Here's how microgrids and utilities are getting along

A bird's-eye view of the microgrid at VERGE San Jose
The Photo Group2015
A bird's-eye view of the microgrid at VERGE at the Fairmont in San Jose, California.

Microgrids have become the darling of the distributed generation movement, which is challenging the old-school electric utility model. As the cost of solar goes down and the capacity of energy storage goes up, these mini versions of the traditional power grid are sprouting up in communities across the world.

Differing from solar-plus-storage in that they have more “dispatchable” resources, microgrids help can improve community resilience through energy independence.

“A microgrid is taking control of your energy generation,” Neal Bartek, distributed energy resources manager at San Diego Gas & Electric, said during a VERGE discussion on microgrid owner-operator perspectives. That might sound strange coming from an investor-owned utility, but even they are getting in on the microgrid game.

Mentions of microgrids were seemingly everywhere you turned at the GreenBiz VERGE event in San Jose, California, which was largely powered by a microgrid in a demonstration project meant to make the concept real for the crowd of corporate, startup, government and nonprofit pros.

SDG&E is undertaking a project to build a microgrid in Borrego Springs, a town on the outskirts of San Diego County, which is isolated by 6,000-foot mountains and an encompassing desert, Bartek said.

And this will be an “unbundled utility microgrid”, where the distribution assets are owned by the utility, but some or all of the distributed energy resources are owned by customers. The goal is to provide a proof-of-concept test of how information technologies and distributed energy resources like solar PV and batteries can increase utility asset utilization and reliability.

Further north in California, Pacific Gas & Electric recently partnered with Siemens and a Native American reservation called Blue Lake Rancheria to build a low-carbon community microgrid that powers government offices, local businesses and a Red Cross safety shelter.

“At first utilities wanted to stop them, but now some are seeing the rise of renewable energy and microgrids as inevitable,” Peter Asmus, principal research analyst at Navigant Research said during a talk on microgrids and community resilience.

“If you’re in a state where a utility makes more money by selling more power, they’d feel threatened by a microgrid,” said Kareem Saleh, formerly of the Overseas Private Investment Corporation (OPIC), “But if you’re in a state where they make money by meeting certain performance standards, microgrids can be much better received.”

Likewise, microgrid proponents initially were anti-utility, but this is beginning to change, said SDG&E’s Bartek.

The devil is in the regulations

Utilities and microgrid developers have a mutual interest in working together directly or indirectly, as many microgrids will be connected to the grid, which can create a slew of technical and regulatory issues — many which still are being worked out by regulators.

If an off-grid microgrid is connected to the grid, for example, who should be held accountable — the utility or the microgrid operator? There’s a fine line.

“The state is trying to address that from a legislative standpoint,” said Maggie Clout, microgrid business development manager at Siemens, discussing the regulatory ambiguity surrounding utility-microgrid relations. “Technically, they want to make sure they have data transparency from the microgrid.”

This is in order to understand how the microgrid behaves, and how to deal with voltage fluctuation, which could threaten the primary grid. From the microgrid owner’s perspective, it’s also a good idea to involve to utility to avoid complications if and when the microgrid is connected to the grid.

When to build a microgrid?

Even with the falling costs of solar and battery storage, microgrids aren’t cheap. SDG&E’s Borrego Springs microgrid is expected to cost in excess of $15 million, half of which is coming from the Department of Energy. When asked if the project would have been financially feasible without federal dollars, Bartek said that the the remoteness of Borrego Springs puts it a unique position to benefit from a microgrid.

“Where the grid makes sense to use it, then use it,” he said. “If not, then build a microgrid.”

Before building a microgrid, it’s important to be clear about your overall objective, Bartek said — don’t build one just to say you have one. Microgrids are a means to an end, not an end in and of themselves.

It’s important to conduct a holistic cost-benefit analysis to determine if it’s going to be worth it to build a microgrid.

“There’s the benefit of actual savings on the rate-payer bills,” said Glen Martin, CEO and founder of Energizing Co. “And there is a large component of the reliability improvements, which can also be seen as benefits.”

As for funding microgrid construction, private finance funneled through public-private partnerships is becoming a popular option, besides federal money.

Microgrids: Resilience and independence

With more frequent and severe extreme weather events like Hurricane Sandy exposing the grid’s vulnerability, communities are learning a core lesson about climate resilience: being able to “island” themselves by quickly and seamlessly disconnecting from the electrical grid and autonomously generating power. Microgrids can do just that.

Likewise, communities in the United States and developing areas of the global South cut off from the grid are turning to microgrids.

Microgrids also can help actual islands to achieve energy independence. Richard Branson’s Necker Island in the British Virgin Islands, for example, last year inked a contract to cut its diesel fuel use by building a renewables-powered microgrid.

In Hawaii,  the average retail price of electricity is three times the national average — due to burning expensive imported diesel for electricity. Necker isn't the only island pursuing energy independence; Larry Ellison's Lanai Island is setting up a solar and geothermal-powered microgrid. Microgrids are part of the mix that will help Hawaii achieve its goal of generating 100 percent of its power from renewable sources.

“The people of Hawaii would be better served if we use our indigenous, local resources," said Hawaii’s Director of Business and Economic Development Luis Salaveria at VERGE. "But it’s about making our ideals a reality. That’s why Hawaii has demonstrated its leadership by enacting a law ... which is going to take us to 100 percent solar by 2045.”

So far, things are looking up for the Aloha State’s goal: since 2007 a combination of government and utility incentives and the right economics have ushered in a solar boom, with capacity roughly doubling each year.

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