Navigant Research Blog

Why California Will Lead the World on Microgrids

Peter Asmus — March 25, 2013

Connecticut boasts the nation’s first law promoting the creation of microgrids.  But that small state is focused on microgrids that would run on fossil fuels, providing fuel cell companies with new markets for their products.  In California, the primary drivers for microgrids are aggressive plans for renewable energy deployment, both at the wholesale level and at the distribution level.  As a result, two of the state’s investor-owned utilities (Southern California Edison and San Diego Gas & Electric) view microgrids as a potential remedy for a future power grid that could be much less robust than today’s – one that is highly susceptible to swings in solar and wind power production and corresponding voltage spikes and sags.

The Microgrid World Forum, which took place in Irvine, California, provided further evidence that the Golden State may soon emerge as the hottest market for this technology platform in the United States and perhaps the world.  Bob Foster, chair of the California Independent System Operator (CAISO), which manages the state’s high-voltage power grid, noted that “microgrids are the answer” to the following challenges facing the world’s 9th largest economy:

  • A state Renewable Portfolio Standard (RPS) that requires 33% of the state’s total electricity comes from large-scale renewable resources by 2020
  • Regulations forcing the retirement of “once through cooling” fossil plants that pepper California’s 840-mile-long coast and that could help integrate variable renewables
  • The nation’s highest per capita deployment of distributed solar photovoltaic (PV) systems (in San Diego)

California is also expected to lead the United States in deployments of electric vehicles (EVs), with as many as 200,000 on the road by 2020 – each representing the equivalent load of one and half homes.

Consumer Benefits

As a new report entitled Market Data: Microgrids from Navigant Research points out, North America is expected to lead the global market for microgrids over the next 7 years.  Already, California hosts many leading microgrids in the region, including the ones at the University of California-San Diego and the University of California-Irvine.

Total Microgrid Revenue by Region, Average Scenario, World Markets: 2013-2020       

 

(Source: Navigant Research)

A former executive at Southern California Edison (SCE), Foster stated that, “Consumers must benefit financially from reducing their energy costs.  We want to meter everything, that’s the goal, and have state ratepayers pay as they consume.  If they don’t go down that path, utilities as we know them are dinosaurs.”  Unfortunately, microgrids face challenges in California that include strong resistance to dynamic pricing from the California Public Utilities Commission (CPUC), just one testament to an opaque state regulatory process.  California has four major state entities governing energy, and they often conflict over the best way to achieve aggressive policy goals.

Foster acknowledged that it may take another decade for the regulations to align for microgrids.   “Today’s California wind fleet often generates at peak capacity at 1 a.m. in the morning,” he pointed out.  “These facilities and sometimes get paid not to generate!”  Nevertheless, by 2020, he forecasts that the state’s EV fleet will be soaking up this clean capacity, and early investments in renewable and transmission capacity will start to pay off.  In the end, Foster concluded, what California’s microgrids need  is an innovative financial model for microgrids – “something similar to what the solar lease model did for solar PV.”

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