The utility-microgrid relationship looked rocky early on. Like rooftop solar, here was another competitor threatening to rob away customers from utilities already nervous about flattened electricity demand in the U.S.
But something’s changing, according to Steve Pullins, vice president of energy solutions at Hitachi Americas.
More and more utilities see microgrids less as an adversary, more as a solution. This year, alone, utilities put up at least $1.2 billion to pursue microgrids and related smart distributed energy, he said. Large utility leaders, like Duke Energy, Exelon, National Grid, Sempra and Southern Company are among those making the investments.
Pullins calls the $1.2 billion a signal.
“The fact that it has happened — all in this year — tells me that some of the early adopter-type utilities are really starting to pay attention to the microgrid space,” he said in a recent interview.
Is it fear or opportunity driving the new utility-microgrid relationship? Maybe a little bit of both.
Microgrids create societal benefits that state regulators increasingly want utilities to produce for their customers: local economic development, reliability/resiliency, and emissions reductions, he said. Regulators are starting to wrap these benefits into rate-making discussions in California, Massachusetts, Minnesota and New York. So a financial incentive is emerging for utilities to pursue microgrids.
Meanwhile, concern is growing among utilities that they will lose customers not only to private microgrid developers, but to other utilities, namely unregulated utility subsidiaries from other states. These subsidiaries have the freedom in deregulated markets to move into another utility’s territory and compete for customers by building microgrids. Data centers, universities and other customers that value reliability are particularly vulnerable. It becomes a build or be built-upon scenario for utilities.
Electricity prices also are likely to drive change in the utility-microgrid relationship, according to Pullins. Hitachi focuses on offering microgrids with energy savings that grow over time. Such microgrids, and similar distributed energy projects, will put downward pressure on electricity rates over the years, Pullins said.
Bulk power systems will need to become more efficient to remain price competitive. Pullins sees price pressures continuing until around 2035 when he predicts microgrids and distributed energy will supply 16 to 20 percent of the electricity in the U.S. His calculations show an equilibrium occurring at that time, with prices for grid energy and distributed energy coming into balance.
Microgrids and distributed energy will not create a utility death spiral, he said. Instead, successful utilities will figure out how to produce power at a lower price. And those that cannot lower their prices are likely to be acquired by those that can.
“The microgrid/DER space will drive more competitive pricing to customers, and the bulk power system will respond to an extent. This means that there really is not a utility death spiral, but a ‘culling of the herd’ for those utilities finding it tough to suffer a 5-10 percent downturn in revenues,” he said.
Net metering and bad behavior
Meanwhile, Pullins sees an eventual disappearance of net metering and feed-in tariffs. He describes such programs as “exclusivity thinking,” which he says “doesn’t really benefit anyone — customers, utilities, society, developers, vendors — in the long-term.”
Net metering can, in fact, get in the way of bringing greater resiliency to the power system, he said.
“Utilities don’t like net metering programs. They think they force bad behavior. We happen to agree,” he said.
Pullins described a school in New York that asked Hitachi to propose a microgrid to keep the lights on when the grid goes down. The microgrid proved infeasible because the school already was meeting its electric demand via a grid-connected community solar project built miles away. The school had been drawn to the solar project because of its net metering benefits.
While the school met its sustainability and cost goals via the solar facility, it could not achieve reliability. A solar microgrid could have offered all three benefits. Significantly, a microgrid can island from the grid and provide power from its on-site generation during a crisis.
Pullins said he has seen several others follow the same path – sign onto remote net metering solar projects “that provide no support for continuity of operations.” They are then “livid” when they learn that the facility does not give them power in an outage.
“Those school systems are then forced into a capital asset purchase (emergency generation) that is rarely used, creating a large sunk investment,” he said.
The remote net metering project “eliminates a collective solution that serves economics, emissions reduction, and reliability and resilience,” he said, adding that resiliency goals and net metering goals “are not aligned.”
The bottom line is that the utility/microgrid relationship appears to be growing on a lot of common ground. Utilities and their customers want lower prices, better reliability and cleaner energy – what Pullins sees microgrids delivering.
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