Mega-opportunity for Electric Utilities
By Tom Rooney and Bill Moran, TRC Companies
Across North America, every week seems to bring new proposals for microgrids-self-contained, neighborhood or campus-sized energy delivery systems that typically combine generation, often renewable sources like wind and solar, and energy storage.
Whether it’s to lower costs, “go green” or bolster resiliency by creating a backup to the power grid, microgrids are generating interest and excitement throughout the energy world, but with one significant exception.
Traditional electric utilities might see microgrids as a threat to their revenue streams and, in big enough numbers, their business models. The more customers that sign up to use microgrids, especially big-volume and big-profit entities like corporate and institutional campuses and industrial operations, the more utility executives might fear for their bottom line and viability. Some states are restructuring the tariffs that regulate public utilities to foster development of microgrids and use of distributed generation.
Microgrids don’t have to be a threat to utilities, but instead can be a major opportunity, both as energy cost-savers to consumers and a source of new revenue for distribution utilities. This article presents descriptions of microgrid projects in which TRC has been involved. They help make the case that there are promising upsides for utilities that embrace microgrids.
One project that presents a wide range of benefits microgrids can offer includes PSEG Long Island. The utility won a $1 million grant to engineer and design a microgrid for Huntington, New York, a Long Island community that experienced power outages during severe storms for several years, including an eight-day blackout following Superstorm Sandy in October 2012. The Huntington “community microgrid” is designed to combine solar energy, a fuel cell, biogas from the town’s wastewater treatment plant, traditional natural gas, and high-efficiency central heat and power (CHP) to deliver electricity and heat to local customers and institutions. With its robust and diverse mix of fuel sources, the microgrid is envisioned to provide energy to Huntington’s town hall, hospital, YMCA, senior center and wastewater treatment plant, as well as other customers. In a future major weather event that causes a utility power failure, the microgrid would activate instantaneously to ensure heat and power are available at key municipal facilities and designated emergency shelters, freeing up PSEG Long Island resources to be applied to outage restoration resources elsewhere.
Why Microgrids are Good for Utilities
There are two main reasons microgrids can work for utilities and not against them. First, to be economically feasible, a microgrid’s generation must provide savings over current retail energy tariffs. Increased reliability and resiliency come at a cost, however, and someone must pay that cost. To justify passing costs along to consumers, those costs must be offset by improved power quality and a substantial reduction in unplanned customer outages. What generally clinches the economic incentives for constructing a microgrid are the efficiencies created by energy storage, CHP systems, and, in places with abundant wind and solar potential and renewable energy incentives, lower generation costs.
Microgrids that incorporate renewable generation often include energy storage systems that provide benefits to the grid in terms of frequency and voltage stabilization. These storage systems also can serve as a source of reserve power to reduce peak demands on substations and the bulk power transmission system. In addition, microgrids with energy storage provide a means of dispatching renewable energy at the times it is most needed independent of the daily cycles of sun and wind.
When it comes to an undertaking as complex as designing, installing and maintaining a microgrid, many customers will be just as eager to turn those tasks over to a large, capable utility as they are to turn over payroll, office information technology and telecommunications services to large, capable providers in those fields. Most customers, even large industrial ones, don’t want to be in the power business, and they shouldn’t be. They simply want to lower their energy costs while improving reliability. Utility ownership of microgrids allow customers to accomplish these goals in a way that incorporates new technology while maintaining the traditional utility model as a distributor of energy to the customer.
Secondly, microgrids are also proving to be helpful for utilities to reduce the costs of maintaining reliable service. For example, San Diego Gas & Electric (SDG&E) struggled for years to maintain service during lightning strikes and desert flash floods to 2,800 customers in Borrego Springs, California, which was served by a single radial transmission line through the desert. Installing a microgrid in 2009 and 2010, which combined diesel generators, rooftop solar and utility scale battery storage, has been a cost-effective way to keep power running, especially for emergency cooling shelters. The SDG&E project is seamlessly meshed with a portion of the existing utility distribution system to augment and relieve demand on peak demand days, and to operate autonomously through a widespread outage.
As microgrid technology, reliability and costs improve, utilities and regulators see that microgrids can be a cost-effective alternative to transmission upgrades or redundancy. In addition, they can deliver utility-scale benefits, such as supporting smart grid deployments and lowering line loss in challenging service areas.
In years to come, we can see customized deployments of microgrids becoming an increasingly popular, proven alternative to conventional transmission and distribution upgrades. In states that have restructured utilities to separate power generation from energy delivery, laws must be amended to clarify how much generation, in the context of a microgrid, a restructured utility is allowed to own, and when utilities are allowed to install microgrids outside their home service territories, such as to serve a multi-location customer. These changes are simply negotiations, however, not deal-killers.
At the highest level, utility business models are already evolving, as they must. A process of redefining what “utility,” “grid” and “generation” mean in the context of 2017 energy delivery is already underway thanks to thousands of residential customers installing rooftop PV. Microgrids are simply the next wave of that redefinition. The distribution system, once a linear one-way pipeline from substation to customer is being transformed into a bidirectional system connecting a network of energy customers and producers much in the way the bulk power transmission system presently works. Utilities must revise their business model to reflect these foundational changes and extract revenue based on providing the capacity to transmit power as opposed to a flat cost of energy to consumers. Time of day rates are key to this business model both for utilities and the microgrid customers. Utilities and regulators are well into working through how to price the value those customers will place on maintaining a connection to the utility grid.
The opportunity to deploy projects that serve customers and rationalize network reliability make the upgrade costs associated microgrids worth the mega-opportunity they provide electric utilities.
Microgrids that incorporate renewable generation often include energy storage systems that provide benefits to the grid in terms of frequency and voltage stabilization.
Tom Rooney, LEED AP, has more than 20 years’ experience in the energy industry focusing on design, management and evaluation of energy efficiency programs. He is a vice president in TRC’s Energy Services group, overseeing the technical components of TRC’s portfolio of multifamily and commercial and industrial energy efficiency programs. Rooney is involved in design and management of statewide efficiency programs for the New Hampshire Public Utilities’ Commission, Efficiency Maine, the New Jersey Office of Clean Energy, and the New York State Energy Research & Development Authority (NYSERDA). Tom recently finished his tenure as a charter member of the Standards Technical Committee of the Building Performance Institute (BPI). He is a Certified Energy Manager. Contact Rooney at email@example.com.
Bill Moran is TRC’s Director of Microgrid Engineering. He has more than 35 years’ experience in electrical power generation and distribution, including design, construction and operation of large campus type power distribution systems, ranging in size from 1 MW to 25 MW. Moran’s experience with distributed generation sources range from single diesel and natural gas fueled reciprocating engine-generators to multi-megawatt dual fuel gas turbines and steam turbines in combined cycle operation. He also has managed construction and commissioning of wind energy projects up to 100 MW in capacity. Contact Morman at firstname.lastname@example.org.