It’s mid-afternoon in sunny California and your team is scrambling to finish a deal-clinching presentation when BAM! the power goes down. You’ve been caught in a rolling blackout that state regulators have ordered as a heat wave brings on millions of air conditioners. Backup batteries will give you enough time to shut down your system, but you can forget about finishing that presentation. Lights out, right?

Not when a pair of refrigerator-sized turbines in back of your office jump to life, transforming natural gas into a steady stream of electrons to keep the office humming. Systems like these “microturbines,” along with fuel cells that extract electrical power from fuel without burning it, are changing the rules in the power game. No longer must you rely on a monopolistic utility that can take you-and your power needs-for granted.

These “micropower generators” aren’t just about emergency backup, either. They can provide higher quality power 24/7 than you can buy from your local utility. Plug into one of these systems and you’ll avoid the computer-crashing voltage spikes and sags that mar the electricity coming out of a garden-variety wall socket. And micropower means you can forsake the grid when power prices surge, or even make an extra buck by exporting power to your neighbors. Spread enough micropower throughout the grid, and the grid itself will begin to learn tricks that could make regionwide power outages an unpleasant memory.

Premium Juice

As our reliance on electric and electronic systems increases, many businesses-and consumers-need better performance than the 99.9 percent reliability the local electric power grid provides. These demanding users need what utilities call “premium power”: pure, top-grade electrical juice that flows without fail. Manufacturers, banks, telecommunications providers-just about any company that depends on computers or digital equipment such as Web servers and routers-need premium power. And the only sure way to get it, energy experts agree, is to generate it yourself.

Industrial operations have long done just that, but residential or commercial users couldn’t fulfill their needs using the available small power systems: the diesel generators that keep hospitals alive are too loud and dirty for a suburban neighborhood. Solar power keeps getting cheaper, but it can’t always deliver the kilowatts. Not that these technologies were capable of making much difference, since state laws kept most power consumers shackled to their local utility. Deregulation is changing all that, freeing consumers and unleashing a torrent of investment and innovation. The first products of this wave of technology development are clean, quiet and dependable microturbines, developed in the 1960s to provide electric power for air conditioning and circulation systems on aircraft. They descended toward the consumer market in the early 1990s thanks to Rosen Motors, the company created by Compaq Computer cofounder Ben Rosen to build turbine-powered hybrid electric cars.

Rosen’s company was ahead of its time, though, and it paid the price, folding in 1997 just before Toyota and Honda rolled out gas-electric hybrids in Japan. Last year, the Japanese auto giants brought hybrids to America, forcing Detroit to lay hasty plans for its own hybrid cars.

Although the company’s automobile venture collapsed, its microturbine power source lives on in another Rosen venture: Chatsworth, CA-based Capstone Turbine. Capstone’s 30-kilowatt microturbine functions just like the several hundred-megawatt natural-gas-fired power plants that prop up the electrical grid. Ignite the fuel (natural gas, gasoline, kerosene-just about anything that burns) and rapidly expanding combustion gases push the turbine blades to spin a rotor and generate electricity. Exhaust from the microturbines contains only about three parts per million of smog-forming nitrogen oxides-about a hundred times less than diesel generators-and virtually no soot.

And the microturbine is ready to go the distance without burning out, thanks to air bearings that float the turbine on a turbulent film of air just two micrometers thick. The air bearings experience no friction and no wear, even at punishing speeds-more than 1,500 revolutions per second in the Capstone turbine-that would burn up lubricated bearings.

Fuel-cell power plants will run even smoother and cheaper because they are solid state: rather than burning hydrocarbons, fuel cells employ steam and catalysts to release the fuel’s hydrogen atoms and strip away its electrons. Eschewing combustion and bypassing mechanics makes this technology clean and efficient: fuel cells running on natural gas release virtually no nitrogen oxide and convert 40 percent of the fuel’s energy into electricity (a third more than the microturbine). Capturing the wasted energy by using the fuel cell’s hot water byproduct to warm a building’s air and water pushes the overall energy efficiency to 80 percent or more.

