Module1: Introduction

The power industry across the globe is experiencing a radical change in its business
as well as in an operational model where, the vertically integrated utilities are being
unbundled and opened up for competition with private players. This enables an end
to the era of monopoly. Right from its inception, running the power system was
supposed to be a task of esoteric quality. The electric power was then looked upon
as a service. Control consisting of planning and operational tasks was administered
by a single entity or utility. The vertical integration of all tasks gave rise to the term
– vertically integrated utility. The arrangement of the earlier setup of the power
sector was characterized by operation of a single utility generating, transmitting and
distributing electrical energy in its area of operation. Thus, these utilities enjoyed
monopoly in their area of operation. They were often termed as monopoly utilities.

Why were earlier utilities the ‘monopolies'? The reason for monopoly can be traced
right back to the early days when electricity was comparatively a new technology.
The skeptical attitude of the government towards electricity led to investment by
private players into the power sector, who in turn, demanded for the monopoly in
their area of operation. This created a win-win situation for both- government and
the electrical technology promoters. However, the government would not let the
private players enjoy the monopoly and exploit the end consumer and hence
introduced regulation in the business. Thus, the power industries of initial era
became regulated monopoly utilities . The structure of a conventional vertically
integrated utility is shown in Figure 1.1. As evident from the figure, there was only
a single utility with whom the customer dealt with. Thus, only two entities existed
in the power business: a monopolist utility and the customer.

Fig 1.1

What does ‘regulation’ mean? The regulations are generally imposed by the
government or the government authority. These essentially represent a set of rules
or framework that the government has imposed so as to run the system smoothly
and with discipline, without undue advantage to any particular entity at the cost of
end consumer. All practical power systems of earlier days used to be regulated by
the government. This was obviously so. The old era power industries were vertically
integrated utilities and enjoyed monopoly in their area of operation. Whenever a
monopoly is sensed in any sector, it is natural for the government to step in and set
up a framework of way of doing business, in order to protect end consumer
interests. Some of the characteristics of monopoly utility are:

1. Single utility in one area of operation enjoying monopoly.

2. Regulated Framework: The utility should work under the business
framework setup by the government.
3. Universal Supply Obligation (USO): Utility should provide power to all
those customers who demand for it.
4. Regulated Costs: The return on the utility's investments is regulated by the
government.

In a nutshell, regulation is about checking the prices of the monopolist in the

absence of private players and market forces.

Reasons for restructuring / deregulation of power industry

The next obvious question is, “what is deregulation or restructuring of an industry?”

From the name, one can sense discontinuation of the framework provided by the
regulation. In other words, deregulation is about removing control over the prices
with introduction of market players in the sector. However, this is not correct in a
strict sense. An overnight change in the power business framework with provision
of entry to competing suppliers and subjecting prices to market interaction, would
not work successfully. There are certain conditions that create a conducive
environment for the competition to work. These conditions need to be satisfied
while deregulating or restructuring a system. Sometimes, the word ‘deregulation’
may sound a misnomer. ‘Deregulation’ does not mean that the rules won’t exist.
The rules will still be there, however, a new framework would be created to operate
the power industry. That is why the word ‘deregulation’ finds its substitutes like ‘re-
regulation’, ‘reforms’, ‘restructuring’, etc. The commonly used word in Europe is
‘liberalization’ of power industry; ‘deregulation’ is a more popular phrase in US.

If the power industries worked successfully with the regulated monopoly framework
for over 100 years, what was the need for deregulating or changing the business
framework of the system? There are many reasons that fuelled the concept of
deregulation of the power industry. One major thought that prevailed during the
early nineties raised questions about the performance of monopoly utilities. The
takers of this thought advocated that monopoly status of the electric utilities did not
provide any incentive for its efficient operation. In privately owned utilities, the
costs incurred by the utility were directly imposed upon the consumers. In
government linked public utilities, factors other than the economics, for example,
treatment of all public utilities at par, overstaffing, etc. resulted in a sluggish
performance of these utilities. The economists started promoting introduction of a
competitive market for electrical energy as a means of benefit for the overall
powerector. This argument was supported by the successful reform experiences of
other sectors such as airlines, gas, telephone, etc.

