Navigant Research Blog

Do Microgrids Disrupt Traditional Utility Business Models?

— June 2, 2016

GeneratorThe classic storyline surrounding microgrids is that they challenge electric utility monopolies in multiple ways. Up until recently, the vast majority of these systems deployed in North America, currently a global hotspot for microgrids, were developed by third parties. Not only that, they were designed primarily to offer economic and resiliency benefits to consumers, with the interests of the incumbent utilities almost an afterthought.

That simpleminded view of the world is being challenged by the utility distribution microgrid (UDM), a concept first put forward by Navigant Research in 2012. Since that time, the number of utilities exploring opportunities in the microgrid space has grown dramatically.

Microgrids and the Utility

One could argue that microgrids sprung up as a response to customers not getting what they needed from traditional utility service. UDMs turn this premise on its head. They can help utilities manage recent distributed energy resources (DER) employment trends to their advantage. Microgrids owned or operated by utilities can first and foremost serve the distribution, as well as be a platform for new services for customers.

In terms of architecture, UDMs tend to be on the utility side of the meter; the classic prototypes are the installations is being proposed by Commonwealth Edison in Illinois. Yet there are many hybrids under development, some of which aggregate and optimize customer-owned assets that are located behind the meter. Among the examples of the latter are projects by utilities such as Oncor and the Sacramento Municipal Utility District (SMUD).

Perhaps one of the most interesting trends when it comes to UDMs is how the roles of investor-owned utilities (IOU) and publicly-owned utilities (POU) flip-flop over the next decade, especially in the United States. As the chart below illustrates, IOU projects are expected to lead the market until 2021. This is largely because of larger projects; the classic example is San Diego Gas and Electric’s (SDG&E) Borrego Springs microgrid, which now represents 31 MW peak capacity. If measured by sheer numbers, I believe public power microgrids will outnumber their IOU counterparts much sooner.

Fewer Obstacles but a Smaller Scale

Municipal utilities have fewer regulatory obstacles and internal conflicts in pursuing microgrids than IOUs. That said, the scale of their projects will tend to be smaller. Take the case of Alameda Municipal Power, which is in the process designing a microgrid at an abandoned Navy facility located within its service territory and whose initial capacity will likely fall in the 5 to 7 MW range.

Annual UDM Capacity and Revenue, United States: 2015-2024

Peter Microgrid Blog Graph

(Source: Navigant Research)

Keeping pace with the fast and continuously growing microgrid market is no small task. As of April 2016, the Microgrid Deployment Tracker has identified 1,568 projects across the globe representing a cumulative 15,599.7 MW of capacity. These numbers represent microgrids from 119 countries across all seven continents. North America represents over half of the new projects entered, while the utility distribution and remote segments account for almost three-quarters of the new capacity.

Whether examining remote or grid tied microgrids, the role of utility in their deployments and operation will only continue to grow the next decade.



Cutting-Edge Microgrid Projects Still Popping up in the United States

— May 26, 2015

The current edition of Navigant Research’s Microgrid Deployment Tracker gives credence to the idea that the Asia Pacific region may emerge as the market leader over the long term, with data collected from projects and project portfolios representing 47% of total global capacity as compared to North America’s 44% total global capacity market share. At present, however, North America remains king when it comes to actual operating projects. If looking at microgrids currently online, North America still leads by holding a nearly identical market share (66%) compared with data presented in the 2Q 2014 Tracker update (65%).

I want to highlight two project entries that show how the United States, due in part to new programs promoting community resilience, is pushing the envelope on both technology and business models.

Blazing the Trail

The first project, located on the East Coast, is a transportation microgrid known as NJ TransitGrid and located in the New Jersey Transit system’s service area. Beyond being America’s third-largest transportation system and serving nearly 900,000 passengers daily, the stretch of rail covered by the project is both an important access point to Manhattan and New York and is one of the most at risk for flooding. Existing railroad right-of-ways could be used to connect distributed generation (DG) from small wind, solar PV, and fuel cells to elevated power substations and energy storage. All of these components will be managed by smart grid technologies to integrate renewables and island the entire system during harsh storms such as Hurricane Sandy. It is anticipated that the system’s total generation capacity will eventually reach 104 MW, making it one of the largest microgrids in the world. New Jersey state officials expect the project to have sufficient capacity to power up rail stations between the cities of Newark and Hoboken, which are approximately 10 miles apart.

