The market for distributed generation at the industrial scale is dominated by energy supply concepts that predate the utility industry, where industrial users choose to generate their own energy requirements rather than rely on outside supply. At the same time, the industrial distributed generation (IDG) market landscape is beginning to include new technologies, systems, business models, and service providers that are altering how traditional transmission and distribution systems are controlled and operated.

Although incentives have facilitated growth in some sectors of this market, the state of the economy, uncertainties in natural gas prices, and diminished access to capital are deterrents to growth, particularly for combined heat and power (CHP) installations. At the same time, third party providers are creating a new class of large scale distributed generation by aggregating much smaller units into industrial sized blocks of power, selling energy, capacity and ancillary services into wholesale markets or in bilateral contracts with utilities, or incorporating them into energy management systems that combine generation with load curtailment.

This Pike Research report examines industrial distributed generation in both the traditional vertically integrated regulatory framework, as well as in the new grid-level open wholesale markets. Typical systems, business cases, and key participants are discussed, dividing the market into the mature sector of combined heat and power; the evolving sectors of aggregated generation and renewable IDG; and the nascent sectors of biomass/biogas and data center CHP. Capacity forecasts are provided through 2016 under three economic growth scenarios, and company profiles are provided for key industry players.

Key Questions Addressed:

• The Federal Energy Regulatory Commission – agent of market reform?
• In what ways are large industrial firms incorporating MW scale renewable distributed generation?
• How can end users take underutilized generation assets and use them as a source of additional revenue streams?
• Which distributed generation market sectors have installed capacities that are still small fractions of their overall technical potential?
• Where are the ideal regional markets for industrial scale distributed generation?

Who needs this report?

• Industrial power users
• Data center operators
• Real estate developers
• Risk mitigation and commodity hedging service providers
• Utilities
• Government agencies
• Investor community

