Navigant Research Blog

Alaska Leads the World in Microgrid Deployments

— December 17, 2014

Many utilities view microgrids as a threat, due to intentional islanding and/or the effects of reduced customer load on long-term revenue projections.  However, a small but growing number of utilities view the microgrids they own and operate – known as utility distribution microgrids (UDMs) – as the next logical extension of their efforts to deploy smart grid technology.  As I’ve noted earlier, the developed world can learn interesting lessons in this field from the developing world.

Navigant Research’s new report, Utility Distribution Microgrids, shows that the total UDM market represents over $2.4 billion of economic activity today, with the bulk of this investment flowing into projects located in the Asia Pacific region.  As noted in an earlier report, Microgrids, North America is the overall market leader.  Yet, when it comes to utilities, both Asia Pacific and Europe are ahead in near-term deployments and related implementation revenues.  All told, under the base scenario, Navigant Research expects the UDM market to reach $5.8 billion in annual revenue by 2023, growing at a compound annual rate (CAGR) of 10.2%.

However, there’s one important exception to this market generalization: Alaska.

Across the Tundra

“Over the last decade, Alaska has quietly emerged as a global leader in the development and operation of microgrids,” declared Gwen Holdmann, director of the Alaska Center for Energy and Power at the University of Alaska Fairbanks, in a recent interview.  A particular focus has been hybrid conventional-renewable-storage systems, networks that have “logged more than 2 million hours of continuous operating experience for these types of systems,” according to Holdmann.  The state boasts a portfolio of somewhere between 200 and 250 permanently islanded microgrids ranging from 30 kW – about the size of a city block – to large remote hydro systems over 100 MW in size.  These microgrids, many in operation for over 50 years, provide electric power service exclusively to isolated rural populations.  Total capacity exceeds 800 MW, the largest installed base of microgrids in the world today (though China may overtake Alaska by the end of next year).

Holdmann clearly takes pride in what Alaska has accomplished with these scattered, isolated hybrid power systems, which tap fuels as diverse as wind, solar, hydro, biomass, and tidal currents, along with diesel.  While other pundits may point to New York, California, or Hawaii as the centers of North American microgrid development, Alaska has been developing cutting-edge microgrids for quite some time.  “The State of Alaska alone has invested over $250 million in developing and integrating renewable energy projects to serve these microgrids, – far more per capita than any other state in the country,” Holdmann said.

Integration Experts

The advent of advanced technology deployment to these rural systems has forced Alaska utilities and developers to become expert in microgrid development and operation.  By far the greatest challenge was, and remains, the high-penetration integration of intermittent renewables, such as solar, wind, and hydrokinetic, with traditional diesel or natural gas fueled electric power generation.  Nevertheless, Alaskans have repeatedly achieved higher renewable penetration levels than nearly any other place in the world, under incredibly harsh conditions, including daylight hours that shrink to a couple hours a day in the winter and winds that can exceed 100 miles an hour – enough to literally tear apart many conventional wind turbines not designed to stand up to such speeds.

Many Alaskan utilities have set up voluntary goals to reach 70% or 80% renewable penetration within the next 8 to 10 years.  Kodiak Electric Association, which serves Kodiak Island on the southern coast of Alaska, reports that it has achieved 99.7% renewable energy penetration so far in 2014, using a hybrid wind/hydro/diesel/battery/flywheel microgrid.

Mainland U.S. utilities could learn a lot from the innovators up north, where the smart grid is already delivering on the promise of a more cost effective and sustainable power grid today.

 

Cautiously, Private Utilities Dip Toes into Microgrid Pool

— December 16, 2014

Lawrence Berkeley National Laboratory statistics show that 80% to 90% of all grid failures begin at the distribution level of electricity service.  While utilities can resolve these issues through a variety of technologies, their historic bias against the concept of intentional islanding – or cutting off certain systems from the wider grid – has precluded them from considering microgrids in the past.

