Microgrids Spawn Uncertainty, Threats, Opportunities…and More

By Teresa Hansen, editor in chief, POWERGRID International and Jennifer Runyon, editor in chief, Renewable Energy World

Electric utilities have been subject to some major disruptive technologies in recent years. Some utilities see these technologies and the industries they’ve spawned as threats, while a few view them as opportunities. Either way, it’s clear that new technologies have changed utilities’ operating processes, revenue streams and business models, as well as their customers. Microgrids are on of the disruptors.

On January 31 at DistribuTECH in San Diego, California, during a conference session titled “The Future of Microgrids: Utility, Market Designer and State Regulator Perspectives,” experts debated the future of microgrids with a large focus on the economics of these distributed energy resources and energy management systems.

David Chiesa, senior director-business development at S&C (left to right), Floyd Ross, Oncor microgrid site owner and Bryan Sonnier, Oncor network technician, are pictured here in Oncor’s microgrid control room.

Using the DOE definition of a microgrid-a group of interconnected loads that can connect and disconnect from the grid-James Mader with the United Illuminating Co., Neetika Sathe, with PowerStream, Raj Chudgar with Viridity, Shiv Mani with the Federal Energy Regulatory Commission (FERC) and moderator Ken Horne with Navigant Consulting laid out their views on the future of microgrids in North America and around the world.

Rooftop solar PV is a main source of power for the microgrid at the Shedd Aquarium in Chicago.

The challenge for microgrids is not engineering, said Chudgar. The challenge is the soft costs, he said, such as legal, regulatory and financing.

The panelists said that just about every microgrid that exists right now received some sort of grant funding or special incentives to make it economically viable, but they pointed to five existing business cases where they believe microgrids make economic sense today.

“There are some very good commercial opportunities because there are some very real problems that these things can solve,” said FERC’s Mani.

Five Utility Business Cases

1. Subpar Electricity at the End of the Line

From a utility perspective, one business case for microgrids exists for customers at the end of a line. If for whatever reason electricity delivery to an endpoint on a grid is subpar, up until very recently the only option for utilities was to build another line, said Chudgar. He believes that public utility commissions are going to start asking about the alternatives to building new lines.

“That’s probably one of the leading drivers from a utility perspective for where microgrids make sense,” he said.

David Chiesa, senior director of global business development for S&C Electric Company, who was not part of the panel but spoke to POWERGRID International about microgrids in a separate conversation, agrees this is a utility business case that might resonate with regulators.

One of the best microgrid applications for a utility is an instance where its customer is threatening grid defection, due to subpar service-where there is low reliability and an interruption/outage is likely to negatively impact customers, said Chiesa.

“Utilities are paid and take pride in providing reliable service,” he said. “And, many utilities’ cost recovery is tied to reliability indices like CAIDI, SAIFI, SAIDI and others.”

If a utility can show that it can improve service and avoid the cost of upgrading or building new power lines or substations then regulators might agree building a utility microgrid to improve service makes sense, Chiesa added.

Like energy storage, microgrids can be value stacking assets, he said. In other words, they provide several benefits, like deferring capital expenses, increasing grid reliability and improving power quality. These things allow utilities to better service their customers at less cost than investing in new grid infrastructure.

Chiesa believes this type of justification could work with regulators because it can improve service and avoid higher cost alternative solutions.

Solar panels that are part of the rooftop microgrid at the Shedd Aquarium.

Courtesy: Schneider Electric


Oncor microgrid control room

Courtesy: S&C Electric Company

2. Powering Critical Services

The DistribuTECH panelists agreed that a second business case can be made for powering critical services. These include facilities like water treatment plants, gas distribution lines, hospitals-places where if the power goes out, people can lose their lives or major disasters can occur.

“If those facilities are at risk, then there is an opportunity for a microgrid as well,” said Chudgar.

3. Large Customer Defection

A third case, according to the panelists, can be made for commercial and industrial (C&I) customers who might have concerns about their electricity bill.

“When you stack the revenue that a microgrid can offer-ancillary services, selling power on the wholesale market, carbon emission reduction and more-Chudgar said it is worth at least examining how a microgrid might be able to alleviate some financial strain for a C&I customer.

Chiesa also believes this is a valid business model for utilities’ larger customers.

A regulated utility’s customer can decide if its interests are best served by building a microgrid and greatly lessening its dependence on the electric utility, threatening a utility’s revenue stream, said Chiesa.

“The proliferation of customer-based microgrids means that regulated utilities face a real threat of grid defection,” he said. “And, the concept of grid defection is scary.”

He pointed out that a regulated utilities’ C&I customer can not only defect from the grid, but through the services provied by unregulated utilities operating in their service territories, they might receive help doing so. Unregulated utilities are looking to move into a regulated utility’s service territory and partner with its customers to build and operate a microgrid. Non-regulated utilities are not restricted to franchise territories like a regulated utility and are not bound by the same regulations. In this case, grid defection is a real threat to regulated utilities, he said.

