A comparative analysis of centralized versus distributed approaches in electrical power generation: a study on furnace oil based power plants of Bangladesh

Abstract

Organizations with centralized power generation have a single facility to generation and transmission their generated electricity with multiple grid substations in their supply chain. A single power plant can dramatically reduce per unit production costs by using the same equipment to produce electricity, allowing the company to achieve economies of scale. Research from the nonprofit organization PENDEKER Energy shows that centralized power generation organizations have generation costs that are about 3 percent lower than decentralized organizations. For an organization with $5 billion in annual revenue, this is a difference of $150 million. PENDEKER energy research also shows that raw material inventory turn rates and generation schedule efficiency are higher in organizations with centralized power generation. Centralized power generation can also enable better forecasting, more local jobs, consistent production and more effective use of limited resources. The cost of materials may also be lower for centralized generation sites that are located near the source of those materials. Organizations with decentralized power generation enjoy many benefits that often elude companies with centralized plants. These advantages include flexibility, being closer to their customers, better and timelier information, more motivated managers and employees, and the ability to take advantage of low labor costs in different areas. When a company is physically close to its customers, it can be more flexible in meeting increasingly diverse demands. Greater flexibility means greater customization. Decentralized power generation not only improves the efficiency of decision-making but also empowers employees, letting them improve problem areas immediately without approval from a centralized organization. According to a study by Harvard University, decentralized production actually increases motivation and creativity by giving lower tier managers more responsibilities. When a manager is given a sense of ownership over an operation, efficiency increases among employees in both production and support positions. Decentralized power generation has disadvantages as well. Multiple sites require a larger investment of capital to set up, the per-unit costs are higher than mass-produced generation made in a central plant, and maintaining organization-wide consistency in products and processes is a challenge.