Another impetus for deregulation of power industry was provided by the change in
power generation technology. In the earlier days, cost-effective power generation
was possible only with the help of mammoth thermal (coal/nuclear) plants.
However, during the mid eighties, the gas turbines started generating cost effective
power with smaller plant size. It was then possible to build the power plants near the
load centers and also, an opportunity was created for private players to generate
power and sell the same to the existing utility. This technology change, supposed to
have provided acceleration to the concept of independent power producers,
supported the concept of deregulation further. This technology change is supposed
to have provided acceleration to the concept of independent power producers. This
further supported concept of deregulation. This was specifically true where the
financial losses were apparently high which was prevalent in some of the
developing countries.

It should be noted that these are the indicative or major reasons for introducing the
concept of deregulation in power industry. There are many other reasons as well.
One of the important reasons is the condition under which power systems were
regulated, did not exist any more. There was no wind of skepticism about the
electrical technology and all the initial investments in infrastructure were already
paid back. Further, the deregulation aims at introducing competition at various
levels of power industry. The competition is likely to bring down the cost of
electricity. Then, the activities of the power industry would become customer
centric.

The competitive environment offers a good range of benefits for the customers as
well as the private entities. It is claimed that some of the significant benefits of
power industry deregulation would include:

1. Electricity price will go down: It is a common understanding that the

competitive prices are lesser than the monopolist prices. The producer will
try to sell the power at its marginal cost, in a perfectly competitive
environment.
2. Choice for customers: The customer will have choice for its retailer. The
retailers will compete not only on the price offered but also on the other
facilities provided to the customers. These could include better plans, better
reliability, better quality, etc.
3. Customer-centric service: The retailers would provide better service than
what the monopolist would do.
4. Innovation: The regulatory process and lack of competition gave electric
utilities no incentive to improve or to take risks on new ideas that might
increase the customer value. Under deregulated environment, the electric
utility will always try to innovate something for the betterment of service
and in turn save costs and maximize the profit.

The deregulation of the industry has provided electrical energy with a new
dimension where it is being considered as a commodity. The ‘commodity’ status
given to electrical power has attracted entry of private players in the sector. The
private players make the whole business challenging from the system operator’s
point of view, as it now starts dealing with many players which are not under it’s
direct control. This calls for introduction of fair and transparent set of rules for
running the power business. The market design structure plays an important role in
successful deregulation of power industry.

Understanding the restructuring process

The process of deregulation has taken different formats in different parts of the
world. Also, the reasons for power sector to adopt the reforms vary from country to
country. For the developed countries, introduction of competition to achieve social
welfare was probably the most important reason. On the other hand, the developing
countries mainly banked on the capacity addition through entry of private players. It
is observed that neither, there is lone reson for driving deregulation of power
industry nor is there a single objective of the same.

The restructuring process starts with the unbundling of the originally vertically
integrated utility. This essentially leads to separate the activities involved in an
integrated power system leading to creation of functional partition amongst them.
For example, the unbundling of power industry involves separating transmission
activity from the generation activity. Further, distribution can be separated from
transmission. Thus, these three mutually exclusive functions are created and there
are separate entities or companies that control these functions. Then, the
competition can be introduced in the generation activity by allowing other private
participants in this segment. In contrast to the vertically integrated case where all
the generation is owned by the same utility, there is a scope for private players to
sell their generation at competitive prices. The generators owned by the earlier
vertically integrated utility will then compete with these private generators. The
transmission sector being a natural monopoly is most unlikely to have competing
players in the sector. This is because for natural monopolies like transmission
companies, the business becomes profitable only when output is large enough.
Figure 1.2 shows the representative structure of deregulated power system. In
contrast to the vertically integrated utility structure, it can be seen that there are
many alternative paths along which the money flows. It is evident that there are
many more other entities present, apart from the vertically integrated utility and the
customers. It should be noted that there can be many more versions of deregulated
structure.

Various Entities Involved in Deregulation:

The introduction of deregulation has introduced several new entities in the

electricity market place and has simultaneously redefined the scope of activities of
many of the existing players. Variations exist across market structures over how
each entity is particularly defined and over what role it plays in the system.
However, on a broad level, the following entities can be identified:

