Article - Issue 18, February/March 2004

Distributed generation – harder than it looks

Malcolm Kennedy CBE FREng

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Has the Government done enough to encourage the move from hydrocarbons in electricity generation? In another side to the renewable energy debate, Malcolm Kennedy presents the problems, and solutions, of implementing distributed generation systems.

What has been achieved so far as a result of the UK Government’s approach to encouraging renewable energy generation over the last few years? What are the issues that impede the installation of renewable and distributed energy generation projects?

One barrier is the electricity distribution system, which, in this and almost every other country, was designed to supply electricity to customers from large power stations connected to a high voltage system that in turn feeds the lower voltage distribution network. This is not the ideal arrangement for most new renewable generating sources. The current regulatory framework is another barrier.

Other barriers include:

  • the need to obtain planning consent

  • the lack of widespread recognition of the benefits of distributed generation

  • out-of-date security standards

  • the limited incentive for distribution network operators to cooperate

  • the unrealised commercial application of recent innovation

  • the distribution system price review cycle

  • resource limitations

  • technical barriers, such as fault levels and voltage control

  • difficulties with negotiations.

Each of the above points has technical, regulatory and commercial implications. Possible solutions can be grouped into those that may be found within the next year or two and those that must await further significant technical developments. The joint OFGEM/DTI* Distributed Generation Coordination Group is charged by the Government with removing barriers to the widespread implementation of renewable energy sources.

The actions needed to further distributed generation are being addressed with urgency, in a systematic way, and progress is becoming evident. The Government’s targets for renewables, and for combined heat and power plant (CHP), present a major challenge for distribution networks and their owners. Efficient future investment is not enough; added value should be created for all parties. Widespread innovation in operation, together with the introduction of new technology will be needed to address the challenges ahead.

*The Office of Gas & Electricity Markets and the Department of Trade & Industry

Introduction and political background

At the Kyoto Conference in 1997 most national governments adopted the view that global warming was caused by emission of so-called greenhouse gases from industrial processes, including the burning of significant amounts of hydrocarbon fuels for the generation of electricity. In an effort to limit or even reduce the production of greenhouse gases it was then generally, but not universally, agreed to promote the widespread introduction of ‘renewable’ carbon-free electricity generation. This appears to be the most important goal of the recent government White Paper on Energy. Many of the governments who were represented at Kyoto, and at subsequent meetings, then set specific targets with fixed dates for increasing proportions of total national electricity production to be generated by renewable sources. The recent summit in Johannesburg, which dealt with renewable and sustainable energy supplies, seems to have been less inclined to adopt specific targets. Where targets have been set they are seen by some as both arbitrary and unachievable. Nevertheless, they represent the start of what can be regarded as a revolution in the progress of power generation technology. This revolution has been initiated by a very long-term strategy aimed at reducing our dependence upon fossil fuels and gradually introducing methods of generation that do not contribute to the production of greenhouse gases.

The UK Government has stated that 10% of electricity will be generated by ‘approved’ renewable sources by 2010, with progressively higher aspirations further into the future. Realising the 2010 target will require the connection of perhaps a further 8000 MW of renewable generation capacity over the next eight years.

The technology underlying the ‘approved’ renewable sources suggests that few individual projects will exceed 10 MW in capacity, with the possible exception of off-shore windfarms. Table 1 indicates which renewable technologies are ‘approved’ by the Government by dividing them between those eligible for Renewable Obligation Certificates (ROCs) and those that are not.

A separate element of the UK government’s climate change policy also dictates that there is a target to connect a further 5000 MW of combined heat and power plant (CHP) by 2010, again with few sites that will exceed 10 MW capacity.

