Powering PA : A Case Study of Distributed Power Generation from Marcellus Shale

A distributed power system consists of a series of small, geographically distributed power generation units, each of which provides power to a single or small set of dedicated customers in the vicinity of the generation unit. Typically, the electricity is sold behind the meter as opposed to being provided through the electric distribution grid, although any excess capacity might be sold as usual through the grid. In this report we study a distributed power generation unit that is powered by natural gas and is also located in the vicinity of a gas well. In such a scenario it would be possible for the power producer to buy the gas locally and use it to satisfy the demand for a dedicated local customer. Beyond the obvious environmental and social benefits from localizing production and usage, such an arrangement could result in economic benefits to (1) the gas producer, from selling close to the source and saving the costs associated with gas transportation, (2) the electricity producer, from cheaper fuel and higher margins in the electricity they sell behind the meter, and (3) to the final consumer, in the form of electricity prices that are lower than the grid price. We study this arrangement using an actual distributed power generation unit along with demand and cost data from an actual potential customer, in order to estimate the overall supply chain savings that could be shared between the various entities. Based upon our analysis we estimate that on the upstream side the overall supply chain efficiency increases by around 22% and for the specific producer we studied, the value of this is estimated to be between approximately $10 and $20 million over a twenty year period, depending on the operating time of the unit. These savings could potentially be shared between the gas producer and the power generator. On the downstream side the overall supply chain efficiency increases by around 42% and for the customer that we studied, the value of this could average approximately $6 million over a twenty year period (for a customer with larger demand this could be higher). These savings could potentially be shared between the electricity generator and the dedicated customer