Community Microgrids Face Challenges, but Tides are Turning as States Embrace Microgrid Development

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Community microgrids are on the rise and growing in popularity. However, in many jurisdictions, various financial, institutional (regulatory and legal), and perceptional barriers present key challenges to community microgrid implementation.

community microgrids

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That’s according to a new white paper from Hoffman Power Consulting. The report points out that to develop community microgrids, microgrid providers can potentially partner with any of the more than 3,000 US electric utilities and 750 community choice aggregators (CCAs), as well as more than 3,000 US cities and 3,000 counties.

And these microgrids can help communities increase resilience to wildfires, extreme weather, cybersecurity, physical security attacks and other threats.

According to the Hoffman report, “Designing, installing, operating, and maintaining community microgrids offers a potentially lucrative business opportunity for microgrid providers, system developers and installers, and related enterprises.”

This new white paper describes the leading practices for microgrid developers to consider for successful community microgrid implementation as well as any barriers they face to implementation.

Barriers to community microgrids include limited availability of capital, regulatory uncertainty, uncertain utility support, and microgrids classified as public utilities and subjected to related state regulations.

But, today, solutions to institutional considerations such as ownership, financing and other aspects of the microgrid business model have evolved, according to Hoffman Power Consulting.

These include third-party ownership and financing as well as types of energy-as-a-service (SaaS) models, which are gaining popularity over customer-owned or community-owned models.

“Such arrangements, which typically include some sort of power purchase agreement (PPA) or pay-as-you-go model, eliminate or minimize the need for customers or communities to invest the significant capital that many microgrid projects require,” the Hoffman report states.

As for regulatory uncertainty, the report says that several states are passing laws and implementing regulations to accommodate microgrids. For exampleCalifornia passed a bill in 2018 to reduce barriers to microgrids.

The Hoffman report also explains that microgrid developers try to avoid classification of a proposed microgrid as an electric utility to avoid onerous regulations.

Uncertain utility support can be a challenge as well. Utility-owned microgrids can run into barriers such as customer fairness/equity and cost justification.

Some industry insiders think the solution to many of these barriers is adopting the distribution system operator (DSO) model. Under this model, rather than remaining dependent on revenue from electric sales and infrastructure investments, the utility becomes a distribution system operator and is paid for acting in that capacity.

The white paper provides leading practices to address the top barriers to community microgrids and covers the following topics in detail:

  • Overview of community microgrid barriers
  • Business models to address limited capital
  • Regulatory uncertainty
  • Microgrid as a public utility
  • Uncertain utility support
  • Paths to success for municipals and cooperatives
  • The DSO: A potential long-term solution

Download the full report, “Six Barriers to Community Microgrids and Potential Ways Developers can Surmount Them,” courtesy of Hoffman Power Consulting, for further information on community microgrids. 

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