Michael J. Zimmer 2015-04-20 17:45:18
In 2012, Pike Research estimated that the global microgrid market would grow to $17.3 billion by 2017 ( http://bit.ly/1FmM8GN ). This is an impressive figure, for certain, that has escalated further over the past years. Even more impressive is the updated estimate released in January this year by Navigant Research: By 2020, revenue from deployments of microgrids will be more than $40 billion ( http://bit.ly/1CYOAQb ). They attribute this upward estimate, in part, to recognition that the projects (new and retrofits) require a greater level of investment than previously thought by the marketplace. North America continues to be a hotbed for microgrid development. Green Energy Corp., a US builder of commercial-scale microgrids, recently estimated that 24,000 US commercial and industrial sites could be developed with large-scale microgrid conversions ( http://bloom.bg/1Pobt69 ). And that doesn’t even include the other types of microgrids such as institutional/campus, community/utility, military, and remote applications. So then, just how do we go to 24,000 possible project sites? Or even more in the US? Or expand the number of states that are advancing this electric strategy for resiliency, modernization, customer service, or operational optimization? A “microgrid” is defined as an integrated energy system of distributed energy resources and multiple electrical loads operating as a single, autonomous grid—either in parallel to, or islanded from the existing utility power grid. The types of technologies that can be integrated into a microgrid are even more numerous than the applications themselves: distributed generation (DG), renewable energy and storage, CHP and cogeneration, energy infrastructure, demand-side management (DSM), and other energy efficiency strategies. This bodes well for manufacturers of these applied technologies at home and abroad, such as Siemens, General Electric, ABB, Honeywell, Johnson Controls, and Pareto Energy, as well as microgrid designers like Green Energy Corp. With increasing customer-owned distributed energy resource loads, the utilities must now consider how these new resources will operate within the current distribution and wholesale market. Certainly, the entire notion of microgrids challenges the traditional business model of utility-based infrastructure and the system in use today. But, considering that power outages cost business and government an estimated $104–$164 billion annually, there is ample reason for change. There are operating benefits, resilience improvements, and new customer services with additional revenues to capture in a flat, declining electricity marketplace. Other reasons for electric utilities to pay attention are more application specific: The military seeks more reliability in the electric grid to circumvent vulnerabilities in their missions. Threats of cyber-attacks on critical infrastructure are partially driving the US military interest. Disturbances in electric supply also impact industry, commerce, and communities causing significant losses of information, efficiency, and productivity. Real estate developers see microgrids as critical for new development for smart cities. If the trend for microgrid deployment continues, utilities will have to adapt to include several new models of generation, transmission, and distribution, and be open to the benefits that can result. The regulatory shift should focus and build on the regulatory lite model for power marketing in the 1990s, which solely focused on price. Customer service, IT and technology improvements, ancillary services, and integration with new supply resources should guide the new regulatory model for microgrids in the future. Kevin Sullivan, business director at DNV KEMA, foresees the following benefits for microgrid deployment: • improves energy reliability and security of supply especially critical in health care, emergency, and military operations • net excess energy revenues and efficiencies (in the near future) will support funding of new grid investments • ability to self-optimize assets with full self-control of energy operations where the microgrid operator has both supply and demand control and responsibility • defers infrastructure investments to match a visible and controllable load profile, making peak load choices and longer-term investments more accurate • enables emissions reductions that support sustainability targets when renewable energy, efficiency, or demand assets are deployed and balanced • supports a net zero strategy and the Microgrid Optimization Model • increases reliability and backup capability when storage options are deployed • allows management of generation variability with renewable energy sources But 24,000 sites? Rethinking the policies and promoting a supportive market environment are still necessary. The Policies Understanding how and when microgrids draw from and sell back to the grid is essential to the evolving energy paradigm in the US. Policies that tackle interconnection, pricing, net metering, and standby rates will help microgrids to succeed in integrating into the existing business model and moving forward. Updated reviews for utility cost recovery in rate base, hybrid rate design, and future partnering with IT companies must be explored. Public policy leadership for successful grid modernization for more integration and investment by utilities must also occur. Successful policies must provide: 1. External funding from both public and private sources, and utilities to promote realistic and cost-effective solutions, starting with pilot projects as necessary 2. Utility rate design that considers current costs for generation, transmission, and distribution that are avoided by the microgrid and DG choice. The rate design now in place needs to balance the economics for the utility and the customer through updated variables/inputs, because the value pricing is not accurate. 3. Tougher air-conditioning, TV, and appliance standards to ease summer peak challenges, and state-based policies that promote onsite power technologies and storage, increased energy efficiency standards, cost-effective renewable resources, merchant transmission, and enhanced building codes 4. Updated standby/backup power rates using alternative rate designs and operating assumptions without gouging customers, and include now lower fuel costs, without increasing natural gas utilization 5. Review franchise laws and “public utility” definitions to remove barriers and seek to foster DG and microgrids 6. Assurance that microgrids qualify for incentives in grant, tax code, and public policy systems along with traditional generation, fuels, and T&D strategies to receive equal rewards and accurate avoided cost recognition. Standardization of value-added services should be comparably priced for utility and for end-use customers using updated rate and avoided cost principles. 7. Updated infrastructure considerations for utilizing public rights of way for grid connections to offer resilience improvements for emergency service projects caused by escalating weather challenges with new risk and cost management repercussions 8. Ending state regulation as a “public utility,” which is no longer necessary for steam, cooling, and hot water sales from a microgrid or DG project 9. Model rules and standards for shared energy and community development programs in rural and/or underdeveloped areas where density and customers offer a different scale and value proposition 10. Restrictions on utility investment or ownership of microgrids need to be removed at the distribution level (where 90% of outages occur). This would foster more partnering and joint ventures with unaffiliated third parties, end use customers, financials, and IT vendors to provided needed expertise. 11. Distribution resource planning needs to be included more into integrated resource planning to leverage economics of scale, and efficient statewide regulation. 12. Utility rate design, cost recovery techniques need to be updated for regulatory efficiency, open access as a non-discriminatory service, maintenance of universal electric service, and better risk management through partnering. A thorough review and understanding of these issues by policymakers and project developers will help position microgrids as the “missing link” in leveraging resilience for emergency planning, energy security, state-based renewable portfolio standards, and energy efficiency standards. An artificial monopoly with outdated compliance regulation only stifles innovation and capital attraction. A 21st century market environment could pave the way for the creation of a modernized, integrated North American grid based on system reliability, resiliency, and security using microgrids. The North American market experience for microgrids will also serve to create a service and product profile that will have export value into global electricity markets as they seek to modernize and develop their own local power solutions. BE Michael J. Zimmer is with Washington Counsel, Microgrid Institute.
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