Navigant Research Blog

In 2014, Utilities Must Adapt or Retreat

— January 8, 2014

In 2013, the majority of utilities could still afford to keep their head in the sand, ignoring the crisis presented by distributed renewable generation to their bottom line now and in the future.  In 2014, this will not be the case.  Electricity sales of centralized utilities will continue to decline because of continued investment in energy efficiency and onsite distributed renewable energy generation from both residential and commercial and industrial customers.  This erosion of electricity sales will cause utilities to recover their costs by adding fees and/or increasing rates, which will increase the cost of utility-delivered power.  As a result, the economics of distributed generation will potentially be even more attractive to end users, further accelerating the deployment of renewables.  This is the utility death spiral.

As covered in Navigant Research’s report, Distributed Solar Energy Generation, distributed solar PV deployments in particular will continue to accelerate, including in nontraditional markets such as the southeastern United States.  The low cost of electricity in the Southeast has hampered wider adoption compared to the West Coast and Northeast, where high-cost retail electricity rates have made renewables more attractive.  In conjunction with falling renewable technology costs and incentives reduction on the horizon, many customers are making their moves, presenting a great opportunity for forward-thinking utilities in both the residential and commercial markets.

Adaptive Action

Meanwhile, financing has made solar PV available for little to no money down.  Advanced module-level power electronics – as covered in Navigant Research’s report, Microinverters and DC Optimizers – are bringing more rooftops into the fold and increasing the overall energy harvest.

Those utilities that have grasped this threat are taking action to adapt to the changing market environment in the following ways:

  • Taking their case to the public utility commission and requesting fees on those customers with onsite renewables
  • Limiting net energy metering (the ability to send power back to the grid and be compensated at retail rates)
  • Getting into the distributed generation business themselves

Some utilities are doing these things in conjunction.  Utilities have many of the most important components that are required to make the latter option feasible, including a captive customer base, generally high trust among their customers, access to low-cost capital, and solid expertise in operations and maintenance and customer service.  Taking this plunge is no easy decision for companies that are traditionally slow-moving.  But there are few other options.  Utilities may have noticed the writing on the wall during the past few years, but 2014 is the year they will have to do something about it – or it will be too late.


In San Diego, A Tale of Two Microgrids

— December 10, 2013

Besides being the perfect setting for a microgrid conference, San Diego is arguably the best overall market for microgrids in the world.  Two microgrids that are already up and running in the region represent two starkly different views of the future of energy.

San Diego Gas & Electric’s (SDG&E’s) Borrego Springs microgrid, which attracted over $10 million in state and federal funding, is one of the few microgrids to be deployed, owned, and operated by an investor-owned utility.  While originally an R&D project, the 4 MW microgrid has proven to be a valuable asset for the utility, as it has successfully islanded off customers from the larger grid during major storms and power outages and has helped manage the integration of new assets into the larger distribution network.

During an intense thunderstorm in September, for example, the microgrid was able to seal off and continue to provide power to over 1,000 customers in a power outage that lasted more than 20 hours.  Earlier this year, the same microgrid – which incorporates solar photovoltaic (PV) systems, diesel generators, and advanced batteries – provided similar energy security during a flash flood in late August and a major windstorm in April.

In the Desert

The Borrego Springs microgrid, which included Lockheed Martin, Oracle, and Green Energy Corporation as vendors, is being moved into full-time commercial operations.  It also incorporates demand response (DR) and home area networks, allowing SDG&E to experiment with how residential customers will respond to price signals.  SDG&E wants to see how it could deploy such microgrids throughout its system in order to provide a lower-cost solution to providing power in the high desert that forms the eastern part of its service territory.  Given California’s recent mandate on installing 1.3 GW of distributed energy storage, SDG&E is trying to figure out how to wrap microgrids around a total of 165 MW of energy storage that will be deployed by 2020.

