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Economics of Distributed Sources

The chapter deeply explores the two sides of electric meter; the supply side and the demand side. In the past, energy services were considered important and programs to help customers use the energy efficiently were included in these energy services. This led to a process called integrated resource planning which now evaluated both the demand side and the supply side together with some costs to come up with a fair cost to meet the customer’s wants for energy services. As new power points were being put up, customers on the other hand were being helped to install efficient lamps and efficient rotating motors to conserve energy.

Recently three kinds of electricity resources were recognized by the integrated resource planning after the increased attention to the electricity grid and the introduction of efficient and cost effective generation. These resources are; generation resources, grid resources and demand side resources. The grid resource is where the electricity is passed from the generators producing energy to the customers who use it as electricity. When electricity is linked to energy services it becomes a demand side resource. The three resources are equal because they all have to be compared in order to come up with a least cost planning process (l c p p). In every electric power system emphasizing on efficiency is a plus in the energy resource. In cases of renewable energy technologies, efficiency helps reduce wastage and also reduces size of the systems.

For many energy generating systems, whether renewable or nonrenewable, efficiency is important since the energy to be wasted inform of heat is used to do things like warm or heat water, line warming and even air conditioning. The technologies that use energy efficiently are the greatest energy resources. For instance, daylight not only reduces the energy used on illumination but also creates a good environment hence increasing the productivity for workers, therefore spending less especially on electricity bills.

In any electric utility rate structure, thorough analysis of the electricity and cost of fuel being displaced by a particular system is always very vital. Electric rates will vary depending on the utility and also the purpose of the electricity units being purchased by a particular customer having in mind that some will buy units for large scale use and others will purchase the units in smaller quantities for small scale use. There is a structure designed to discourage the excessive use of electricity known as inverted block rate structure. This structure ensures that customers make good use of electricity without misusing during the seasons when the electricity is being used by many people or is in high demand. Such times are known as the peak seasons and mostly come during extreme climatic conditions like warm, hot, or cold weather seasons.

Residential time of use rates (T O U) help the customers regulate on how they use the electricity when the demand is so high by charging extra more when the electricity demand is high. Such are the times when everybody wants to use the air conditioner, abbreviated as A C as a result of hot weather. The rates go lower at opposite times and one might opt to use the electricity when the rates are lower, since it is usually well stipulated to avoid inconveniencing the customers, hence breaking the high demand.

Commercial and industrial customers usually have an inclusive demand charge which gets worse if the customer is using the electricity when the utility is at the highest points and it happens to be that the utility is at its most demanded points which mean that the utility is operating at its highest peak rates. This will mostly be charged on monthly basis and mostly affect the customers who use electricity maybe for large scale purposes like in industries and factories.

Basing that in R T O, time of use only has two phases; summer and no summer, real time pricing is based on hourly rates where the rates keep changing hour by hour throughout the day and customers avoid using electricity when the rates are high. At times the customer just realizes that in such times to come, the rates will be very high and instead of waiting he or she compensates for the time efficiently by using the commodity when the tariffs are low and favorable. Simple payback period which is calculated by the formulae ratio of the extra first to annual savings, which is the most common way of evaluating any economic value. For example, buying a bulb that is ten times expensive than the common ones used saves two dollars meaning that it will save energy and at the same time one will save since when the energy is well utilized, the cost also goes down and maybe the extra money used to purchase the bulb will be compensated in two months, the two months is now the simple payback period. It is like getting returns for spending extra but it is also easy to mislead since it does not guarantee one on the period the system will be in use, where it can break down any time after purchase even before it pays back. The complete inverse of payback period is initial simple rate of return where its formulae become inversely with the previous one. It is in the ratio of the annual savings to the extra initial investment. Incase the system fails to work the customer gets nothing but if it lasts for long it pays back and compensates for the extra money initially spent.

Initial simple rate of return and payback period takes time before the customer gets any payback, but the rate at which the customer gets payback sooner than the two is called the net present value. The initial rate of return and the net payback value with fuel escalation shows that the chances of fuel prices skyrocketing in years to come is higher than today hence it is good to account for fuel escalation as the amount of money keeps changing as time goes by going high. An energy investment business is best analyzed by way of cash flow analysis.

In this same chapter, compressive refrigeration is well described and what exactly happens before the cold temperatures are attained is very well stipulated. To get the chilled vapor, the major components go through a cycle under rapid low and high pressures. The whole process involves pressure and vapor. When the pressure is high the temperatures go high and when the pressure is low the temperatures go lower. If the machine doing the refrigeration is turned upside down, it would act as a heating machine hence perform the same job with a heat pump. Desiccant dehumidification is another technology used for cooling air and can fully utilize the thermal energy. This technology works well in humid climates.

The cost benefits of electrical engineering are brought about by improving on efficiency. Most power or energy loss is caused by human errors, animals interfering with wires hence causing them to short, lightning which burns the wires preventing any current passage but not anything generational. In the event of power breakage, customers use the back up electricity which comes with lots of disadvantages such as pollution and no consistence. This might cause the electronics being used by the customer malfunction. Fuel cells are other options and are much better because they do not pollute the environment.

Traditionally, energy producing companies or utilities has made money by primarily selling power in kilowatts and kilowatt hours. Being their source of income there is no way they can sell less electricity or power. In the early 1980s planners found out that in order for D S M to be successful, various conditions were necessary. These conditions were, decoupling utility sales from utility profits, recovery of D S M program costs to allow utilities to earn profits on D S M and D S M incentives to encourage utilities to prefer D S M over generation. Efficiency is almost the only way that can make customers feel satisfied and attended for in terms of electricity since electricity is the only way the two relate.

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StudyKraken. (2022, March 21). Economics of Distributed Sources.

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"Economics of Distributed Sources." StudyKraken, 21 Mar. 2022,

1. StudyKraken. "Economics of Distributed Sources." March 21, 2022.


StudyKraken. "Economics of Distributed Sources." March 21, 2022.


StudyKraken. 2022. "Economics of Distributed Sources." March 21, 2022.


StudyKraken. (2022) 'Economics of Distributed Sources'. 21 March.

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