Implications of UK Government policy

To achieve government targets will require the commissioning of perhaps 10 000 individual generator units of differing types and sizes by 2010, which in turn represents a building rate of about three units per day! Most of these will be connected to distribution systems operating at less than 132 kV (the lowest primary voltage used for the distribution system in the UK). Because of the number, size and means of connection of future renewable and CHP units, the term ‘distributed generation’ (DG) seems to have been appropriately adopted. Figures 1 and 2 show how distributed generation can fundamentally change power flow direction and levels in parts of the distribution network.

The task of providing an increased percentage of electricity from renewable sources, though daunting and fraught with regulatory, planning and commercial issues, will be eased if sufficient financial incentives for distributed generation connection are put in place. The introduction of Renewable Obligation Certificates (ROCs), originally floated at 3 p/kWh, in effect represents a premium payable by consumers for renewable energy. These ROCs are currently trading at about 4–6 p/kWh; this financial incentive seems to be effective and is likely to continue while the actual rate of completing renewable projects lags the targets set by government.

Before the introduction of the renewable obligation, the prospects for renewables were bleak because of the low pool price attributable to intermittent sources of generation as a result of the introduction of New Electricity Trading Arrangements (NETA).

With only 1.5% of electricity in the UK currently generated by ‘approved’ renewable sources, we can see the extent of the challenge of meeting the Government’s targets for renewable generation. Furthermore, despite Government financial support for research and development, many renewable generation technologies are not yet ready for commercial exploitation, nor will be for several years to come. Wind generation technology, however, is becoming mature, although, for it to make a significant contribution, much of the future capacity must be installed offshore at substantially higher cost than land-based wind generation.

Connecting to the grid

In addition to economic and planning issues, there are other significant barriers to the introduction of distributed generation on the scale needed to meet the current target in the UK. These arise mainly from the need to connect small scale distributed generation to existing distribution systems. This development represents a complete reversal of the past trend where almost all generation in the UK is connected to the National Grid’s 400 kV system. Table 2 illustrates the point.

Distributed generation will provide a completely different challenge by requiring the connection of thousands of new generating units to systems operating below 132 kV, even down to low voltage. Distribution systems have not been designed to accept distributed generation on this scale.

Furthermore, network regulations in the UK at present favour the connection of large-scale rather than small-scale generation. It follows from this that the economic incentive of the ROCs alone may not be enough to bring forward distributed generation in sufficient quantities. Three regulatory options are being considered to give further encouragement to distributed generation:

  1. ‘levelling of the playing field’ so that the charges for connecting large-and small-scale generation are set on a similar basis
  2. providing incentives to the distribution network operators (DNOs) to run their networks at lowest cost, so that the difference between investing in network assets or in generation services is negligible
  3. encouraging distribution network operators directly to connect small-scale generation further (i.e. ‘tilting the playing field’ towards distributed generation).

Had the Government’s initiative been introduced perhaps 15 years ago with a centrally planned, publicly owned and unified industry, the task would have been easier. With the industry now so fragmented, the commercial and regulatory problems are manifold and far from easy to solve. Furthermore, when the electricity supply industry was privatised some 11 years ago, the regulations were designed to promote the development of competition in generation but no such requirement was placed upon the distribution network!

There is little recognition of the overall benefits that distributed generation can bring to electricity distribution systems. Out-of-date security standards, set some 30 years ago when almost all generation was grid-connected, do not recognise the contribution that distributed generation can bring to security of supply. It can also offer improved reactive power and system voltage control, while avoiding losses and use-of-system charges. Distributed generation can also provide black-start capability and the prospect of system ‘islanding’. Put simply, with distributed generation we could have an ‘active’ rather than the current ‘passive’ network.

Barriers to the penetration of renewable generation

The different technologies described in Table 1 are at widely different stages of commercial development. All are, or will be, subject to the inevitable protracted consents and planning permission process.