That has changed over the last 3 years.  The extreme storms that pounded the East Coast beginning in 2011 have led the states of Connecticut, Maryland, Massachusetts, New York, and New Jersey to all initiate resiliency programs that promote microgrids as a key element of their strategy.

Unfortunately, the concept of community resiliency or public purpose microgrids often violates utility franchise rules, since power would have to be sent over public rights of ways.  Connecting, for example, a gas station to a high school serving as an emergency shelter and a hospital could get the operator of this impromptu microgrid in trouble.

So, by way of necessity, utilities clearly have to play a role in these kinds of microgrids.  Furthermore, the hype about the utility death spiral is prompting many utilities to examine new regulatory structures and business models to accommodate the growth in third-party distributed energy resources (DER).

The Revolution Will Be Distributed

As a result, Navigant Research has issued a new report, Utility Distribution Microgrids (or UDMs).  While public power UDMs – both grid-tied and remote – are a larger market today and are expected to be in the future than systems deployed by investor-owned utilities (IOUs), the most interesting segment are these latter private systems, due to the regulatory issues they raise and because these large companies tend to move markets.

In conversations with utilities, the messages I’ve heard have changed dramatically.  When I initially researched this topic more than 2 years ago, the biggest concern about microgrids revolved around technology and intentional islanding, a concept that was anathema to utilities whose grid codes were designed to prevent customers from sealing themselves off from the larger distribution grids.  Worker safety, loss of customer load, and stranded investments in centralized generation also came up.

Today, many utilities cite these same issues, but growing numbers realize the DER revolution is picking up momentum and that microgrids that are owned or controlled by utilities could help them fulfill their mission to provide low-cost, reliable power.

Convincing the Regulators

The IOUs exploring microgrids include Arizona Public Service, Consolidated Edison, Duke Energy, NRG Energy, and San Diego Gas & Electric.  The primary challenge for an IOU today in implementing a UDM is justifying a microgrid under traditional rate-based regulation.  How can the utility convince state regulators that investing ratepayer funds into a project that directly benefits a small subset of customers will also benefit the wider customer base?  Even if a valid business case can be made, the typical 3-year rate case state regulatory proceeding business model may retard near-term innovation.

This IOU UDM segment offers the largest potential growth of any UDM segment, since it helps address the need for new technology solutions to address explosive growth in DER.  But it also faces the largest regulatory question marks.

 

Distributed Generation Leads Microgrid Investment Opportunities

— September 18, 2014

Without some form of distributed generation (DG), the vast majority of microgrids would not exist.  So, it should come as no surprise that such assets represent the single most lucrative microgrid enabling technologies (MET) segment today.

A prime mover technology for microgrids is diesel generators, which are widely deployed as backup emergency power generators thanks to their ability for black-start.  However, they are also often legacy assets upon which microgrids are layered and, more often than not, microgrids are specifically designed to reduce diesel fuel consumption.

In Navigant Research’s report, Microgrid Enabling Technologies, the amount of DG being deployed within microgrids is forecast in terms of capacity and of annual vendor revenue.  If one looks at new capacity additions, diesel generators have captured the largest market share, followed closely behind by natural gas generators (which also serve as the basis for combined heat and power applications).

DG Capacity Market Share in Microgrids: 2014

 

(Source: Navigant Research)

An important caveat on these estimates: only systems that incorporate some level of renewables are included in the tally for remote microgrids.   If one were to include all diesel generators deployed cumulatively, Navigant Research’s data suggests that they would represent more than 65% of total microgrid DG capacity.

Decline of Diesel

Another key assumption moving forward with microgrids is that new diesel capacity will decline over time, given the high cost of fuel, tightening air quality regulations, and the emergence of new power electronics technologies, lessening the need for a fossil prime mover.