At least half a dozen types of fuel cells are under development for electrical power generation. The best hope for smaller, more affordable units lies in a light, compact version based on a structure known as a proton exchange membrane. This is a technology for which we can thank the auto industry; Ford, DaimlerChrysler and Toyota are investing billions to make this variety of fuel cell powerful and cheap enough to replace the internal combustion engine (see “Fill’er Up with Hydrogen,” TR November/ December 2000).

As the technology spreads from the auto industry, a host of startups, including Ballard Power Systems of Burnaby, British Columbia, and Plug Power of Latham, NY, are pushing proton exchange membrane technology for stationary power production. The goal is 1- to 15-kilowatt power plants to enable a family to declare independence from the electrical grid; larger units, 60 to 250 kilowatts, would do the same for offices. Though these companies have aggressive marketing plans, reality-in the form of engineering obstacles-has begun to intrude. Plug Power and its marketing partner, General Electric, planned to be the first to market with thousands of residential units this year. Engineering the units for continuous, glitch-free operation is proving to be unexpectedly complex, however, and Plug Power now expects to introduce commercial fuel-cell systems in the first half of 2002.

An Electrical Safety Net

Micropower is finding some of its first applications in remote operations that have inadequate access to centrally generated electricity. Microturbines have been a hit on oil-drilling rigs in Alberta, Colorado and Texas, for example. These rigs sit above reserves of energy-rich liquid gold, but lie either beyond the grid or at its edge, where the trickle of electricity can’t support heavy equipment. Modern-day wildcatters are also under pressure from environmental regulators to curb the flaring of the sulfur-laden gases associated with many wells. Microturbines will run on just about anything, including this “sour gas,” so haul one to the well head and you can put this environmental nuisance to work powering the pumps.

The economics of generating power without incurring a fuel cost is so compelling that microturbines may turn many oil wells into remote power plants that generate surplus power for sale over the grid. The capacity for expansion is enormous: oil wells in Texas alone typically flare a billion cubic meters of sour gas a year. That’s enough to generate more than 400 megawatts of electricity, equivalent to a mid-sized utility power plant. Landfills and wastewater treatment plants may be the next to cash in. Since last spring, a Capstone microturbine has been digesting the methane that ferments forth from the world’s second largest trash pile-Los Angeles County’s Puente Hills landfill-while generating only 1.3 parts per million of nitrogen oxides. That’s a lot cleaner than the 30 parts per million released when the gas is flared.

But transforming waste gas is a niche opportunity, and companies like Capstone and Ballard are hoping for much more. Their plan: catch the deregulation wave and transform millions of power consumers into power producers. Deregulation is sweeping away the monopoly protections that kept new power producers-particularly residential and commercial consumers-out of the market. “Under the monopoly environment it didn’t matter if you had these wonderful technologies to self-generate because you were obligated to buy your power from the utility,” says Wayne Gardner, manager of business development and strategy at Exelon Capital Partners-the Philadelphia-based venture capital arm of U.S. power giant Exelon.

As deregulation offers consumers greater freedom to generate power, it also gives them more reason to do so. The rocky transition to a deregulated market is casting a haze of uncertainty over the power industry, discouraging utilities from adding generating capacity and upgrading their transmission lines. Energy experts blame California’s hesitating transition toward a competitive power market for its meltdown this winter. And one solution to an ailing grid, it is becoming clear, is micropower. “Premium power is clearly the dominant near-term market for distributed power,” says Dan Rastler, a distributed power expert with the Electric Power Research Institute in Palo Alto, CA. “The existing distribution system is not capable of meeting the reliability needs of that market.”

Premium power is already a $7 to $10 billion-per-year market in North America, according to the research firm Frost & Sullivan. Today, most of that comes from batteries and diesel engines serving as backup power sources. But the freedom to generate one’s own electricity could blow this market open. Seekers of premium power who hook up microturbines and fuel cells to the natural-gas line are no longer limited to using their generators only when the lights go out. They can save money by powering up whenever the grid price exceeds the cost of fuel. Some states even permit micropower producers to sell surplus power back to the grid for a profit.