1. Genco (Generating Company): Genco is an owner-operator of one or more

generators that runs them and bids the power into the competitive
marketplace. Genco sells energy at its sites in the same manner that a coal
mining company might sell coal in bulk at its mine.
2. Transco (Transmission Company): Transco moves power in bulk quantities
from where it is produced to where it is consumed. The Transco owns and
maintains the transmission facilities, and may perform many of the
management and engineering functions required to ensure the smooth
running of the system. In some deregulated industries, the Transco owns and
maintains the transmission lines under the monopoly, but does not operate
them. That is done by Independent System Operator (ISO). The Transco is
paid for the use of its lines.
3. Discom (Distribution Company): It is the owner-operator of the local power
delivery system, which delivers power to individual businesses and
homeowners. In some places, the local distribution function is combined
with retail function, i.e. to buy wholesale electricity either through the spot
market or through direct contracts with Gencos and supply electricity to the
end use customers. In many other cases, however, the Discom does not sell
the power. It only owns and operates the local distribution system, and
obtains its revenue by wheeling electric power through its network.
4. Resco (Retail Energy Service Company): It is the retailer of electric power.
Many of these will be the retail departments of the former vertically
integrated utilities. A Resco buys power from Gencos and sells it directly to
the consumers. Resco does not own any electricity network physical assets.
5. Market Operator: Market operator provides a platform for the buyers and
sellers to sell and buy the electricity. It runs a computer program that
matches bids and offers of sellers and buyers. The market settlement process
is the responsibility of the market operator. The market operator typically
runs a day-ahead market. The near-real-time market, if any, is administered
by the system operator.
6. System Operator (SO): The SO is an entity entrusted with the responsibility
of ensuring the reliability and security of the entire system. It is an
independent authority and does not participate in the electricity market
trades. It usually does not own generating resources, except for some reserve
capacity in certain cases. In order to maintain the system security and
reliability, the SO procures various services such as supply of emergency
reserves, or reactive power from other entities in the system. In some
countries, SO also owns the transmission network. The SO in these systems
is generally called as Transmission System Operator (TSO). In the case of a
SO being completely neutral of every other activity except coordinate,
control and monitor the system, it is generally called as Independent System
Operator (ISO).
7. Customers: A customer is an entity, consuming electricity. In a completely
deregulated market where retail sector is also open for competition, the end
customer has several options for buying electricity. It may choose to buy
electricity from the spot market by bidding for purchase, or may buy directly
from a Genco or even from the local retailing service company. On the other
hand, in the markets where competition exists only at the wholesale level,
only the large customers have privilege of choosing their supplier.
Understanding the restructuring process

Electricity, as a commodity, can not be compared with any other commodity traded
in the market. This is because it has some distinguishing characteristics of its own,
which demand satisfaction of technical constraints before accomplishing the
commercial trades. Two important features of electricity as a commodity are: need
for real time balance and inability to wheel the commodity through desired path (in
bulk). Hence, a set of principles laid down by standard micro-economic theory can
not be mapped directly to the electricity commodity markets.

Tackling network congestion is one of the challenging issues of the de-regulated

era. Transmission network provides the path through which transactions are made in
a power market. But each transmission network has its own physical and operating
limits like line flow limits, bus voltage magnitude limits and more. The power
injection and withdrawal configuration should be such that no limit gets violated. If
the network is operated beyond these limits, it may, even, result in the entire system
blackout. Therefore, any arbitrary set of transactions can’t be organized on the
power network. This has given rise to a new problem under the restructured power
system environment, referred to as congestion management. There are many ways
in which congestion is formally defined but to explain in simple words, when some
components in a power network appear to be overloaded due to a trading
arrangement, that particular arrangement is said to create congestion on the
network. The purpose of congestion management is to make necessary corrections
in order to relieve congestion. It can be easily appreciated that under the vertically
integrated structure, network congestion, in fact, is not a challenging task. This is
because all the resources in the system are under the direct control of the
monopolist. Thus, this is the sole responsibility of the monopolist to maintain its
transmission network.

Provision of ancillary services is another tough task carried out by the system
operator under the deregulated framework. Ancillary services are defined as all
those activities on the interconnected grid that are necessary to support the
transmission of power while maintaining reliable operation and ensuring the
required degree of quality and safety. Under the deregulated power system
environment, the system operator acquires a central coordination role and carries
out the important responsibility of providing for system reliability and security. It
manages system operations like scheduling and operating the transmission related
services. The SO also has to ensure a required degree of quality and safety and
provide corrective measures under contingent conditions. In this respect, certain
services, such as scheduling and dispatch, frequency regulation, voltage control,
generation reserves, etc. are required by the power system, apart from basic energy
and power delivery services. Such services are commonly referred to as ancillary
services. In deregulated power systems, transmission networks are available for
third party access to allow power wheeling. In such an environment, the ancillary
services are no longer treated as an integral part of the electric supply. They are
unbundled and priced separately and system operators may have to purchase
ancillary services from ancillary service providers.

