Here's What Utilities Really Think About Microgrids
- Jul 26, 2014 2:00 am GMT
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Despite a surge of interest, microgrid development in the U.S. has been one giant R&D experiment.
There is just over a gigawatt worth of microgrids scattered throughout the country. While many of those projects have proved their value during major storms or extended outages, they are largely custom-engineered and limited to public facilities like schools, hospitals and military bases. They’re also highly dependent on fossil fuels, rather than renewables.
That is slowly starting to change. According to a recent report from GTM Research, microgrid development is expected to grow by around 700 to 800 megawatts in the next three years. Some of those new projects will extend to private commercial operations and include solar PV, battery storage and biogas, but the vast majority will still be based on the traditional model.
“The applications are still largely limited,” said Timothy Qualheim, VP of Strategy Solutions at S&C Electric Company. “The non-governmental projects are still less than 10 percent of the market, and a lot of them are pet projects.”
So how can microgrids evolve into something more significant than one-off installations limited to a narrow set of customers? There is not a single, simple answer. A lot will depend on improvements to state-level planning, how energy markets value ancillary services, the frequency of outages, the economics of distributed energy and how ownership models change.
As grid planners sort through those matters and attempt to streamline the development process, another big question arises: What role will utilities play in these projects?
In theory, the expansion of islandable microgrids beyond critical public facilities could create a lot of headaches for utilities. Declining revenues from decreased sales, conflicts over where microgrid operators can string lines and connect to the distribution system, and worries about reliability when customers separate themselves from the grid are all points of contention.
Some industry observers have argued that if utilities can fully or partially own microgrids, they might be more interested in seeing the market succeed.
“For the vast majority of states, we need to move forward with microgrids with significant utility involvement,” said Galen Nelson, the director of market development at the Massachusetts Clean Energy Center. “The business model issues are just as hard as the technical integration issues.”
And as a new survey of more than 250 utility executives conducted by Utility Dive points out, power companies are interested in being involved. More than half of the executives surveyed said they see themselves getting into the microgrid market within the next five years. And beyond the next decade, 97 percent said they expect microgrids to offer a business opportunity.
“This defies the perception of utilities as often slow to innovate and resistant to disruptive change,” wrote the authors.
It’s certainly not clear whether utilities are embracing this change, or just acknowledging the fact that microgrids are going through a small growth spurt. The Utility Dive analysts interpreted the data very optimistically.
“It indicates that microgrid development will ramp up quickly in the near term, given that utilities are the dominant players in the electric power industry,” concluded the authors.
However, with no comprehensive planning processes in place on the state level, it’s unlikely that microgrids will “ramp up quickly” and become a meaningful force in the electric system in the short term. But utility recognition of coming growth is certainly a positive indicator.
So do utilities want to own all the projects? It doesn’t appear so. Executives said there would be a mix of ownership opportunities, with power companies playing some role in operating the microgrids in their territories.
No matter how receptive power companies are to the idea of microgrids, there won’t be much activity without regulation that values their services. According to the Utility Dive survey, 85 percent of executives said the regulatory environment prevents them from developing or operating projects.
Support for regulatory change appears to be more than just self-interest. The survey also showed that 85 percent of respondents support changes to franchise rights that would allow microgrid developers to gain easier and cheaper access to grid infrastructure.
“If this proves true, and utilities do support franchise rule reforms, it will be a tremendous boon for microgrid developers,” wrote the authors.
Assuming utilities start seeing meaningful growth in microgrid development, there are long-term challenges in operating those projects in concert with the rest of the grid. Three-quarters of respondents said they think projects should be controlled by a central operational organization. More than half of those utilities believe they should be put in control, while only 22 percent said a private third party should be in control.
The survey clearly shows that power providers are supportive of microgrids — in theory. But Utility Dive asks a very important question about what the results mean: “If an overwhelming 97% of utilities see microgrids as a business opportunity, what’s holding them back from capitalizing on it now?”
As partially explained through the responses, a lack of market rules and a disjointed regulatory environment are the primary factors at play. No one has yet come up with a comprehensive process for evaluating, approving and operating projects.
States such as Maryland, Massachusetts and New York are attempting to grapple with these matters and develop a regulatory framework to make microgrid development simpler. But these are multi-year processes. Until planning gets better, it won’t matter how positively utilities feel about microgrids — they simply won’t grow beyond niche applications.
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