Location of Borrego Springs Microgrid

(Source: San Diego Gas & Electric)

The other major microgrid currently in operation in San Diego is at the University of California-San Diego (UCSD) and represents 42 MW in total customer load.  Although it’s located within SDG&E’s service territory, it does not take or sell back any of its services to its host distribution utility.  In fact, Byron Washom, director of strategic energy initiatives at UCSD, told the 3rd Military & Commercial Microgrids conference audience in San Diego that he didn’t want to bother with the accounting burdens of selling ancillary services back to SDG&E.  The only time in recent history that the UCSD microgrid provided power to SDG&E was during a wildfire in 2007, when it reduced demand by 4 MW and exported 3 MW – just enough power to keep the entire SDG&E system up and running.

While SDG&E faced several regulatory burdens in building its microgrid because it was a utility, Byron extolled the virtues of working on a campus, the current leading microgrid market segment, helping North America to lead the world in deployments.  Consider the following:

  • The microgrid can generate 92% of its own generation needs, reducing its power bill by 50% and saving $850,000 per month, with its residual needs handled by a direct access contract dating back to before the Enron debacle shut down such deregulated power deals in California.
  • Since the microgrid is university property, there is no need for any building permits.  The microgrid can also do innovative testing behind-the-meter without having to worry about United Laboratory safety guidelines.
  • The campus has not only saturated all of its rooftops with solar PV but also boasts, according to Washom, the largest electric vehicle (EV) charging network globally, achievements helped along by the advantages of being a self-regulating entity.

UCSD invests only in technology options that cost the same or less than utility service.  Washom has become adept at using OPM – other’s people money – to reduce the cost of technology and, in the process, created a world-class learning experience for students enamored by a business-savvy approach to sustainability.

These two microgrids offer directly competing views of our energy future.  Which vision do you think will win (and also provide the largest societal value)?


Where are the Commercial Customer Microgrids?

— October 15, 2013

One of the most frequent questions I get when making a presentation on Navigant Research’s microgrid market forecasts is: Why don’t we see more microgrids for commercial or industrial operations?

The answer is quite simple.  If the emergence of a new energy cloud that features customer-owned distributed generation isn’t threatening enough to a traditional utility’s business model, imagine utility executives’ heartburn when contemplating their largest (and most lucrative) customers abandoning ship and investing in new technologies that allow them to seal themselves off from the grid.

Luckily for utilities, standard utility protocols embedded in utility codes limit the ability of many commercial customers to band together and create their own distribution networks or microgrids.  In fact, when a commercial enterprise transfers power over a public right-of-way, it becomes, in essence, a utility.  That means it is then required to comply with a long list of regulatory mandates – which scares it off.

PUN Intended

Some commercial and industrial customers, especially large chemical and oil and gas facilities in states such as Texas, have created systems some might call a microgrid.  (In Texas, they are called “Private Use Networks” or PUNs.)  The vast majority of these are completely fossil fuel-based and may be able to island from the larger grid, but typically through manual intervention.  These PUNs are not included in the Navigant Research global database of microgrids, since they do not share much with the vision of “smart” microgrids that integrate renewables and energy storage, and can seamlessly disconnect and connect from a larger grid.

Although variable solar and wind may still scare off many commercial customers, where a microgrid may make a certain amount of sense (such as a data center), other new generation technologies can seem less threatening.  Enter the fuel cell, a power generation source that can run on multiple fuels, provide 24/7 power and, in the case of the Bloom “Mission Critical” offering, can island from the larger grid when it goes down.

Bloom Energy just announced a 500 kilowatt (kW) system for a data center located in Irvine, California for CenturyLink, and has deployed a handful of other microgrids that can displace uninterruptible power supply (UPS) systems at other commercial sites, including an eBay facility in Utah and a Macy’s in Connecticut.  (As I have noted in previous blogs , Connecticut views deployments of microgrids as a form of economic development for two fuel cell companies that are competitors of Bloom: FuelCell Energy and ClearEdge Power.)

