Robert
Buckler, chief executive of DTE Energy Technologies, the DTE unit
involved in distributed generation.
"We decided that we thought it was going to be a big enough item that we
were going to participate in it as opposed to fight it," he said.
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