H. S. Knowlton said, “In the establishment of many kinds of modern business the question of cheap power is one of fundamental importance, and in not a few cases the industrial manager finds it a most difficult problem to decide between installing an isolated plant and contracting for central station service.” That’s from Knowlton, “The central station and the isolated plant,” Cassier’s Magazine, 32 (August 1907). Here are a couple of quotes I liked:
To the modern central station man it seems preposterous that scores of small installations, often poorly operated, with wretched load factors, inferior supervision and an oft-times reckless disregard of fixed charges, should be tolerated by keen business men. Duplication of generating capacity seems to him an idle waste of capital. But the incubus of distribution cost sets the limit to the minimum profitable power rate, and far too often there is a lack of exact information as to the cost of distribution to particular customers. The problem of ascertaining it is one of the utmost difficulty, as far as making its influence felt on specific rates is concerned, but it is one of the most fascinating questions in the field of modern electrical engineering.
I’d say that possibilities for distributed energy resources linked with smart grid capabilities makes this question once again “one of the most fascinating questions in the field of modern electrical engineering,” at least within the sub-field of power systems engineering. Here’s another quote:
No one dreams of the extinction of the central station; it stands upon the solid foundations of maximum potential generating economy and minimum inconvenience to the customer, and even in the face of complex distribution charges and rate making processes which a none too friendly public finds difficult to understand, there will always be a large clientele for the commercial company to supply.
As history has it, the superior economics of the central station approach helped it dominate the electric power industry. But superior economics in general doesn’t mean superior in every specific case, and changing technologies and energy prices means that all large power consumers should ask themselves the “make or buy” question from time to time, or as Knowlton puts it: central station or isolated plant?
NOTES: The Knowlton article was found via a footnote in John Neufeld, “Price discrimination and the adoption of the electricity demand charge,” Journal of Economic History, Vol. 47, No. 3 (Sep., 1987). Cassier’s Magazine volumes are available online via Google Books (link to the Knowlton article in volume 32).
Interested readers might also check out The Isolated Plant magazine, first published in December 1908. The lead article in volume 1, issue 1: “The central station vs. the isolated plant: their respective fields,” by Percival Robert Moses. (Moses begins, “Has the isolated plant any logical right to exist at present, and if so, is it’s right only a passing one of a few years duration?”)