Table of Contents

1.     Executive Summary

1.1   Industrial-Scale Distributed Generation

1.2   An Evolving Definition

1.3   Regulatory Frameworks and the Emergence of Demand Response

1.4   Market Participants

1.5   Evolving and Nascent Markets Addressed in the Report

1.6   Scenario Forecasting and the Economy

1.7   Drivers

1.8   Market Forecasts 2011–2016

1.8.1     Current Installed Capacity

1.8.2     IDG Market Forecasts

2.    Market Issues

2.1   Distributed Generation at the Industrial Scale

2.1.1     IDG – A Mix of Mature and Evolving Markets

2.1.1.1     The Business Cases for IDG

2.1.1.1.1.    End-user Energy Supply

2.1.1.1.2.    Peak Electricity Generation

2.1.1.1.3.    Energy Attributes

2.1.1.1.4.    Ancillary Services

2.1.1.2     Unrestructured Markets

2.1.1.3     Wholesale, Restructured Markets

2.1.1.3.1.    North American ISOs/RTOs

2.1.1.3.2.    ISO/RTO Wholesale Markets

2.1.2     Market Participants

2.1.2.1     End-users

2.1.2.2     Curtailment Service Providers

2.1.2.3     Third-Party Build-Own-Operate-Maintain

2.1.2.4     Utilities

2.2   IDG Technologies by Application

2.2.1     End-user Energy Supply

2.2.1.1     Continuous Duty

2.2.1.1.1.    CHP

2.2.1.1.2.    Other Continuous Duty Technologies

2.2.2     Peaking electricity generation

2.2.3     Ancillary Services

2.2.3.1     Regulation

2.2.3.2     Spinning and Supplemental Reserves

2.2.3.3     Emergency Services/Reserves

2.2.3.4     Voltage Support/Reactive Power

2.2.4     Other Benefits

2.3   Market Segmentation

2.3.1     U.S. Installed Capacity IDG by Technology

2.3.1.1     Single Units

2.3.1.1.1.    Combined Heating and/or Cooling and Power

2.3.1.1.2.    Fuel Cells

2.3.1.1.3.    Solar

2.3.1.2     Units Aggregated to at least 1 MW capacity

2.3.2     Global Installed Capacity

2.4   IDG Growth Drivers

2.4.1     Regulatory Incentives

2.4.1.1     Feed-in Tariffs

2.4.1.2     Net Metering Policies

2.4.1.3     Federal Tax Incentives

2.4.1.4     State Incentives

2.4.1.5     Utility Renewable Portfolio Standards

2.4.1.6     Renewable Energy Certificates

2.4.1.7     FERC Reforms and Wholesale Market Evolution

2.4.2     Implementation Issues/Challenges

2.4.2.1     CHP and Natural Gas Price Uncertainty

2.4.2.2     REC Value Decline as RPS Goals are Achie

2.4.2.3     Regulatory Framework and Costs Differ From State to State

2.4.2.4     Emissions Limitations and Air Permits

2.4.2.5     Insufficient Scale for Project Financing

3.     Technology Issues

3.1   IDG Applications/Value Propositions Attractive to Each Participant

3.1.1     End-user

3.1.1.1     Energy Savings

3.1.1.2     Additional Revenue Streams in Unbundled Markets

3.1.1.3     Power Quality and Reliability

3.1.2     Utility

3.1.2.1.1.    Bulk Power Supply

3.1.2.1.2.    Peaking

3.1.2.1.3.    Transmission Congestion Costs

3.1.2.1.4.    Transmission and Distribution Infrastruction

3.1.3     Grid Operator

3.1.3.1     Capacity value

3.1.3.2     Reserves and regulation

3.1.3.3     Reactive Power Supply and Voltage Control

3.1.4     Third-Party Providers

3.1.4.1     Demand Response Providers – Aggregating Generation

3.1.4.2     Build-Own-Operate Service Providers

3.2   IDG Applications Cost Structures and Hurdle Rates

3.2.1     CHP

3.2.2     Fuel Cells

3.3   Strengths and Weaknesses of IDG Technologies

3.4   Representative Case Studies

3.4.1     Utility-Owned IDG

3.4.1.1     Distribution Infrastructure

3.4.1.2     CHP

3.4.2     Third-Party IDG

3.4.2.1     Aggregated Resources – Viridity/EDSA

3.4.2.2     Aggregated Back-Up Generators – EnerNOC

3.4.2.3     Solar IDG

3.4.3     Build-Own-Operate – Aggregate

3.4.4     CHP Build-Own-Operate

3.4.4.1     Fuel Cells

3.4.4.2     Opportunity Fuels

3.4.5     End-user

3.4.5.1     CHP

3.4.5.2     Solar IDG

3.4.5.3     Fuel Cell Datacenter CHP

4.     Key Industry Players

4.1   DG Prime Mover Manufacturers

4.1.1     Bloom Energy

4.1.2     2G-CENERGY

4.1.3     Caterpillar

4.1.4     Cummins

4.1.5     FuelCell Energy

4.1.6     GE Power

4.1.7     MWM, GmbH

4.1.8     UTC Power

4.2   Top Third-Party Energy Service Providers

4.2.1     Demand Response/Distributed Energy Resource Aggregators

4.2.1.1     Comverge

4.2.1.2     Energy Curtailment Specialists

4.2.1.3     EnerNOC

4.2.1.4     Johnson Controls (EnergyConnect)

4.2.1.5     Viridity Energy

4.2.2     Build-Own-Operate

4.2.2.1     Ameresco

4.2.2.2     Bloom Electrons

4.2.2.3     Logan Energy

4.2.2.4     Recurrent Energy

4.2.2.5     UTC Power

5.     Market Forecasts

5.1   U.S. IDG Market

5.1.1     Established IDG Market

5.1.2     Emerging IDG Market

5.1.3     Nascent IDG Market

5.2   Economic Growth Assumptions

5.2.1     Established Market Capacity Forecast

5.2.2     Emerging Market Capacity Forecast

5.2.2.1     Fuel Cells and Renewables

5.2.2.2     Aggregated Generation

5.2.3     Nascent Market Capacity Forecast

5.2.3.1     Opportunity Fuels

5.2.3.2     Data Centers

5.3   U.S. IDG Market – Capacity Growth Forecast

6.      Company Directory
7.      Acronym and Abbreviation List
8.      Table of Contents
9.      Table of Charts and Figures
10.    Scope of Study, Sources and Methodology, Notes