Views of the rooftop microgrid at Shedd Aquarium in Chicago

Courtesy: Schneider Electric

4. Capital Expenditure Deferment

Sathe of PowerSteam (now Alectra) said another business case for microgrids is when a utility is experiencing load growth and is considering building another substation.

“It’s about time we study the alternatives,” she said.

PowerStream has found that a centralized microgrid that connects to an existing substation and covers about 90 percent of the load can often make economic sense.

“And the last 10 percent you distribute to the edge of the grid through residential solar and storage or C&I microgrids. Spread it out and then you get your ultimate value,” she explained.

5. Firming Intermittent Energy

Finally, microgrids can be very good at firming intermittent renewable energy said the DistribuTECH panelists, especially in regions where the amount of wind and solar on the grid is creating problems.

“I think that’s a huge value right there,” said Sathe.

Utility Opportunities

Although microgrids can be scary propositions for utilities, Chiesa sees real opportunities for utilities to create new revenue streams with microgrids.

“I believe most microgrids will end up being owned and operated by utilities for a couple of reasons,” he said.

First, because microgrids must adhere to the same requirements and regulations under which distribution level voltage electricity grids operate, someone with distribution level voltage engineering and operations knowledge and experience is needed to operate a microgrid. In addition, microgrids are long-term investments and will require regular maintenance and inspection like other distribution level voltage equipment, he said.

“Utilities are experienced with medium voltage equipment and the requirements and regulations that go along with it. They are best equipped to operate and maintain a microgrid,” said Chiesa.

In addition, he pointed out that few microgrids operate completely independent from the electricity grid.

“Ninety percent of microgrids are grid connected. That means they are connected to the grid 95 percent of the time. Microgrids are typically disconnected from the grid only when the there is a high risk of service interruption or the grid is out of service. Once the grid is stable and back in service, most microgrids are reconnected,” he said.

It’s important to remember that regulated utilities have a duty to serve everyone within their service territories, so even if a customer installs a microgrid, that customer, under most circumstances, will remain connected to the grid.

“S&C is careful when looking at microgrid possibilities,” said Chiesa. “When approached by an electric utility’s (C&I) customer about installing a microgrid, we always ask that customer if it has talked with its serving utility. About half of the time, they have, and almost every time the utility is interested in being involved.

“The other half of the time the customer has not spoken with the utility and does not want its utility involved in the project. This is a naive approach because if this customer is tied to the utility, chances are it will remain connected. There are few places in the U.S. that aren’t connected to an electricity provider. And, unless the customer wants to completely disconnect from the grid, that utility is obligated to provide full and complete service.”

S&C sees things a little differently in unregulated areas. If a customer approaches S&C about building a microgrid in an unregulated territory, we are interested in building it for that customer and then providing operation and maintenance services after it’s completed, said Chiesa.

Regulatory Challenges

Even when technology is proven and business models make sense, utilities have an uphill battle when it comes to convincing regulators that microgrids are viable.

Utilities are required to provide a ubiquitous level of service, but some consumers are demanding higher service levels, explained Chiesa.

The idea of enhanced reliability zones creates equity issues with regulators. Even if there is good reason for a utility customer to have a higher level of service than the norm, and even if that customer is willing to pay a premium for it, regulators are reluctant to approve such a project, he said.

“Regulated utilities must sell regulation changes to their commissions that will allow utilities to have enhanced service zones,” Chiesa said. “They must say to regulators: ‘Allow me to serve my customers the way they want to be served.'”

He said a utility must convince regulators of four things: the customer has a need for the enhanced service and wants it; the microgrid won’t negatively affect other customers; there is a business need/case for the microgrid; and, it (the utility) has the technological capability and expertise to safely build and operate a microgrid.

This last requirement is one of the reasons some forward-thinking utilities are building microgrid demonstration projects. For example, Texas-based Oncor Electric Delivery Co. and S&C partnered to build a demonstration microgrid. The purpose went beyond just providing proof to the regulators that it could build and operate a microgrid, it also allowed Oncor to learn how to safely operate the grid with microgrids connected to it.

“Utilities can’t keep microgrids from coming onto their systems,” said Chiesa. “So, they need to know how microgrids work, how they impact grid operations and how to protect their equipment and workers.”

As for regulators, he said they do not yet understand the mechanics and impacts of microgrids and are reluctant to approve them in rate cases.

“In many places, utilities are still fighting the smart grid battle with regulators. They have made it through the first hurdle of smart grid-smart meters-and have now moved to distribution automation and self-healing grids,” Chiesa said.

The smart grid/automation business case success of utilities like FPL, Chattanooga’s EPB, ComEd and Ameren are compelling, he pointed out. This makes the argument with regulators easier for smart grid because they can see where the business case has been proven.

