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Tools for Climate Finance Readiness: Building Capacity to Support Increased Finance Flows

On Friday December 12, 2014, delegates to the UNFCCC COP 20 discussed capacity building for climate finance at the event, 'Tools for Climate Finance Readiness: building capacity to support increased finance flows,'. At this side event, Dennis Tänzler presented the new Climate Finance Readiness Training toolkit “CliFiT”...
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Vulnerable nations urged to craft climate migration policy

Countries vulnerable to extreme weather and rising seas should follow the example of small Pacific island states like Kiribati, and work out how to relocate threatened communities if there is no alternative, experts said at U.N. climate talks in Lima. "We now know that climate change is a driver of migration, and is expected to increase the displacement of populations,"...
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ECC Newsletter Edition 3/2014

We have published the third Edition of the Environment, Conflict, and Cooperation Newsletter in 2014. It features e.g. an article by Tony de Brum, Foreign Minister of the Marshall Islands, about how his country approaches climate diplomacy on the way towards ambitious climate action. We also take a closer look at local governance and climate resilience with perspectives from Latin America and from Southeast Asia...
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Quote of the Month

“Climate change is one of the greatest challenges of our time and represents an urgent and unalterable threat to human societies.” - Ram Prasad Lamsal, Chair of the LDC Group at UN climate change negotiations, Statement at the Opening Plenary of the Twentieth Session of the Conference of Parties of the UN Framework Convention on Climate Change (COP 20), Lima, Peru, 1 December 2014.
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Microgrids: An Integrated 21st-Century Solution

  • 20 December 2013, by Michael J. Zimmer and Elissa E. Welch. Source: Ohio University

In 2012, Pike Research estimated that the global microgrid market would grow to US $17.3 billion by 2017. An impressive figure for certain. Even more impressive is the updated estimate released in early November by Navigant Research: by 2020, revenue from deployments of microgrids will be more than US $40 billion. They attribute this upward estimate in part to a recognition that the projects (new and retrofits) require a greater level of investment than previously thought.

North America continues to be a hotbed for microgrid development. The Navigant report finds that North America has a total planned, proposed and deployed microgrid capacity of 2.7 megawatts, a little more than half of which is currently online. This figure represents 65% of microgrid capacity worldwide. Commercial and industrial applications, currently estimated at 30 across the U.S., could climb to 300 in the next two years as the high-profile likes of Oracle Corp., EBay, University of California at San Diego, Lockheed Martin Corp., the U.S. Department of Defense and others champion their use. Green Energy Corp., a U.S. builder of commercial-scale microgrids, estimates that 24,000 U.S. commercial and industrial sites could be developed with large-scale microgrid conversions. And that doesn’t even include the other types of microgrids such as institutional/campus, community/utility, military and remote applications. For example, New York City and other East Coast communities are quickly reviewing microgrids to increase grid resiliency against extreme weather events. As we see time and time again, having power in times of crisis is invaluable for emergency response, healthcare facilities and rapid recovery.

So then, just how do we go from 300 to 24,000? Or even more?

First, let’s review the basics. A “microgrid” is defined as an integrated energy system of distributed energy resources and multiple electrical loads operating a signaled, autonomous grid – either in parallel to or islanded from the existing utility power grid. The types of technologies that can be integrated into a microgrid system are even more numerous than the applications themselves: distributed generation (DG), renewable energy and storage, energy infrastructure, demand-side management (DSM), and other energy-efficiency strategies. This bodes well for manufacturers of these applied technologies at home and abroad, such as Siemens, General Electric, ABB and more.