The second project is on the West Coast and is known as the Salem Smart Power Center. This project is an example of a partnership approach to development with an investor-owned utility (Portland General Electric) looking to vendors such as Eaton to help integrate battery energy storage solutions to help address the impacts of customer-owned solar PV on the utility’s distribution grid. The project, which incorporates 5 MW of conventional DG, solar PV, and a 5 MW battery, also sought to increase reliability for a mix of business (data center), institutional (National Guard), and residential customers. The resulting energy storage system from Eaton provides seamless support for loads in the event of an upstream outage. The intelligent energy storage system works with standby generators to create a high-reliability zone consisting of a feeder supplying community customers. The energy storage system supports the microgrid for several minutes while generators are started, creating a backup power supply, with tests showing the capability of carrying the entire load during transition to island mode.

Unlike the majority of microgrids deployed to date in the United States, which tend to focus on campus operations, the Power Center is instead seeking to bolster the utility’s reliability. As such, it is classified as a utility distribution microgrid (UDM). One noteworthy factoid derived from the newly published Microgrid Deployment Tracker is that such UDMs now represent 16% of total microgrid operating, planned, and proposed capacity, a segment category ranking only behind remote systems, which are largely deployed in the developing world and unique markets such as Alaska.


Evolving Microgrids: What About Utilities?

— June 5, 2012

Pike Research has issued separate reports on three leading microgrid segments: campus environment; military and remote/off-grid systems.  A forthcoming report on “utility distribution microgrids” (UDMs) continues this trend of deeper analysis of specific microgrid segments, but also takes a broader look at how advances in distribution and substation automation are laying a foundation for utilities to play a much more fundamental role in future microgrid deployments.  UDMs are not exactly analogous to “community/utility microgrids,” yet there is significant overlap and synergy between these two segment designations.  Though already somewhat dated due to a surge of recent development activity, the following chart from Pike Research’s comprehensive look at all five microgrid segments published in early 2012 presents a good snapshot of where the overall market is going.

Interviews with leading companies involved with microgrids suggest that most utilities are still scratching their heads, trying to make sense of a very different world, with the microgrid perhaps a symbol of radical changes that could, if utilities fail to adapt, lead to their demise.

As vendors such as S&C Electric point out, the decline in prices for distributed renewables – especially solar photovoltaics – and for advanced energy storage is spurring greater interest in microgrids. Other major companies, such as Intel, a member of the EMerge Alliance, are also interested in the concept, though the semiconductor giant’s strategy likely stems from its growing interest in direct current (DC) applications.  Those applications are potentially relevant to both large commercial complexes, such as data centers, and to power generation in the developing world, where alternating current (AC) power grids are often missing.

Among the U.S. utilities that have seen the light in terms of microgrids are San Diego Gas & Electric, (SDG&E) American Electric Power (AEP), Sacramento Municipal Utility District, DTE Energy, and Consolidated Edison.  The prime obstacle to UDMs in the U.S. has nothing to do with technology.  In regulated markets such as the U.S., investor-owned utilities (IOUs) typically have to go before public utility commissions to justify costs they pass on to ratepayers.  These rate cases are typically three-year funding cycles.  To date, few – if any — companies have demonstrated the costs and benefits of UDMs. As a result, the business case for UDMs is not yet fleshed out.

Among the other barriers to near-term deployment of UDMs are utilities’ cultural bias against intentional islanding, their fear of loss of native customer loads, and the lack of clear controls technology emerging from a crowded field of competitors.  Utilities such as SDG&E and AEP will be armed with data that will reveal whether or not a value proposition can be made for UDMs.  Since microgrids come in so many sizes with so many different generation sources operating in so many different geographies, cost/benefit calculations will be extremely site-specific.


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