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Going small: Microgrids are good for reliability, but are they good business?

Driven by reliability demands, expanded renewables and demand response potential, microgrids used to boost community resilience are poised for global growth, according to an upcoming study by Navigant Research.

In some parts of the world microgrids are growing because there is no traditional grid or because of generation shifts, said Peter Asmus, principal research analyst for Navigant. But in North America “it's the declining reliability of our current grid, particularly here in the U.S. where reliability has been going down and not up. There is also a lot of public policy supporting greater reliance on distributed energy resources.”

Perhaps nowhere in the United States is that public policy more evident than in New York, which has launched its Reforming the Energy Vision (REV) initiative to reconsider how the state's power grid operates.

“We saw a huge opportunity to use distributed energy resources to drive our overall policy objectives around affordability, reliability and a cleaner energy system,” said Audrey Zibelman, chair of the New York State Public Service Commission.

In terms of REV, Zibelman said the question is: “How do we make certain the microgrid model is enabled in how we regulate utilities and operate the system, so we start driving towards the changes that are necessary to ensure we can develop various types of resources including community microgrids.”

Navigant is poised to release a report in the next few weeks that looks at community microgrids — a neighborhood or local government system, for example — designed to bolster critical power during an outage. The firm yesterday hosted a discussion on how community microgrids and reshaping the relationship between the utility and consumer.

Navigant is predicting about 80 MW of community resiliency microgrids to come online this year, with that number moving up to about 200 MW worldwide in 2020 under a moderate scenario, and closer to 300 MW in a more aggressive outlook, depending on how markets develop.

The expansion of community resiliency microgrids (CRMs) is being fueled by several aspects, including the growth of solar photovoltaic and wind power which add variability that necesitates new ways of managing the grid. And Navigant believes there is a growing interest in finding more value in bi-directional appliances and developing revenue streams there.

“Related to that is an interest in creating more organized markets for ancillary services, with demand response probably being the most obvious one,” said Asmus. “But we're also seeing movement towards other services like frequency and voltage regulation.”

Challenges to microgrid growth

Despite reliability leading the arguments for microgrids, Asmus said the challenges are “still quite daunting in many ways.”

For one thing, there's a lack of integrated policies and control technology approaches. There is no clear market leader — “not that I necessarily think we need one,” he said — and no accepted governing body or group.

Right now there are at least three groups working on microgrid issues, lobbying for their development: the Microgrid Alliance, the Microgrid Institute and the Microgrid Resources Coalition. “There's just so much going on the in market place it's a little bit confusing,” Asmus said.

And besides all that, there's an inherent bias away from microgrids built into the distribution system.

“The utilities still, for the most part, have a bias against islanding. When you think about it, the whole grid was really set up not to allow things like microgrids to happen,” Asmus said.

From a technology and safety standpoint, the utility wants to be able to better control the grid in the event of an outage. “On the other hand it's also an economic issue for the utility,” he said. “If these microgrids just start popping up all over the place, going into island mode, utilities worry about their resource planning and obligation to serve. Has it been compromised or enhanced but these microgrids?”

And that's a big part of the problem: What is the business model? SolarCity is banking on a "microgrid-as-a-service" scheme that will integrate solar arrays and Tesla batteries with management software to provide demand response and smooth generation peaks and troughs, but whether that and other business models will work remains an open question.

“The bottom line is, how can the reliability benefits flowing from microgrids be quantified by regulators,” asked Asmus. “We don't have a value on resiliency. We know it's not zero, but without that value it's hard to make a business case.”

Ken Horne, associate director at Navigant, said one of the challenges to CRMs is that investment returns are usually based on a high utilization of assets. That's (hopefully) not the case as the CRM's primary use occurs during an outage.

“It can be challenging to develop a bankable pro forma purely on the basis of a resiliency business case,” Horne said.

But he added that “the business case for CRMs is interesting. Gathering together multiple distributed energy resources does create a very unique value proposition that can be pursued but also presents operational complexity,” Horne said. “The value of resiliency is typically not monetized, which drives CRMs to look for cash revenue sources from other places.”

The potential for a commercially viable microgrid will come from the value created across complex chains of load management, Horne said. Among many possibilities, he said microgrids could function as a service provider “assisting the utility in aggregating loads.”

The REV and microgrids

In New York, state officials are now turning to the utilities to develop microgrids as part of their obligation to serve. The strategy, one piece of the state's broader holistic energy vision, is creating interesting results.

“Part and parcel of the role of the utilities is to really think about how we can start using microgrids as an integrated function,” said New York PSC's Zibelman. The goal is “we're thinking about how to manage these distributed energy resources not as a backup to the system or even as a backup to the customer, but as a primary resource on the system.”

In December, state regulators approved Con Edison's Brooklyn Queens Demand Management program, encouraging the deployment of local energy resources and microgrids. These efforts are expected to lower overall costs for customers while offsetting the need to build a $1 billion substation.

But development of micogrids will go beyond system planning, Zibelman said.

“It's not just planning but how we operate the grid and also how we develop types of demand response programs and tariffs to monetize those resources,” she explained. 

“The key to the REV order is recognition that in order to move from a grid designed around centralized dispatch to one looking at both centralized and decentralized resources is to expand the role of utilities to make it explicit that utilities obligation to serve includes integrating these resources and facilitating thee markets," Zibelman said.

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Filed Under: Transmission & Distribution Efficiency & Demand Response Technology