Wind generation projects will contribute by far the biggest proportion of renewable projects in the UK over the next few years. Planning objections, particularly in England and Wales, are however driving wind power generation developers to consider sites in remote parts of northern Scotland or offshore as the only realistic options for significant amounts of wind-based generation. In the latter case, the absence of benchmark operational offshore wind farms in British coastal waters comprises both a financial and technical risk that has not yet been quantified. With both options the lack of adequate or any accessible electricity supply infrastructure is a serious and costly barrier.

Generally, poor recognition of the benefits that distributed generation can bring to networks is another barrier to its widespread introduction.

Despite the potential benefits described there is at present no financial incentive for distribution network operators to co-operate with those who seek to introduce distributed generation; there is also perceived to be, by many, risks to the distribution system introduced through the use of distributed generation. In short, innovative thinking needs to be focussed on the interface between distributed generation and the distribution systems.

The regulator, OFGEM, has developed over many years a widely understood approach to distribution use-of-system charges, together with an accepted price review cycle. Depending on the future policy adopted towards small-scale generation, fundamental changes in approach to use-of-system charges and the process by which they are determined will be needed.

Perhaps because we are in the early stages, many renewable and CHP developers find it difficult to negotiate connection agreements with distribution network operators since there is no consistency between different DNOs’ approaches. Difficulties with negotiations between developers and DNOs include:

  • the lack or asymmetry of information provided

  • the perceived cost of preparing quotations

  • the risk of apparent discrimination between existing or future developers

  • confidentiality concerns.

If some 10 000 distributed generation projects are to be introduced over the next seven years, a standardised approach to negotiations and application for connection must be developed.

Not least of the present barriers concerns the limited number of people available to do the work that will be required, from initial conception to final commissioning of each project. Engineering resources, hard-pressed as they are, may not be the only ones that will ultimately be found to be in short supply.

While the many existing regulatory and commercial barriers are not likely to prove easy to break down, other ‘technical’ issues are receiving urgent attention. See the box outlining technical problems. Given the techniques available now and the impetus that widespread distributed generation will give to the development of new technical solutions, no more than ten years need elapse before all significant problems can be solved.

The way forward

As noted, the current regulatory regime discriminates against distributed system connected generation. Perhaps the most important issue is that surrounding the argument of ‘deep versus shallow’ connection charges for new distributed generation. A move towards a ‘shallow’ connection charge approach, as used with the transmission system and away from current distribution system ‘deep’ connection charges would be advantageous to distributed generation.

Further ‘levelling’ initiatives could include the following:

The introduction of the equivalent of the National Grid Company’s Seven Year Statement which describes opportunities for new generation . a requirement to prepare new connection agreements within a stipulated maximum period . a move towards performance-based regulation for distribution systems, which would indicate a move away from distribution network operator return being related purely to the size of their asset base.

Progress will also be made when agreed classification or ‘banding’ of different types and rating of distributed generation are firmly established. This would reduce considerably the ad hoc nature of all activities surrounding the introduction of new distributed generation.

In clarifying the benefits of distributed generation it is also inevitable that Engineering Recommendation P2/5, which deals with system security, must come under fundamental review. This document was written more than 30 years ago when almost all generation was assumed to be grid-connected.

‘Premium power zones’ are being proposed which foresee a high concentration of distributed generation in zones where the system can more readily accept or benefit from its introduction.

The regulator’s approach to this issue also needs to be fully understood. He will not wish to see each operator setting up its own research and development department nor for a given solution will he wish to favour one technology as opposed to another. Furthermore, he will not wish to see ‘blank cheques’ for investment in the network purporting to be associated with the introduction of distributed generation. The regulator has made it quite clear that value will be assigned to innovation in future price control reviews. It also seems to be the intention of the regulator to encourage the ESI to develop good practice guidelines for the management and introduction of new technology. This will not be easy with significant intellectual property rights issues yet to be resolved.