While fossil DG capacity is still expected to exceed that of renewable capacity deployed within microgrids in 2014, the higher capital cost attached to solar PV, wind, hydroelectric, and biomass translates into higher vendor revenue per megawatt.  Fossil fuel DG (diesel and natural gas generators plus fuel cells) is expected to represent 58% of total DG capacity in 2014, according to our forecasts; renewables will most likely capture the other 42% of the DG market.   On a revenue basis, however, renewables are expected to capture 23% of total MET vendor revenue in 2014, compared to only 9% for fossil fuel DG.

Notably, the largest category of revenue in 2014 is technologies not actually included in the forecast, since they cannot be quantified on the basis of generation capacity (i.e., smart meters, smart switches, and other distribution or building infrastructure).  The majority of microgrids being deployed today incorporate significant amounts of legacy DG.  (Most of the community microgrids under development in New York and Connecticut add no or very little DG capacity.)  As a result, large investments into integration hardware – distribution infrastructure that cannot be quantified on the basis of generation capacity – represent a large piece of the overall investment pie for these retrofit microgrid projects. But this category is likely to decline as an overall percentage of total vendor revenue by 2023 as renewables, energy storage, and software increase in market share over time.

 

For Microgrids, It’s Not All About Size

— August 6, 2014

The University of Texas (UT) at Austin claims to have the largest microgrid in the world, with a peak load of 62 MW of capacity, serving 150 buildings.  The combined heat and power (CHP) plant that serves as the anchor is rated at 135 MW.

Leave it to Texas to make such a claim.  It’s not really accurate, but more importantly, it doesn’t really matter.  Bigger is not necessarily better when it comes to microgrids.

On the one hand, economies of scale tend to reduce cost.  But microgrids turn that assumption on its head, since onsite distributed energy resources (DER) reduce the line losses associated with the centralized power plant model.  I tend to agree with Steve Pullins of Green Energy Corporation, who says that the sweet spot for microgrids that incorporate new state-of-the-art technologies such as solar PV, lithium ion batteries, and CHP is between 2 MW and 40 MW.

Define “Big”

About every 6 months or so, I get an email from Craig Harrison, developer of the Niobrara Data Center Energy Park, asking me, “Am I still the largest microgrid in the world?”  The Niobrara proposal, which has increased in size from 200 MW to 600 MW over time (with both a grid-tied and an off-grid configuration now part of the single project), is still in the conceptual phase (you can see elegant renderings of the project provided by CH2M Hill).  In this case, a unique confluence of natural gas supplies and regulatory quirks (which in essence render the project as its own utility) conspire to set the stage for what will probably be (and remain) the world’s largest microgrid.  It’s only a matter of time.

Navigant Research’s Microgrid Deployment Tracker 2Q14 shows that the largest operating microgrid, if measured by peak demand (and not generation capacity), could be Denmark’s Island of Bornholm, which is interconnected to the Nordic Power Pool.  With peak demand of around 67 MW, the advanced pilot project incorporates plug-in electric vehicles (PEVs) and residential heat pumps, along with wind and CHP.

Like Military Intelligence

The microgrid at UT Austin is impressive, given that its origins date back to 1929 and it can provide 100% of the campus’ energy needs.  But it’s really an old school microgrid since it relies upon one source of electricity and thermal energy.  Robbins Air Force base in Georgia claims to have 163 MW of capacity, but it’s powered by large diesel generators, which are less desirable than CHP.  Much more interesting are microgrids that draw upon multiple distributed generation sources, incorporate advanced energy storage, and can sell energy services back to the utility.  The UT microgrid does none of these things.

In my view, a large microgrid is a contradiction in terms.  It’s much better to create multiple microgrids and then operate them at an enterprise level, creating redundancy via diversity of resources and scale, perhaps even mixing in AC and DC subsystems.  To me, a microgrid such as the Santa Rita Jail, which is only 3.6 MW in size but incorporates solar, wind, fuel cells, battery storage, and a host of state-of-the-art energy efficiency measures, is more interesting than the one in Austin.  When it comes to distributed energy, diversity trumps scale.

 

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