List of Charts and Figures

• IDG Installed Capacity by Sector, United States: 2011
• IDG Market by Growth Scenario, United States: 2011-2016
• Average Hourly Demand, Pennsylvania/New Jersey/Maryland: June 23, 2011
• CHP and Total Electricity Generation, United States: 1997 – 2010
• CHP Installed Capacity, World Markets: 2007
• CHP Installed Capacity as a Percent of Total Electricity Generation, World Markets: 2005
• Industrial CHP Capacity, United States: 2011-2016
• Stationary Fuel Cell and Industrial Scale Renewable Generation Capacity, United States: 2011-2016
• Aggregated Distributed Generation Capacity, United States: 2011-2016
• Technical Market Potential, Practical Opportunity Fuels by Fuel Type
• Opportunity Fuels Distributed Generation Market, United States: 2011-2016
• Data Center IDG Market, United States: 2011-2016
• IDG Market by Growth Scenario, United States: 2011-2016
• IDG Market Share, Fits and Starts Scenario, United States: 2016
• IDG Market Share, Slow Growth Scenario, United States: 2016
• IDG Market Share, Optimism Scenario, United States: 2016
• IDG Market Geography
• PJM Price Contours
• North American Wholesale Electricity Markets
• Remaining Technical CHP Potential Market
• Optimum Capacities, CHP Technologies
• Relative Market Positions of CHP Prime Movers
• U.S. CHP Capacity by Application, Prime Mover, and Fuel
• State Net Metering Programs for CHP
• State Net Metering Programs Renewable Generation, 1 MW or Greater
• States with RPS Requirements or Goals
• Projected Sources of Natural Gas to Meet Projected North American Demand
• Shale gas offsets declines in other U.S. supply to meet consumption growth and lower import need, U.S. dry gas production (trillion cubic feet per year)
• NYMEX Natural Gas 12-Month Average Future Prices: April 1990-June 2010
• California IOUs Forecasted RPS Generation: Projected Out to 2020
• Ozone Non-Attainment Areas
• Voltage Sag and Outage Events as a Function of Voltage
• Recovery Period After 1-Second Outage
• Hypothetical Dispatching of Generation
• Transmission Congestion Costs, Massachusetts
• States Where DG is Reviewed as a T&D Upgrading Option
• California Regulation and Reserve Auxiliary Service Prices
• Aggregated Generation Permitting by State
• CHP Economic Viability, State “Spark Spreads”, 2010 Average Industrial Rates
• Hypothetical Payback Period, Simple CHP Turbine System, Connecticut Rates
• Annual CHP Capacity Additions: 2000 to 2010/2011

List of Tables

• IDG Installed Capacity Share by Sector, United States: 2011
• IDG Market by Growth Scenario, United States: 2011-2016
• Wholesale Market Functions
• U.S. Wholesale Markets
• Market Opportunities, IDG Technologies
• Definitions of Ancillary Services and Operating Parameters
• Electric System Reliability Metrics, United States
• Average Cost of Downtime, Various Industries
• Renewable Electricity Production Tax Credit Rates by Resource
• NAA Pollutant Maximum Emissions
• Average Hourly Demand, Pennsylvania/New Jersey/Maryland: June 23, 2011
• CHP versus Total Electricity Generation, United States: 1997-2010
• Installed CHP Capacity, World Markets: 2007
• Installed CHP Capacity as a Percent of Total Electricity Generation, World Markets: 2005
• Cost of Power Quality and Reliability Events per Year
• Transmission and Distribution Infrastructure Deferral Benefit
• Capacity Market Clearing Prices, ISO-NE
• Auxiliary Service Prices, by ISO Region
• ISO/RTO Reactive Power Service Payments
• Comparison of 100 MW Aggregated Generation versus 100 MW Peaking Unit
• CHP Installed Cost, O&M Costs, and Availability
• IDG Technologies: Pros and Cons
• Industrial CHP Capacity by Growth Scenario, United States: 2011-2016
• Stationary Fuel Cell and Industrial Scale Renewable Generation Capacity, Fits and Starts Scenario, United States: 2011-2016
• Stationary Fuel Cell and Industrial Scale Renewable Generation Capacity, Slow Growth Scenario, United States: 2011-2016
• Stationary Fuel Cell and Industrial Scale Renewable Generation Capacity, Optimism Scenario, United States: 2011-2016
• Aggregated Distributed Generation Capacity by Growth Scenario, United States: 2011-2016
• Technical Market Potential, Practical Opportunity Fuels, by Fuel Type
• Opportunity Fuels Distributed Generation by Growth Scenario, United States: 2011-2016
• Data Center IDG Market by Growth Scenario, United States: 2011-2016
• IDG by Growth Scenario, United States: 2011-2016
• IDG Market Share, Fits and Starts Scenario, United States: 2016
• IDG Market Share, Slow Growth Scenario, United States: 2016
• IDG Market Share, Optimism Scenario, United States: 2016