Utilities and Microgrids: It’s Complicated

Relationships_are_complicated_(2527256358)Not long ago when Schneider Electric’s Mark Feasel would make an appointment to talk to a utility about microgrids, he’d usually get shuffled off to the ‘smart guy’.

The smart guy is interesting, but he has no budget and therefore no real influence. Being sent to him signaled the utility’s lack of enthusiasm.

But something has changed. For one thing, Feasel has noticed the smart guy is no longer the only one talking about microgrids. At energy conferences, for example, C-suite utility leaders now take the podium.

“When I saw this, a light went off,” said Feasel, who is ‎vice president of electric utility segment & smart grid at Schneider.“When the CEO is giving the presentation on micogrids versus the smart guy in the corner…they are serious about it.”

Indeed, the relationship between utilities and microgrids seems to be growing warmer. Several  utilites have begin exploring, developing or marketing microgrids, among them American Electric Power, Commonwealth Edison, Dominion, Duke Energy, Green Mountain Power, National Grid, Oncor, and Southern California Edison.

Utilities and microgrids: A symbiosis?

For utilities, microgrids are both a threat and opportunity. As a form of distributed energy, microgrids can draw away utility customers. Some analysts fear this could lead to a business death spiral for the utility. Feasel doesn’t see such dire consequences ahead for U.S. utilities. But he said the warning has served as a “wake up”  for utilities as they struggle with disruption.

In truth, not many utility customers know enough about microgrids to want them — yet.

Those installing microgrids, so far, have been early adopters: innovators, well-capitalized companies, savvy communities, data centers and the like. They represent about 10 percent of the market. But most everyone else is at best “passive but curious,” he said.

The passive-but-curious are being handed an Internet of Things (a microgrid being one of those things) and wondering what they are supposed to do with it.  This will change. But for now, a large chasm exists between the early adopters and the passive-but-curious, he said.

Closing that chasm —  helping the mainstream customer access microgrids — offers a major business opportunity for utilities.

“To cross the chasm what needs to be delivered is the benefit of the microgrid, and not necessarily the microgrid,” he said.

Specifically, Feasel foresees the microgrid-as-service concept taking hold.  Microgrid-as-a-service appeals to the customer who wants the benefits of a microgrid — reliability, fuel hedging, lower cost, sustainability — but doesn’t want to run a microgrid. The customer contracts for the service, while someone else owns and runs the microgrid.

“To reach that market you have to deliver the benefit at the same time they are paying for it. You can’t say, ‘Pay everything upfront and then you will see the benefits eventually,’” he said. “So you need a third party that will design, finance, build, own operate and maintain it.”

Microgrid-as-a-service

Microgrid-as-a-serve is a team production. The utility brings its strong balance sheet and relationship to the customer. It acts as owner of the microgrid. Others, like Schneider, bring technical expertise.

This approach creates a new opportunity for utilities to own low-risk assets, which their business model relies on to generate shareholder value.  Utilities are finding it more and more difficult to secure such assets. Energy efficiency, the growth of distributed energy, and other factors are diminishing need for new power plants and transmission.

Non-utility companies, of course, may also take on an ownership role in a microgrid-as-a-service project. But the utilities are prime candidates, “a very interested partner” because they see microgrids as a form of disruptive energy, one that can work against their business model — unless they figure out a way to make it work for them.

So what’s ahead for utilities and microgrids?

The microgrid market is growing fast, but it is still in the early adopter phase, according to Feasel. He sees microgrids following the same path as the solar industry over the last decade. The industry will make the leap from the “geeks and niche markets” to the more mainstream customer once favorable financing and business models are established. He sees the industry hitting its stride around 2020.

Between now and then watch for the availability of more off-the-shelf microgrids, as standards and open source technology emerges. Look for utilities to ramp up microgrid operations, some through their regulated businesses others through their competitive arms. Watch teams of independent vendors form to work with them.  And see the shift in the consumer, from passive but curious, to I want what a microgrid offers.

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Elisa Wood About Elisa Wood

Elisa Wood is the chief editor of MicrogridKnowledge.com. She has been writing about energy for more than two decades for top industry publications. Her work also has been picked up by CNN, the New York Times, Reuters, the Wall Street Journal Online and the Washington Post.

Comments

  1. Z'ev Gross says:

    I am glad that I have “thought along the lines of the great” with the micro-grid business model described above, as my partner and I began trying to “sell” this model with energy cost benefits (as opposed to energy security benefits) to potential clkients. In our particular jurisdiction – customers cannot get their minds around the concept that they will one day hit the switch and that the lights won’t go on.

    The problem though (and you have alluded to this in previous articles, although we saw it as being trivial) is that in order to avoid unnecessary micro-grid infrastructure (especially generation) you must first assure the energy efficiency of the system. It has already been stated in the literature that establishment of community scale micro-grids are best preceded by “deep EE retrofits”. As stated, we have always viewed this as trivial.

    The problem then arises as the micro-grid “supplier” finds himself in conflict of interest. In truth – where we began discussing the micro-grid with a cost cutting rationale, we began speaking of a dual revenue stream – one from energy efficiency, the other from provision of energy. Not easy.

    The resiliency driven micro-grid (as opposed to the cost saving driven system) is now grappling with the business model, as the micro-grid will probably only be used in emergencies. Should it not be used only then – it might enable a business model along the lines suggested here, but I believe the energy costs would then be higher than the (as the system would only be used partially).

    Another issue to be faced under the proposed model (and we know it sooooooo well) is the issue of regulation. The proposed supplier is another form of utility and the question then arises as to how to get around these questions, or how to address them head-on. I would be happy to jump into the fray on such a subject – but until something is started, I would propose structures that are “under the radar” – i.e. compliant with regulation or promoting systems not dealt with by regulation.

    Hope this has been helpful
    Z’ev Gross

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