Then, there are certain issues like market design and market power which need
regulatory intervention. Issues pertaining to market design revolve around choice
made in the selection of dispatch philosophies, choice of various pricing schemes,
choice between number of markets with multiple gate closures, etc., from various
alternatives. The market architecture, which maps various markets on timeline, is
also an important sub-topic of market design process.

Existence of market power shows the signs of deviation from the prefect
competition. In general, market power is referred to as ability of market participants
to profitably maintain the market price above or below the competitive level for a
significant period of time. To tackle the situation, an indirect regulatory intervention
in the form of market design rules is needed. Thus, as mentioned earlier,
deregulation does not mean ceasing to have rules. It is the ‘restructuring’ of the
power business framework. More rigorous treatment to these issues is given in
further chapters.

Reasons and objectives of deregulation of various power systems across the world

Restructuring or deregulation is a broad term and can have different meanings in

different countries. This is because the changes essential for betterment of power
sector depend on the prevailing conditions in the power sector of respective
countries. Further, the word – betterment can be looked upon subjectively. For
example, well developed, industrialized countries can expect price to go down and
these countries can treat the change in the prices as betterment. On the other hand,
the developing countries need to make radical changes in the policy and regulation
such that barrier to entry for private players is removed. The effective betterment
can be looked upon from this perspective for developing countries.

In this section we will see, in brief, the issues that led to restructuring of the power
industry for following regions / countries: US , UK , Nordic Pool and developing
countries.

The US

The US electric utilities, from the very beginning were privately owned and worked
in a vertically integrated fashion. The developed countries like US had well
functioning and efficient electricity systems. However for some systems, so long as
consumers were concerned, they were not satisfied with the rising costs of
electricity. For some other systems, utility management found that running the
system was not viable due to low tariff. In some systems, pressure from smaller
players to open up the business for competition played a major role. By and large,
deregulation took place in developed countries by pressure to reduce costs while
simultaneously increasing competitiveness in the market.

Existence of market power shows the signs of deviation from the prefect
competition. In general, market power is referred to as ability of market participants
to profitably maintain the market price above or below the competitive level for a
significant period of time. To tackle the situation, an the indirect regulatory
intervention in the form of market design rules is needed. Thus, as mentioned
earlier, deregulation does not mean ceasing to have rules. It is the ‘restructuring’ of
the power business framework. More rigorous treatment to these issues is given in
further chapters.

The UK

The transformation of the British power sector proceeded along three paths in 1990.
First, the traditional industry was unbundled both vertically and horizontally. High-
voltage transmission assets were transferred to a new National Grid Company
(NGC). Coal and oil fired units were divided among two companies National Power
and PowerGen. Nuclear Electric retained control of all nuclear units. At the outset,
National Power had 52 percent of total generating capacity, PowerGen had 33
percent, and Nuclear Power had the remaining 15 percent. The second set of
changes involved ownership. Both National Power and PowerGen became private
companies in 1991, whereas the difficulties associated with nuclear power resulted
in continued government ownership of all nuclear units. Approximately 30 percent
of shares in National Power and PowerGen were sold to the public,an equal amount
to foreign and institutional investors. The remaining 40 percent was held by the
government until 1995. The third set of changes sought to open the system to
competition, wherever possible, while continuing necessary regulations. Vertical
and horizontal restructuring of power generation was based on the assumption that
generation had become workably competitive and would become increasingly so
with new market entrants.

A report on reform process was floated by the regulator in 2001 which stated that
wholesale electricity prices had not fallen in line with reductions in generators’
input costs and that a lack of supply side pressure and demand side participation;
and inflexible governance arrangements had prevented reform of the arrangements.

The Nordic Pool

The reforms in Nordic countries were inspired by the electricity market reforms in
England and Wales in 1989, as well as by widely held beliefs that increased
competition would raise power industry efficiency to the benefit of consumers.
Norway was first amongst the Nordic countries to liberalize its electricity market in
1991, but without privatization. The Norwegian electricity sector remains almost
entirely in public hands. Rather than implement national reforms, the other Nordic
countries chose to reform by merging with the existing Norwegian market, Sweden
joining the expanded Nordic pool in 1996, Finland in 1998 and Denmark in 1999.

The Developing Countries

The case of developing countries is different from that of other countries. In these
countries, the electricity supply is treated as a social service rather than a market
commodity. The ownership of the power sector in these countries is directly under
the governments of respective countries. These state owned-controlled systems have
led to the promotion of inefficient practices over a period. The power sectors of
these countries are marked by supply shortages. There has been an inability to add
to the generating capacity. The subsidies and high transmission and distribution
losses are the major concerns before these systems. Another consequence of state
control over electric utilities was the high level of overstaffing.

The inability to raise funds for capacity addition invited financial support from
international financial institutions like World Bank. These institutions mandated
opening of the power sector for private companies which were contracted under
build, own, operate and transfer (BOOT) scheme.

Distributed and Dispersed Generation Distributed generation (DG)

entails using many small generators, of 2-50 MW output, situated at numerous
strategic points throughout cities and towns, so that each provides power to a small
number of consumers nearby. While these small generators might be solar or wind
 turbine units, generating units in this category are most often highly efficient gas
turbines in small combined cycle plants, because these are the most economical
choices. Although small compared to traditional central station generators, such 2-
500 MW generating units are large, both physically and electrically compared to the
needs of individual energy consumers., producing power for between 50 and 400
homes.

Dispersed generation refers to use of still smaller generating units, of less than
500 kW output and often sized to serve individual homes or businesses. These units
are small enough to fit into garages or, like central air-conditioners, on a pad behind
a house. Micro gas turbines, bel cells, diesel, and small wind and solar PV
generators make up this category.

Distributed generation generally means more than one power source feeding the same
loads including sources at multiple locations but it can also mean stand alone or isolated
generation at the point of use. Typical for this definition are generator and UPS at mission
critical sites such as data centers and laboratories. These can operate in complete isolation, in
parallel with the utility grid, in parallel as part of a local grid. Power can also be transferred
between the utility grid and local grid in either open transition or closed transition mode.

Multiple generation sources tied together means that sufficient power can be made available
for the entire load where no one generator is sufficient by itself. This allows sufficient
redundancy to take units off line for maintenance or where one or more fail. It also means
there can be additional reserve capacity for unexpectedly large loads. These are among their
advantages.

However, there are also serious disadvantages too. As the network or grid becomes more
complex, it becomes increasingly difficult to analyze. Every loop is analyzed as a Kirchoff
voltage loop, that is a differential equation and all loops must be solved as simultaneous
equations to completely describe and predict the behavior of the network. Networks can
quickly grow to hundreds, thousands, or even tens of thousands of loops. It is frequently
assumed incorrectly that a steady state analysis is sufficient to assess the adequacy of the
network. This can lead to a fatal mistake. In addition to the problem of keeping the network
stable and controlled under steady state conditions, in an upset condition the loads will
redistribute as transients. Under these conditions where the loads redistribute at unpredictable
and uncontrollable rates it is possible to cross the time current curve of protective devices
such as fuses, circuit breakers, and protection relays momentarily causing tripping
other power sources off line. This can cause a global cascade network collapse because the
initial fault causes transient overloads that radiate out at the initial fault that can't be
contained or isolated quickly enough. This can happen even where the total capacity of the
distributed network at steady state is far more than sufficient than the load would suggest.

An example of this was the power blackout of the entire Northeast United States power grid
in October 1965 resulting from a single transformer failure in Niagara New York. Nearly 40
years later in August 2004 a similar event occurred due to an overloaded feeder in Ohio. The
blackout extended all the way through Northeast Canada as well as the US. Only about two
or three years ago, taking a single piece of equipment off line in Arizona caused a blackout
for five million users in Southern California, Arizona, New Mexico, and Northern Mexico.
About the only advice is to build far more capacity in all parts of a network than you are
going to need so that it can absorb these transients. That is not being done as the reliability of
capital plant on both a local and regional level, both privately and in the public utility
network has been taken for granted for decades. As capital plant ages and its capacity is
utilized close to its rated capacity, the likelihood of global cascade network collapses grows
from a possibility to a near certainty. Getting these systems back up and on line can take one
or more days as the network must be brought back up gradually and controllable to avoid
another unexpected collapse.

The main drawbacks of the centralized paradigm

Several studies were conducted to emphasize the main shortfalls of the centralized generation
paradigm and to explicit the motivation of the agents in keeping distributed generation as a
primary source of electricity or as a back up generator (El-Khattam et Salama, 2004;
Perpermans et al., 2005). The main drivers listed in the literature are summarized below:

Transmission and distribution costs: transmission and distribution costs amount for up to
30% of the cost of delivered electricity on average. The lowest cost is achieved by industrial
customers taking electricity at high to medium voltage and highest for small customers taking
electricity from the distribution network at low voltage (IEA, 2002). The high price for
transmission and distribution results mainly from losses made up of:

- line losses: electricity is lost when flowing into the transmission and distribution lines;

- unaccounted for electricity; and

- conversion losses when the characteristics of the power flow is changed to fit the
specifications of the network (e. g. changing the voltage while flowing from the transmission
network to the distribution network) (EIA, 2009).

Rural electrification: in an integrated power system, rural electrification is challenging for

two reasons. As large capital expenditures are required to connect remote areas due to the
distance to be covered through overhead lines, connecting remote areas with small
consumption might prove uneconomical. This effect is amplified when taking into account
transmission and distribution losses because both tend to increase with the distance covered.
Rural electrification is thus costly. It often proves more economical to rely on distributed
generation in such cases (Carley, 2009). This has often been the case for mountain areas or
low density areas remote from the main cities.

Investment in transmission and distribution networks: over the next 20 years, significant
investment will be required to upgrade the transmission and distribution networks. The
International Energy Agency (2003) estimated the total amount to be invested in generation,
transmission and distribution up to 2030 for the OECD countries to stands between 3,000 and
3,500 billion dollars (base case predictions). In order to cut these costs, distributed generation
can be used as a way to bypass the transmission and distribution networks. In its alternative
scenario - under this scenario distributed generation and renewable energy are more heavily
supported by policy makers- the IEA forecasts the overall amount to be invested to be lower
than 3,000 billion dollars (electricity generation investments remaining constant).
Energy efficiency: in the 1960s, the marginal gains in energy efficiency through size increase
and use of higher temperature and pressure started to diminish. Higher temperatures and
pressure resulted in high material wear and tear leading to lower than expected operating life
for steam turbines (Hirsch, 1989). In order to increase energy efficiency without requiring to
higher pressure, cogeneration systems have been developed to reuse the waste steam in a
neighbourhood heating system or cooling system through district heating and/or cooling
district. The total energy efficiency achieved when combining both electricity and heat goes
up to 90% (IPPC, 2007). Comparatively, the sole electricity generation hardly goes above
40%. The main problem, however, is that steam and heat are even less easily transported than
electricity, thus justifying the use of distributed generation through production next to the
point of consumption.

Security and reliability: The persistence of distributed generation contributed to energy

security through two effects:

~ Fuel diversity: as distributed generation technologies can accommodate a larger range of

fuel that centralized generation, distributed generation has been used to diversify away from
coal, fuel, natural gas and nuclear fuel (IEA, 2002). For instance, distributed generation has
been used at landfills to collect biogas and generate energy;

~ Back up generation: the main use of distributed generation is for back up capacities to
prevent operational failures in case of network problems. Backup generators have been
installed at critical location such as hospitals, precincts etc.

Electricity deregulation and cost control device: in a deregulated electricity market, the
diminution of reserve margins or the failure of generators to supply the network (due for
example to unplanned outages etc) can lead to capacity shortfalls resulting in high electricity
prices to the consumers. In order to hedge against negative price impacts, large electricity
consumers have developed acquired distributed generation capacities. Such a move was
possible thanks to the increase in flexibility in the market regulation following the
deregulation including, among other, reducing barriers to entry.

Environmental Impact: the environmental impact of the centralized energy system is

significant due to the heavy reliance on fuel, coal and to a lesser extent natural gas. The
electricity sector is responsible for 1/4 of the NOx emissions, 1/3 of the CO2 emissions and 2/3
of the SO2 emissions in the United States (EPA, 2003). Distributed generation has been used
to mitigate the impact both in terms of emissions associated with transmission and
distribution losses, to increase efficiency through cogeneration and distributed renewable
energy.

As distributed generation has been able to overcome the aforementioned shortfalls of the
centralized generation paradigm, it kept on average a small share in the overall generation
mix. The following subsection will focus on the main features of distributed generation and
why it has been the source of an increased attention recently.