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ITC Holdings CEO: Distributed generation will never beat centralized grid

“Distributed generation wasn’t successful in 1900. It wasn’t successful in 1950. It wasn’t successful in 2000. And it won’t be successful in 2050.”

Picture Joe Welch, the founder and CEO of ITC Holdings, the largest transmission-only company in the U.S., as the polar opposite of David Crane. 

In stark contrast to the NRG Energy CEO’s cheery predictions that the central power grid will soon become a “last resort,” Welch, a self-professed “dumb old utility guy” who’s been in the industry for 43 years, scoffs at the idea that distributed generation is the way of the future.  

“Distributed generation wasn’t successful in 1900. It wasn’t successful in 1950. It wasn’t successful in 2000. And it won’t be successful in 2050,” he told DNV GL’s Utility of the Future Leadership Forum last week.

The economics, he explained, simply do not add up. 

“I’m not a big fan of seeing distributed generation playing a big role because  from a cost to the customer, from an efficiency of delivery, from an environmental standpoint  it loses on all counts,” Welch said.

There’s a reason why the electric utility industry is built around central station power, Welch explained. And it’s called diversity of load.

“The closer you get to the load, the more you have to meet exactly the characteristics of the load you’re serving,” he told Utility Dive after the panel.

“If you’re serving my house  I have an air conditioner, refrigerator and self-cleaning oven  I need to have a generator there that absolutely meets the requirements of my house when the self-cleaning oven is cleaning, the air conditioner is kicked on and the refrigerator is running,” Welch said.

Compare that with my neighbor’s house, Welch continued, which has exactly the same equipment, but doesn’t all run at the same time. 

“If we share a generator between the two of us, we’ll find out we need less generation than if each one of us does it alone,” he explained. “Once you get further from the load, you find out that the diversity factor of the load is around five-to-one  which means I can serve five times greater load with one generator than I could if they were located at the customer load.”

“You have to achieve five times the efficiency of a central station plant with a distributed generator to equal the economics of a central station plant,” Welch said. “You can add that all up. You can’t get to the 5:1 efficiency ratio. You just can’t beat it.”

While advocates of distributed generation might argue this is offset by losses and costs sustained through the transmission and distribution system, Welch noted, the customer has to go completely off the grid for that to occur. If consumers install distributed generation but continue to use the utility as back-up, “none of the wires can be saved.”

In such a scenario, the distributed generation asset is “redundant,” Welch said.

If the end goal is to make electricity more affordable for customers, “the best thing you can do is increase the diversity of load,” he explained. Utilities have achieved universal access to affordable and reliable power through economies of scale.

On the grid, “we back up everybody else,” Welch told Utility Dive. Utilities go into the day with 6% reserves  3% spinning and 3% on fast-start  and, when a generator goes offline unexpectedly, the spinning 3% of generators just pick it right back up. The grid continues to seamlessly deliver power, Welch said, and “you don’t even know it happened.”

“You cannot get those economies down at the customer level,” Welch said. “Can you imagine doing this at your home? It’s a full-time job!”

There already are companies who manage energy resources for consumers, Welch indicated. “They’re called utilities.”

Filed Under: Generation Transmission & Distribution
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