The market for microgrids is attracting increasing attention from a variety of institutions, ranging from state governments such as New York, which is requiring an islanding functionality for new combined heat and power (CHP) facilities funded by the New York State Energy Research & Development Authority, to the World Bank, which is seeking clarity on new business models that wrap remote microgrids around cell phone towers popping up in Africa, India, and the rest of the developing world.

One of the least noticed, but significant, developments in the microgrid arena for North America, the global hot spot for grid-tied microgrids, is the recent merger between Horizon Energy Group and Green Energy Corporation.  While large players such as General Electric, ABB, Siemens, and Lockheed Martin – just to name a few – tend to grab the headlines, I find the smaller players in the space the most interesting.  Why?  Unburdened by selling legacy systems, they can come to the microgrids controls challenge with a fresh approach.

Shipyard Grid

Both Horizon Energy (including its sister company Horizon Microgrid Solutions) and Green Energy Corporation have been working out a software-as-a-service concept for microgrids, so the merger makes sense.  Furthermore, both companies are committed to an open source controls platform.  Perhaps the most unique differentiator for the new combined company is its application of the power purchase agreement (PPA) model that has fueled the recent boom in solar photovoltaic (PV) systems to microgrids.

The vast majority of microgrids tracked in Navigant Research’s Microgrid Deployment Tracker are either funded by government agencies or academic institutions as R&D projects, or by the asset owners themselves.  The newly expanded Green Energy Corporation will instead serve as an integrator/developer, absorbing any performance risk for the microgrid while taking care of the financing.  The combined company claims in excess of 15 projects on the drawing board, with one 11-megawatt (MW) project in Connecticut under current development that incorporates diesel, CHP, solar PV, small wind, and advanced energy storage, and which will save significant money over the long run.

Savings for Connecticut Shipyard Microgrid

(Source: Horizon Energy)

I had lunch with Steve Pullins, a microgrids guru and the former president of Horizon Energy Group, at an Infocast microgrid conference occurring in Arlington, Virginia on April 29^th.  Unlike some firms quickly expanding their portfolios of microgrids by focusing on high value aggregations of existing fossil assets, such as Blue Pillar, his efforts with Horizon have focused on retrofits that green up operations and also rely upon sales of ancillary services to utilities as part of the business model.  Pullins claims the sweet spot for grid-tied microgrids is 2 MW to 40 MW.  Anything smaller, and microgrids don’t really pencil out – unless they focus on renewables.

While it may seem counter intuitive, Pullins claims the lack of maintenance and ongoing fuel risk exposure with diesel generators or natural gas-fired capacity adds uncertainty and cost over the 20- to 25-year life of the microgrid PPA.  With solar or wind and storage, the operating costs are minimized for projects as small as 500 kW.

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 9^th 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.”

In late October of last year, as Tropical Cyclone Sandy tore through the northeastern United States, more than 8.5 million people lost power at some point during the storm.  Microgrids kept the lights on in parts of New York, New Jersey, and other locations in New England.

The Connecticut Microgrid Grant and Loan Pilot Program was first proposed in July 2012 and administered by the Department of Energy and Environmental Protection (DEEP) Bureau of Energy and Technology.  While the program was initially suggested as a response to Tropical Storm Irene, the project gained momentum after Sandy, and will culminate with state funding for a number of microgrids.  Connecticut Governor Dannel Malloy’s recent budget proposal increased funding for the program by $30 million, in addition to the $15 million already slated.

The first selection round was completed in late February, and of the initial 36 proposals, 27 have been vetted as technically feasible; 8 of those 27 were approved pending the correction of design issues.  These projects include police stations, hospitals, and other critical loads that need to be protected from power failures during emergencies.  Wanting to learn as much as possible about the potential risks and benefits of various microgrid configurations, DEEP encouraged novel technologies and imposed no size constraints on the microgrid projects.

Fossil Fuel Limits

In an interview, Veronica Szczerkowski of DEEP said that the program includes a number of requirements and nuances that set a higher standard for compatibility with utility operations from previous deployments of privately owned microgrids.  First, state funding is limited to the design, engineering, and utility interconnection costs of each project, and will not fund customer-owned generation or energy storage assets, the latter of which come with the largest price tags among microgrid enabling technologies.  Since there may be split ownership of grid infrastructure with this new fleet of microgrids, state funds will flow to microgrid asset owners and developers as well as to utilities.  Second, utilities will be required to own and maintain all non-private distribution grid assets interconnecting with customer-owned microgrids.