“Storage and microgrids will come next, but are still a long way off when it comes to gaining approval from regulators because the business cases are not as mature,” he said.

Creative Financing

Some utilities, like Duke Energy, are exploring ways to build microgrids without adding them to the rate base and thus without public utility commission approval. At DistribuTECH, Duke Energy Renewables announced that through a partnership with Schneider Electric, it will deploy two advanced microgrids for public safety facilities in populous Montgomery County, Maryland.

The two microgrids will be owned by Duke and the county will buy the energy output from them through a long-term power purchase agreement. Duke and Schneider are calling this arrangement “Microgrids as a Service” (MaaS). By funding and developing both microgrids through Schneider Electric’s MaaS business model, Montgomery County can get the electric service reliability and resiliency it needs without any upfront costs (See sidebar titled “Schneider, Duke Energy deploying microgrids for public safety facilities in Maryland” on page 10). Utilities and suppliers alike are sure to be watching this project closely.

“If this works, it will help microgrids take off,” predicted Chiesa.


Schneider, Duke Energy to deploy microgrids, introduce “Microgrids as a Service” model

By Staff and Wire Reports

Schneider Electric and Duke Energy Renewables will partner to deploy two advanced microgrids for public safety facilities in populous Montgomery County, Maryland, the companies announced on Feb. 1.

The two microgrid assets, which will be owned by Duke, will serve the Montgomery County Public Safety Headquarters (PSHQ) and Correctional Facility. The county will buy the energy output from Duke on a long-term power purchase agreement.

The microgrid deal was announced during Schneider Electric’s Executive Breakfast Briefing as part of the DistribuTECH Conference and Exhibition in San Diego. Eric Coffman, chief of energy and sustainability for Montgomery County, who spoke remotely at the Schneider event, noted that his community has a history of widespread outages due to major storms and other factors.

Having crucial public safety facilities wired into the microgrid, and thus able to island and maintain power even during widespread outages, drove the decision to work with the companies, said Coffman.

“Those two facilities are so essential that was the impetus for this project going forward,” he said.

Improvements include upgrades in infrastructure at PSHQ and Montgomery County Correctional Facility, as well as clean on-site power generation through a solar energy system and natural gas generators that enable uninterrupted public services during emergencies. Often called “island mode operation,” this functionality allows facilities to intentionally, or automatically, separate from the electric grid and continue to operate at, or near, normal capacity for extended periods during power outages.

By funding and developing both microgrids through Schneider Electric’s Microgrid-as-a-Service (MaaS) business model, Montgomery County can complete construction without any upfront costs to the County.

Montgomery County officials predict that this way of financing resiliency projects can be a workable model for government and private sector customers.

Schneider Electric will design and implement microgrid protection control and optimization, electrical equipment, distributed energy resource (DER) management, electrical design services, cybersecurity and network design.

Duke Energy Renewables will own both advanced microgrids, and its affiliate, REC Solar, will build the solar system. Schneider Electric will also assist Duke Energy Renewables in the operation of the microgrids.

“It’s more important than ever to meet customers’ evolving needs through solutions that are creative, affordable and dependable,” said Rob Caldwell, president, Duke Energy Renewables and Distributed Energy Technology, in a statement. “With more than 100 years of utility experience and an established renewables business, we bring the expertise in generating cleaner energy that will serve to increase the security and sustainability for these county facilities.”

The microgrids will produce approximately 3.3 million kWh of solar energy each year, equivalent to powering about 400 average homes each year. The systems also will include 7.4 million kWh of combined heat and power each year, which saves energy by using waste heat from on-site power generation to heat and cool the buildings.

Combined, the on-site power generation at these two facilities is anticipated to reduce greenhouse gas emissions by 3,629 metric tons each year, as much as taking 767 cars off the road. The advanced microgrids include technologies to enable predictive management and optimization of energy usage during grid connected and island modes.

“By deploying advanced microgrids, Montgomery County is directing its energy future. This underscores our approach to innovate at every level of our offer, both in the technology and the financial structure,” said Phillip Barton, director of Schneider Electric Microgrid Competency Center. “Using the Schneider Electric Microgrid-as-a-Service offer removes the up-front cost hurdles for Montgomery County, while increasing resiliency, efficiency and sustainability.”

The Montgomery County PSHQ houses central County Police and County Fire and Rescue Services functions, the Office of Emergency Management and Homeland Security (OEMHS), and the 1st District Police Station.

The two advanced microgrids will become fully operational in 2018.

Schneider and Duke are no strangers to microgrids. Duke has deployed several, while Schneider installed one at the Shedd Aquarium in Chicago (pictured above), among others.

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The Clarion Energy Content Team is made up of editors from various publications, including POWERGRID International, Power Engineering, Renewable Energy World, Hydro Review, Smart Energy International, and Power Engineering International. Contact the content lead for this publication at Jennifer.Runyon@ClarionEvents.com.

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