The Government’s distribution generation co-ordination group

Nearly two years ago, the UK Government realised that barriers to the widespread introduction of distributed generation, viewed from a system perspective, required removal. For this reason the Government appointed the Distributed Generation Coordinating Group (DGCG) to address the issue. This Group comprises representatives from all those concerned with system-related issues. A Technical Steering Group reports to the DGCG and six workstreams have been initiated to address key issues. These workstreams cover the following areas:

  • distributed generation, its status and future projections

  • standardisation of information and solutions

  • short-term network solutions (up to 2005)

  • long-term network solutions (beyond 2005)

  • microgeneration solutions

  • industry skills and resources.

The cost of connection to, and r einforcement of, the UK’s transmission and distribution infrastructure is thought to be in excess of £1 billion if the government’s targets for new distributed generation are to be met.

Another important responsibility of the DGCG is to maintain careful scrutiny of activities overseas to make sure that best practice is always understood and introduced in the UK and to avoid, for example, the problems that have recently arisen in Denmark where the uncontrolled very high levels of recently introduced wind power and combined heat and power schemes have led to serious difficulties with system voltage, frequency control and power quality.


Meeting the Government’s 2010 targets for renewable and combined heat and power generation implies the following:

  • 8000 MW of renewables, some 10 000 projects

  • 5000 MW of combined heat and power, some 1000 projects

  • some one to three million domestic combined heat and power units.

One of the financial incentives for the widespread introduction and possible achievement of the above government targets exist in the form of ROCs together with the premium currently applying to them. Other incentives offered to DNOs will also be needed.

A complete overhaul of most regulatory and commercial interfaces will have to be undertaken over the next two to three years to ‘level the playing field’ for the introduction of significant amounts of distributed generation. Similarly, a careful assessment of the extent to which distributed generation can be introduced, without exceeding technical constraints, will require the provision of significant resources that at the moment are in short supply.

There are six fundamental questions we must ask about distributed generation and its connection to the distribution systems. How do we:

  • use distributed generation to raise the quality of supply?

  • increase and not constrain network flexibility?

  • encourage DNOs to see distributed generation as an opportunity?

  • achieve efficient network investment?

  • recognise and reward distributed generation network services?

  • avoid regulatory micro-level intervention?

The issues described here must not only be addressed but most difficulties must largely be eliminated over the next three years if distributed generation is to play its full part in improving the environment on which we depend.

The vision of a truly active distribution network will help mobilise the new thinking needed which is currently limited to high voltage transmission networks. What the future holds in store, perhaps, is a large number of mini-transmission systems with all the transmission system ‘characteristics’ of spinning generating capacity, voltage and frequency control and the active management of reactive as well as real power.

Renewable generation is introducing a revolution in the way in which electricity is generated. How we design and operate the distribution systems to which this renewable generation is connected will also be changed irrevocably; innovation is the key to the future.

Technical problems

The extent to which ‘technical problems’ arise depends, of course, on the volume, type and rating of the foreseen renewable generator. It is becoming clear that over the next four years (say) these ‘technical problems’ together with their likely solutions can be grouped as shown in Table 3.

In the longer term, and if the level of distributed generation rises significantly, the following additional technical solutions may be appropriate:

  • the introduction of non-linear limiting impedances

  • the use of superconducting devices

  • the use of solid-state switching devices

  • modification of fault level design procedures

  • the widespread use of static compensators at distribution voltages

  • active network voltage control

  • demand-side management.

Malcolm Kennedy CBE FREng

PB Power Ltd

Dr Kennedy has held many high-profile positions during his 40 years in the power industry, including his Presidency of the Institution of Electrical Engineers from 1999–2000. He is a Fellow of the Royal Society of Edinburgh, the Royal Academy of Engineering, and in 1999 was awarded a CBE in recognition of his services to exports to developing markets. He is currently Chairman of NEA, national energy action charity, and advises OFGEM (Office of Gas and Electricity Markets)/DTI on Renewables. Malcolm retired recently as Chairman of international consulting engineers PB Power Ltd, formerly Merz and McLellan, which he joined in 1961.

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