Perhaps the most novel aspect to the DEEP microgrid program is that all microgrids supported by state funding must have sufficient fuel onsite to run the microgrid for 2 weeks and have access to fuel for a total of 4 weeks.  This prerequisite constrains microgrids based on fossil fuels.  One of the projects that moved into the second round is a hospital with 5 MW of diesel generators.  A rough calculation means that the hospital would have to have more than 85,000 gallons of diesel onsite to run at an average of 3/4 load for the required 2 weeks.  While from an energy surety standpoint, such a condition makes sense, especially for critical loads, even if such storage requirements are unwieldy.

Given these fuel requirements, the DEEP microgrid program encourages various clean technologies.  In addition to solar and wind energy sources, fuel cell deployment is also emphasized since Connecticut is home to a number of fuel cell manufacturers, including FuelCell Energy, Proton Power, and the recently acquired company UTC Power (which will be sold under the ClearEdge name).  In fact, 10 of the 27 projects include fuel cells in their proposals, accounting for about 28% of the total capacity.

Even though there are a number of unknowns in the Connecticut program, one thing is clear: the project will be a testing ground for how to implement microgrids on a wide scale, and the outcomes will undoubtedly inform future publicly funded programs.

Peter Asmus contributed reporting to this blog.

What is a “virtual power plant?” The term means different things to different people in different parts of the world.  Pike Research has come up with its own definition: A system that relies upon software to remotely and automatically dispatch and optimize generation, demand-side, or storage resources (including PEVs and bi-directional inverters) in a single, secure web-connected platform.

At their core, VPPs tap existing grid networks to tailor electricity supply and demand services for a customer, utility, or grid operator.  Without any large-scale fundamental infrastructure upgrades, VPPs can stretch supplies from existing generators and utility demand reduction programs.

The latest VPP model to emerge is based not on geographic proximity – typically the top consideration – but rather on enterprise ownership of global operations.  Ironically enough, the farther away each facility linked in the VPP, the better!  Companies such as PowerAssure are investigating ways for companies that use large global data center operations, such as Apple and Google, to create enterprise VPPs that span the globe, whereby data centers shut down operations and shift load from the regions of the world in daylight to the nighttime half of the globe, where power is cheaper.  The technology to carry out this level of global energy arbitrage – known as “following the moon” – is nearly here (though some engineers may disagree). “Data centers can modulate their IT loads based on external events, such as the price of power, and in the process, save money and get paid for providing demand response (DR) services,” Peter Maltbaek, vice president of worldwide sales for PowerAssure, told me.

Changing Models and Mindsets

The U.S. Environmental Protection Agency (EPA) recently revised rules governing limits imposed upon use of diesel generators that should help increase the availability of DR throughout the United States.  The chief challenge for global enterprise VPPs comes on similar regulatory restraints as well as the accounting end of such transactions.  Of course, if large numbers of large energy users employed this strategy, it could wreak havoc with local grid stability instead of enhancing reliability.  How national and regional regulators would respond to such a business model, based largely on financial flows instead of engineering smarts, is unclear.

Another challenge is changing the mindset of data center owners.  “They need 100% availability and are leery of anyone fooling around with their power supply, especially since it is only typically 3% of total costs,” added Maltbaek.

Lawrence Berkeley National Laboratories (LBNL) released a study last year that looked at data centers and their potential for DR.  ABB, which has invested in PowerAssure and has its own Decathlon DCIM VPP offering for data centers, has already installed a 1 megawatt (MW) DC microgrid at a data center in Zurich, Switzerland providing DR through use of its emergency generators; this system is currently being expanded to 10 MW, will later go to 30 MW, and will then be aggregated with three other data centers in the region.

In Germany, meanwhile, Siemens claims that recent regulatory reforms will allow it to boost its supply-side VPP capacity to 3,000 MW by 2018.  Last year, the company announced that it would increase the capacity of its VPP from less than 10 MW to 200 MW by 2015.  The company says that Germany has enough spare capacity on its transmission lines to create VPPs that span the entire country.