Avoided Cost Comparison Levelized Cost of Energy ($/MWh)

distributed grid storage. DPS technologies include
rooftop solar installations, “microwind” turbines,
electrochemical fuel-cell systems and fossil fuelbased
combined heat and power (CHP) applications.
They also incorporate distributed energy
storage systems, including advanced batteries and
vehicle-to-grid (V2G) systems.
The broad range of technologies and applications
that can be categorized as DPS means that any
assessment of their collective costs, benefits and
potential--and the appropriate level of policy support
for them--must proceed cautiously.
Advocates of DPS see them as a means of harnessing
local sources of generation to enable commercial,
residential and industrial electricity consumers
to bypass the centralized system of generation
and dispatch and, in many cases to meet their
own electricity needs. They see DPS as having the
potential to stabilize and support the grid by relieving
congestion while deferring or avoiding the
construction of new centralized power plants by
offsetting end-user demand.
They also highlight the ability of many distributed
technologies to increase the efficiency of
power delivery through avoided transmission
and distribution (T&D) losses, reduced capital
expenditures on T&D, the conversion of waste
heat and energy to useful power and the ability to
harness distributed renewable resources through
systems such as rooftop solar installations. Others
stress their potential to decrease electricitysystem
vulnerability through the diversification
of the power supply portfolio and the “islanding”
of generation and distribution. They also see the
potential for DPS technologies to be adopted by
the military to improve the operating efficiency of
bases and expeditionary missions. The most ardent
supporters of DPS see them as holding the
potential to revolutionize the U.S. power sector
through the replacement of the existing power
system with new local markets for electricity
aSSESSIng THE ROlE OF dISTRIBuTEd POwER SySTEmS In THE u.S. POwER SECTOR
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based on networks of small scale generation and
informed consumption.
Critics of DPS highlight the high cost of distributed
sources of power generation relative to centralized
power stations and the danger of subsidies
and incentives for DPS technologies creating
unsustainable industries. They also point out the
negative disruptive effects of attempting to integrate
small-scale generation and storage systems
into a power infrastructure not designed to accommodate
them. In a sector that depends more
than any other on predictability and reliability of
operations, they argue, any attempt to move away
from a highly centralized and controlled system
to a new paradigm based on the aggregation of
numerous independently run assets comes with
enormous direct and indirect costs.
This paper aims to address the role and potential
for DPS by addressing four basic questions:
• What are the current economic, environmental
and energy security costs and
benefits of increased penetration of DPS
relative to the centralized model of power
generation?
• What policies and regulations are currently
in place to promote DPS and how
effective are they?
• What are the potential benefits of increased
penetration of DPS and what are
the barriers to achieving them?
• What, if anything, can and should federal
and state governments do to further encourage
DPS?
The report is divided into four sections:
• Chapter 1 places the evaluation of DPS in
a historical context, provides a definition
and overview of each of the DPS technologies,
and provides a summary of notable
DPS programs and initiatives to date.