The existing centralized transmission grid, and the utilities that stand behind it, still provide the majority of power supplies to the industrialized world. But renewable, distributed energy resources (DERs) will play an
increasing role in the coming years in providing energy supply, reliability, security, and emergency care services. Aggregation platforms similar to microgridswhich are small-scale collections of diverse generation and loads capable of energy self-sufficiency via islanding through new technologieswill be absolutely necessary if energy infrastructure follows in the footsteps of telecommunications and the evolution of todays
Utility distribution microgrids (UDMs) are emerging as a new platform that can accommodate innovative technology while also opening up alternative business models to help ensure the longevity of incumbent distribution utilities as the energy industry undergoes radical transformations. In short, microgrids optimize and aggregate diverse resources and allow for two-way exchanges. Think of cell phones replacing landlines in
places such as the developing world.
In the industrialized world, including the United States, high-penetration clusters of residential or commercial
rooftop solar PV provides an attractive UDM application. This is probably the top driver for UDMs being
deployed by or on behalf of traditional distribution utilities today in the continental U.S., Europe, China, and Japan. In this business case, the microgrid enables active (rather than passive) management of intermittent DERs.
These clusters might still have multiple connections to the utility distribution grid. But their capacity to island from the wider grid offers increased smart grid functionality that could mitigate voltage, frequency, and reactive power challenges beyond a single energy consumer. Such microgrids can also help keep power flowing as large renewable facilities are interconnected. San Diego Gas & Electric, for example, islanded customers on a distribution feeder in Borrego Springs while energizing a large solar PV farm, a service that a
third-party microgrid would never be used for. Still, significant challenges remain for UDMs. Some of these market hurdles are related to technology and the unique burdens placed upon utilities with an obligation
to serve. The question becomes: How can a utility differentiate its reliability services within the context of providing excellent homogeneous power quality for affordable rates?
Although this market is still young, it is surprisingly diverse. Navigant Research divides the market into three primary categories:
Public power remote UDMs.
Remote microgrids, unconnected to a traditional utility high voltage transmission grid, represent the most mature segment of the entire microgrid market. This segment is where Navigant Research expects the
largest near-term growth. Alaska is the ultimate example. Essentially every small village in the state is served by a public-power remote UDM. While markets in developing nations, such as India, have deregulated
microgrids of less than 1 MW (projects that will be captured by third-party vendors), significant opportunities exist in many countries. Perhaps the most promising microgrid market today is public power UDMs deployed on physical islands that burn diesel fuel as their primary electricity resource. These projects offer a convincing value proposition in the absence of public subsidies for renewable DERs, while also being of sufficient scale to attract investment. These UDMs are typically developed under power purchase agreements (PPAs) with
third-party vendors, however, limiting utility revenue.
Public-power grid-tied UDMs
Developers and market vendor participants point to this segment as one of the best near-term deployment
prospects, especially in Europe and Asia Pacific. Similar to smart meter vendors who are focusing on ratepayer-owned utilities that have good relationships with their customers, growing numbers of microgrid vendors are seeking opportunities with U.S. municipal and rural cooperative utilities. Introducing renewable DERs as a hedge against wholesale power price swings makes inherent economic and risk-mitigation sense. These utilities do not face the same rate case restrictions that investor-owned utilities (IOUs) often do (see below).
They often already have close relationships with customers, and may be able to add the UDM option as a tool to retain customers by improving service. Todays best opportunities are rural cooperatives with significant wind or municipal utilities with significant solar resources.
The investor-owned utility (IOU) grid-tied UDM segment is gaining traction in the United States, the worlds
leading microgrid market. The primary challenge for IOUs today trying to implement UDMs centers on traditional rate-based regulation. As a general concept, microgrids challenge traditional utility planning and operation protocols. While UDMs can assuage fears about load defection and related impacts on shareholders, they may also be seen as opening a can of worms. How can IOUs convince state regulators to
invest ratepayer funds in projects that may benefit only a small subset of customers? Even if a valid
business case can be made on the basis of overall system benefits, the typical 3-year rate case state regulatory proceeding business model may retard near-term innovation.
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