Hard Sell

Consider this fact: Data centers spend approximately $25 million per megawatt of capacity due to the double redundancy of back-up power systems that burn increasingly expensive diesel fuel.  .  This is one reason why Colorado regulators just gave a green light to the Niobrara Energy Park, a microgrid serving data centers that could grow to 300 MW in size and will tap natural gas, fuel cells, wind and solar technologies.  Given the expense of current existing redundant alternating current (AC) UPS systems, microgrid applications – especially direct current (DC) networks – appear to be a no-brainer from an engineering point of view.  Regardless, since energy remains a small portion of the overall operations budget of data centers, the value proposition for conservative operations managers may still be a hard sell in the near term.

Nevertheless, Navigant Research believes that DC data centers will be one of the leading commercial and industrial segments for microgrids, and fuel cells could be a likely bridge generation source for these customers who still worry about what happens to their power supply when the sun doesn’t shine or the wind doesn’t blow.  Unlike the overall microgrid market, which is dominated by North America, in the data sector segment, Europe and Asia Pacific will lead in vendor revenues.

DC Data Center Microgrid Revenue by Region, Conservative Scenario, World Markets: 2013-2025


 (Source: Navigant Research)


In China’s Hinterland, Microgrids Emerge

— September 23, 2013

My research has made it clear that the United States is the best current market for microgrids, in large part due to the declining reliability of the incumbent utility grid, made more evident by Tropical Cyclone Sandy and other recent extreme weather events.  However, the Mid-West Energy Research Consortium (M-WERC) recently asked me to identify the world’s top non-U.S. markets for microgrids.  The results of that analysis revealed that remote off-grid systems will lead the market over the next 7 years – a conclusion also demonstrated in our newly released report, Remote Microgrids.

On the surface, the fact that 95% of the population of China is connected to a power grid might indicate that opportunities for remote microgrids are limited.  Yet, the sheer size of the country translates into one of the world’s best markets: 30 million people living in 20,000 villages and 7 million families on small farms have yet to be connected to a power grid.

While the development of grid-tied microgrids is limited to the two nationalized grid companies, third-party projects are allowed for off-grid applications.   Many of the areas not connected to one of the two main grid companies burn diesel for electricity, which is expensive and, therefore, power may be available for only a couple of hours per day.  Additionally, China has hundreds of inhabited islands, so the market for off-grid systems is substantial.

Tops Outside the United States

China has been investigating microgrids for the last 3 or 4 years, and the 12th Five-Year Plan for energy production, produced by the Energy Bureau, sets a target of 30 microgrid installations of 1 MW or larger by 2015.  In the analysis we conducted for M-WERC, China is expected to be ranked as the top non-U.S. microgrid market by 2020.  Even more interesting is that three of the top five markets (China, Australia, and India) will be led by remote off-grid systems.

Annual Total Microgrid Capacity by Top Five Export Markets, Conservative Scenario, World Markets: 2013-2020   

Microgrids Country Chart

(Source: Navigant Research)

One of the sleeper markets for microgrids not currently in the top 10 is South Africa, which is largely served by the nationalized utility Eskom.  Eskom provides the country with 95% of its power and supplies 45% of the entire African continent’s power.   At present, an unspecified number of remote microgrids that incorporate solar PV, wind, diesel, and energy storage have been installed.  Ranging in size from 6 kW to 200 kW, these systems serve farms and entire off-grid communities.   A typical community of 100 homes would need a remote microgrid of 100 kW to meet its most basic needs for lighting, entertainment, and refrigeration.

The best near-term market segment for microgrids in South Africa, though, is not communities but the numerous remote platinum, gold, and coal mines that dot the country.  A smart mining movement is taking hold in South Africa, with projects in the design stage ranging in size from 30 MW to 50 MW; this is also among the market segments examined in our new Remote Microgrids report.


Blog Articles

Most Recent

By Date


Clean Transportation, Electric Vehicles, Finance & Investing, Policy & Regulation, Renewable Energy, Smart Energy Practice, Smart Energy Program, Smart Transportation Practice, Smart Transportation Program, Utility Innovations

By Author