With increasing customer-owned distributed energy resource loads, it is essential to consider how these new resources will operate within the current wholesale market. Certainly, the entire notion of microgrids challenges the traditional business model of utility-based infrastructure and the system in use today. But considering that power outages cost business and government an estimated US $104 to $164 billion annually, there is ample reason for change. Other reasons are more application specific: the military seeks more reliability in the electric grid to circumvent vulnerabilities in their missions. Threats of cyber-attacks on critical infrastructure are partially driving the U.S. military interest. Disturbances in electric supply also impact industry and commerce causing significant losses of information, efficiency and productivity. If the trend for microgrid deployment continues, utilities will have to adapt to a new model of generation, transmission and distribution, and be open to the benefits that can result. Kevin Sullivan, business director at DNV KEMA, finds the following benefits for microgrid deployment:

Improves energy reliability and security of supply especially critical in healthcare and military operations
Net excess energy revenues and efficiencies (in the near future) will support funding of new grid investments
Ability to self-optimize assets with full self-control of energy operations where the microgrid operator has both supply and demand control and responsibility
Defers infrastructure investments to better match a visible and controllable load profile making peak load choices and longer-term investments more accurate
Enables emissions reductions that support sustainability targets when renewable energy assets are deployed and balanced
Supports a net zero strategy and the Microgrid Optimization Model
Increases reliability and back-up capability when storage options are deployed  
Allows management of generation variability with renewable energy sources

But 24,000? Rethinking the policies and promoting a supportive market environment are still necessary.

The Policies

Understanding how and when microgrids draw from and sell back to the grid is essential to the evolving energy paradigm in the U.S. Policies that tackle interconnection, pricing, net metering and standby rates will help microgrids to succeed in integrating into the existing business model and move it forward. Public policy leadership for successful grid modernization must provide:

  1. External funding from both public and private sources to promote realistic and cost-effective solutions, starting with pilot projects as necessary.
  2. Utility rate design that takes into account avoided costs for generation, transmission and distribution which are avoided by the microgrid and DG choice. The rate subsidies now in place subsidize the utility, and not the customer, through net metering.
  3. Tougher air conditioning, TV and appliance standards to ease summer peak challenges, and state-based policies that promote on-site power technologies and storage, increased energy-efficiency standards, cost-effective renewable resources, merchant transmission and enhanced building codes.
  4. Updated standby/back-up power rates that consider alternative rate designs without gouging customers.
  5. Amended franchise laws and “public utility” definitions that exempt DG and microgrids.
  6. Assurance that microgrids qualify for incentives in grant, tax code and public policy systems along with traditional generation, fuels and T&D to receive equal rewards and avoided cost recognition.
  7. Updated infrastructure considerations for utilizing public rights of way for grid connections.
  8. Ending state regulation as a “public utility” which is no longer necessary for steam, cooling and hot water sales from a microgrid or DG project.
  9. Ways to promote and leverage microgrid development partnerships between utilities, financiers, vendors, IT and telecom companies.
  10. Model rules and standards for shared energy and community development programs in rural and/or underdeveloped areas where density and customers offer a different scale and value proposition.

 

The Market Environment

Understanding the detailed economics of developing and operating a microgrid is critical for its success—all aspects must be considered. Different sizes, classes and locations of microgrid development targets will respond to different price signals—diversity in a microgrid portfolio optimizes its potential to effectively price products and offer services to its customers. Sophisticated tools can assess the economic, operational and emissions impacts of particular microgrid developments across various investment and deployment scenarios for the end-user’s benefit. For more on this topic, check out this IEEE report. Wholesale and retail electricity markets will need to adapt and harness the opportunities that microgrids represent for improved reliability, power quality, less price volatility, better control and smarter forecasts.

A thorough review and understanding of these issues by policymakers and project developers will help position microgrids as the “missing link” in leveraging energy security, state-based renewable portfolio standards and energy efficiency standards (such as Ohio’s Senate Bill 221 and those across the U.S.)—and could pave the way for the creation of a modernized, integrated North American grid based on electric stability, reliability, resiliency and security. For now at least, the piecemeal approach is gaining traction that cannot be ignored.

by Michael J. Zimmer, Executive in Residence, Energy and the Environment with

Elissa E. Welch, Project Manager, Consortium for Energy, Economics & the Environment,

Ohio University Voinovich School of Leadership and Public Affairs (Athens, Ohio)