This is the simplest of the three to understand, because it is quantifiable. DG/CHP market fundamentals consist of two primary economic drivers – electricity and gas rates, and a supply of promising sites. The industry term for the relationship between gas and electricity prices is ‘spark spread’ and it represents the largest single factor in determining the success of DG. In addition to spark spread, the total market size is limited by the availability of good host sites.
New York is practically without rival when it comes to attractive spark spreads. Electricity rates have been the highest in the country, equalled only by those in California, with average statewide utility revenues for commercial customers in 2001 at US$0.13/kWh, or $0.16/kWh in New York City. Gas has been somewhat more moderate, fluctuating between $5 and $7 per million btu.1 As a general rule, most standard CHP installations are financially viable when electricity rates exceed $0.10/kWh and gas remains close to $6 per million btu.
Also key to market fundamentals is the availability of good host sites. New York City has no shortage, with over 3500 buildings over 10 storeys high – including over 2000 residential towers, 900 office buildings and 200 hotels. A study prepared for the New York Energy Research and Development Authority (NYSERDA) in 2002 found that there exist more than 2000 MW of technical market potential for CHP systems in the New York City area over the next decade, with most systems being under 5 MW in size, in commercial and institutional facilities.2 If achieved, this potential would mean $3-5 billion3 in investment in DG/CHP systems that would provide about 25% of New York City’s average daily peak demand, or roughly the current difference between the City’s summer peak and its in-city generation capacity.4
Whether to spend or save our way out of the problem
This was the eighth major North American outage in seven years, not counting five localized blackouts in New York City and Chicago. These area-wide failures began in 1996 with a blackout of 18 western states, followed by a 1997 ice storm in Quebec that knocked out much of New England, and a 1998 tornado that crippled mid-western power systems.
Then there was the California system failure in 2000, three ice storms in Oklahoma, and the August 2003 blackout. Pundits spread blame widely and call for massive investment in wires, while ignoring the fundamental flaw – the excessive reliance on central generation of electricity.
Power system problems are deeper than repeated transmission failures. Many US generating plants are old (average age 35 years), wasteful (33% delivered efficiency) and dirty (50 times the pollution of the best new decentralized energy plant). Centralized generation, besides requiring ugly, highly visible transmission lines, does not recycle its own by-product heat or extract fuel-free power from industrial waste heat and waste energy. This leaves two starkly contrasting ways to address blackouts: