Onsite generation facilities typically use gas turbines, and can have capacities of several hundred megawatts. Smaller onsite generation systems can be installed at commercial facilities, such as military bases, laundries, schools, hospitals, and hotels.
Onsite generation can be used for power generation or in the combined heat and power mode (cogeneration) where thermal energy that would ordinarily be lost is captured and reused.
Energy cost savings are obtained when the fuel cost of generating power onsite is less than the cost of purchasing the power from the local electric utility. This saving can be substantially increased if the heat associated with the generation of power that is wasted, is captured and used. This avoids the purchase of the natural gas that would have been needed to provide the heat. Energy cost savings can often times be the sole reason for the installation of distributed generation.
Closely associated with reliability, is the ability of onsite generation in concert with small power storage systems, to provide for improved power quality. Harmonics, voltage sag and momentary outages (enough to trip expensive computers) can all be prevented through the use of such systems.
Onsite generation can provide an essential redundancy to power provided by the local electric utility. Almost all of the current operators of co-generation plants can also obtain their power from the local electric utility. These customers therefore have a dual source of energy as they have power when their systems are down (say for occasional maintenance) or when there is a failure of the local electric utility. This redundancy in turn can provide for health and safety, industrial process continuity or significant protection from computer and information technology upset. There can be significant cost saving associated with this redundancy.
Onsite generation can also be used as a physical hedge to lock in the cost of power rather than expose one's business to the vagaries of wildly gyrating electric costs. The opportunity/challenge of being exposed to monthly fluctuations of electric energy costs has been provided to small business as a result of electric restructuring and the regulators' desire to provide business consumers with clear energy price signals.