Utilities are accelerating microgrid investments in innovative and strategic ways
The electric utility sector is at a crossroads between centralized generation and distributed energy resources (DERs), with 2018 DER deployments exceeding additions for centralized generation. Microgrids represent one platform that can transform DERs into systems that offer resiliency services outside of traditional utility service offerings. While utilities historically have viewed the islanding functionality of microgrids with suspicion, many are now investigating what role they could/should play in this market.
Microgrids are inching their way into the mainstream, although the majority are deployed by non-utility vendors for third parties. However, growing interest and regulatory support for community microgrids and microgrids designed to bolster the overall distribution system are opening the door for utilities to play a larger and undefined role.
The VERGE 18 Microgrid Summit in Oakland, California, made clear that utilities are beginning to explore new microgrid strategies in the United States. The East Coast recently led the charge in microgrids in response to major grid outages caused by extreme weather. However, California’s recent wildfires also have increased pressure on utility companies to boost resiliency on the West Coast. The Pacific Gas and Electric Company is partnering with Humboldt County community choice aggregation and others to create a microgrid supporting critical facilities — including an airport in an isolated part of northern California.
Duke Energy blazes a trail
Duke Energy has created a model blueprint for other utilities. It has discovered microgrid projects types that pass regulatory muster from a regulated business model while also providing strategic capital through its unregulated business ventures for new energy as a service microgrid business models.
Duke Energy has transferred microgrids from its emerging technologies division to its business development unit, implying that the utility sees viable commercial deployments. It is important to note that the utility began its microgrid journey by assembling a small microgrid with off-the-shelf components. This experience led to forming a Coalition of the Willing initiative to partner with private vendors to tackle the issue of interoperability. This eventually led to Field Message Bus technology, designed to create common protocols to allow for easier integration of DER.
In North America, Duke Energy has several regulated rate-basing investment success stories to draw on. It seems that the key to rate-basing microgrids is the non-wires alternatives approach — using them as a way to avoid costly upgrades of poles, wires or other grid equipment. That's because the primary obstacle to direct utility investment is justifying ratepayer’s dollars going to infrastructure, the primary benefits of which only flow to a small pool of customers.
In October, Duke Energy filed for state regulatory approval for a solar PV system in the Hot Springs community of Madison County, North Carolina. This is a part of a microgrid project that will benefit a small community and the broader distribution network. The microgrid will consist of a 2-megawatt solar photovoltaic facility with 4 MWs of lithium-based battery storage. Along with localized resiliency services, the microgrid will provide energy and grid support to all Duke Energy customers while deferring ongoing maintenance of an existing distribution power line that serves the remote town. Vendors such as S&C Electric, whose clients are utilities seeking ways to rate base medium-voltage microgrid projects, suggests the NWA model is the way to go for many utilities.
Duke Energy is installing a 2 MW solar PV array and 5 MWs of batteries at the Indiana National Guard’s Camp Atterbury training facility. The installation’s primary purpose is to provide frequency regulation services to the Midwest Independent System Operator. It also can provide resiliency services in the event of a power outage at this critical services facility. The rate-basing component was limited to the islanding switch; therefore, the National Guard base traded the site for the microgrid and its resiliency.
Some utilities prefer to investigate microgrid opportunities within their unregulated businesses. This avoids the need to leap over the regulatory hurdles to rate-basing and allows them to serve as investors in third-party microgrids outside of their regulated businesses’ service territories.
While many of these ventures can be opaque, one of the most visible efforts in this arena is spearheaded by REC Solar, a subsidiary of Duke Energy. REC Solar has served as the investor in projects being developed by Schneider Electric under its microgrids-as-a-service business model.
For example, in Montgomery County, Maryland, the local government was able to move forward with a microgrid to serve critical facilities without any upfront capital investment. Instead, REC Solar provided the capital; Schneider Electric provides the controls, holding the contract that guarantees both economic and environmental benefits for a region previously struck by major power outages.
Utilities should invest in regulated and unregulated models
The essence of any utility microgrid strategy rests on several factors, including the structure of the utility, geography, regulatory matters and the creative minds in corporate boardrooms.
Yet it also requires buy-in throughout the company along with a willingness to think creatively and take calculated risks. This is why it may make sense to follow in Duke Energy’s footsteps and invest in microgrid opportunities under both a regulated and unregulated business model.
While government programs supporting microgrids in the United States have opened the door to innovative partnerships by putting utilities front and center in the design and development process, private sector solutions providers ultimately will continue to drive the market. Utilities, nevertheless, are gatekeepers, and the gate to widespread commercialization of microgrids is swinging open.