This ability to play the power markets will grow as utilities move toward real-time pricing, where the price of power from the grid reflects the cost to produce it. During times of peak demand, when utilities must fire up their least efficient plants, prices spike. Micropower units will monitor pricing through an Internet connection or via a digital signal embedded in the electricity itself. Using this information, they will compare quotes for gas and electricity and automatically turn themselves on when the spread is favorable.

Yet power generation is not a core competency for most businesses (let alone residential consumers), so it will be important to find the folks who can run micropower smoothly. With natural-gas prices rising, switching on micropower at the wrong time could cost a bundle. “The technology developers and a lot of the investors have placed more focus on getting the technology developed without thinking on the operations side of who’s going to support it, who’s going to install it, who’s going to warranty it,” says Exelon’s Gardner.

Capstone’s best answer is Williams International, a Tulsa, OK-based energy giant that sold or leased 60 of the first 1,000 microturbines that Capstone produced through last November. Williams, whose pipelines carry nearly 20 percent of the U.S. natural-gas supply, provides a complete energy service package: financing the micropower unit, providing power from the grid, and helping consumers determine when peak shaving makes sense (the company is a leading trader of electricity and natural gas). Mory Houshmand, director of the Williams Distributed Power Services unit, says Williams expects its wholesalers in the United States, South America and southeast Asia to install about 1,500 microturbines this year, and another 2,000 to 3,000 in 2002.

Enron-a Houston-based energy giant and rival of Williams-sees the same opportunity coming with fuel cells. Last fall, Enron forged an alliance with FuelCell Energy, investing $5 million in the Danbury, CT, startup and gaining options on another 1.3 million shares of stock if the company sells more than 55 megawatts’ worth of its molten-carbonate fuel cells (enough to light up 10,000 homes). Jeremy Blachman, chief operating officer for Enron Energy Services, is bullish on micropower. “When the market price of power pops all over the place and gets to some of the levels that we’ve seen during peak summer demand-up to $7,000 per megawatt-hour-then distributed generation with fuel cells becomes much more economic.” (Even at today’s sky-high prices, natural gas would cost less than $100 per megawatt-hour to fire up a microturbine and less than $75 per megawatt-hour to run a fuel cell.)

Power from Everybody

For the big energy companies like Williams and Enron, the lure of micropower goes beyond the selling and leasing of small generating plants. These organizations see an opportunity developing that will enable them to sell gas and electricity en masse. Aggregate the output of thousands of fuel cells and small turbines into a “virtual power plant,” and peak shaving becomes power trading. If Williams could remotely activate thousands of microturbines on its customers’ premises, the company could generate hundreds of megawatts for sale on the wholesale market. Houshmand says this could dramatically lower the cost of the microturbine, enticing companies like his own to bear a larger share: “Look at cell phones. A few years ago they were very expensive, and now service providers are giving them away. Why? Because they’re selling the service.”

The notion of virtual power plants could also charm traditional utilities that, until now, have been lukewarm toward technologies that let consumers and businesses generate their own power. In the past, utilities erected barriers to distributed power, such as maintenance fees for emergency backup service. Ritchie Priddy, associate director for distributed energy at Cambridge Energy Research Associates in Cambridge, MA, says that utilities remain ambivalent about micropower. For example, many utilities now pay retail for surplus energy from solar panels or wind turbines-a trickle of energy that poses little competition. But the same utilities pay little or nothing for surplus power from microturbines and diesels, where the kilowatts could really add up. “Some utilities are embracing distributed generation, but quite frankly they do it on their terms,” says Priddy, a former utility company manager.

Micropower advocates like Priddy want to convince power companies that the proliferation of micropower generators could aid their operations by helping to stabilize the grid. There are some hopeful signs. Japanese utilities, for example, are subsidizing the development of residential fuel cells that heat water and churn out one kilowatt of electricity-nowhere near enough juice to power the household (a toaster alone consumes more than a kilowatt), but enough in aggregate to ease the strain on overloaded power lines. Virtual power plants could have a more dynamic effect on the grid: rather than asking consumers to turn off their equipment when power demand crests, imagine California’s beleaguered grid controllers remotely activating thousands of microturbines and fuel cells to meet peak demand.