Elon Musk, CEO of California-based Tesla, last week told analysts that he wants to get the energy world to a “non-weird future.” Meanwhile, about 2,000 miles away in Minnesota, an international energy gathering offered a glimpse of its own kind of energy future.
Musk’s future of microgrids is a place where consumers can easily (and more cheaply) purchase distributed energy systems in a one-stop shop setting.
“Just click here and you get a microgrid, and it just works. That’s a good way to go.” Musk said. “I think consumers obviously appreciate things that are easy, simple, fast.”
He added: “Just because the product is big doesn’t mean that the whole process needs to be complex. Bigness and complexity are not the same thing.”
His vision is very different from today’s reality. Rather than being a one-click purchase, microgrids are largely customized projects.
To get more quickly to this future, Musk wants to merge Tesla, his electric vehicle company, with SolarCity, which offers solar, storage and microgrids. This would allow customers to buy the products as a package and count on one company to ensure the system works together properly.
Musk’s future also is one where we (eventually) no longer use liquefied dinosaur bones to generate power. Future generations, he said, will look back on the practice as “a bit weird.”
“I think you will be telling your grandchildren you won’t believe what we used to do. We used to take out liquidized remains of dinosaurs and old plants and put them in cars and burn them to move, and did the same things with the power plants and the like. That sounds crazy,” he said. “So, we are trying to have the non-weird future get here as fast as possible.”
“I think you will be telling your grandchildren you won’t believe what we used to do.” — Elon Musk
Embracing change in Minnesota
Meanwhile, in St. Paul, Minnesota at a conference aptly called Embracing Change, another angle on the future of microgrids emerged, this one not meant to end fossil fuels but a fossilized relationship — the strife between utilities and competitive companies.
The conference host was the International District Energy Association (IDEA), whose members include more than 2,000 district energy, combined heat and power (CHP) and microgrid companies. IDEA members for years have competed with utilities for customers. So it was poignant that a special guest at the conference was the Edison Electric Institute, a utility advocacy organization.
Even more interesting was a description of an agreement being formulated by IDEA, EEI, and the CHP Association, which would bring the groups together on regulatory reform.
Energy organizations signing a piece of paper might not sound like much. But for those who have followed the fierce rivalries over the years between independents and utilities, it could be something of a Reagan/Gorbachev moment.
Today the rivalry is often central in discussion about how to manage the coming distributed grid. Who will win and who will lose? Or will the two figure out a symbiosis? The stakes are high with about $120 billion (US Census) in annual revenue generated by the power industry. Each side has tried over the years to protect its turf before regulators.
Today, utilities are trying to figure out if they can offer microgrids within their cost-of-service regulatory constraints or if a new regulatory compact is needed.
“From my view, no industry is changing more quickly than the utility industry in North America,” said Rob Thornton, IDEA president and CEO, speaking at IDEA’s annual conference, which drew almost 800 energy insiders from 18 countries.
Thornton said that customers do not want to disconnect from the grid; instead distributed energy is a way for them to supplement grid service. Making this work requires modernizing regulatory rules.
The yet-to-be-announced agreement between the utility and competitive organizations would create a set of overarching principles or concepts for the groups to bring to regulators as they work toward reform, according to Thornton. He described it as a way to “lock arms and try to change the rules.”
“It is all about building trust and finding a basis for working together in the marketplace,” said Eric Ackerman, EEI’s director for alternative regulation.
Ackerman, who served on the conference’s keynote panel, found himself in a somewhat unusual situation for a utility representative in a room full of competitive players. He received an ovation for his work on the agreement.
Utilities and the future of microgrids
In an interview before the session, Ackerman described a new era for utilities. Regulatory and market changes have been common in energy over the years. But this time it is different, not a mere transition, but instead a transformation, he said.
Government policy typically drives change in the sector. Now fast-moving technology innovation is putting foot to gas pedal. How do utilities incorporate the new stuff?
“We need tech partners,” Ackerman said. “Working together, we can produce a product offering that is far better, far cheaper, more competitive in the market.”
That, he says, is the real motivation behind his work creating an accord with the competitive groups. “We need to align incentives. We need to have a common understanding about how we are going to play, where we are going to play. “
For those who have followed the fierce rivalries over the years between independents and utilities, it could be something of a Reagan/Gorbachev moment.
Consumer demand is growing for technologies that offer resiliency and low-carbon energy such as microgrids, CHP, and renewables. If utilities do not offer these products, clearly someone else will, he said.
Ackerman pointed to an example of an upcoming market opportunity in the hospital sector. The Department of Health and Human Services is getting ready to issue new rules that require hospitals to adequately plan for both natural and man-made disasters (Docket ID: CMS-2013-0269.)
A group that includes the Pew Charitable Trusts see microgrids and CHP as a key part of such plans. In a filing to HHS, they highlight the danger of moving and disrupting patients because of power outages at health facilities. For example, death rates for seniors rose 218 percent 30 days after evacuations related to Hurricane Gustav, according to a report in the American Journal of Alzheimer’s Disease & Other Dementia.
“All of these hospitals are going to need to upgrade. As I understand it, hospitals are typically highly leveraged and can’t afford to necessarily build systems themselves. They would probably be very open to partnering with the utility,” Ackerman said.
But the utility cost-recovery issue stands in the way. Utilities by regulatory mandate must be least-cost providers. So how do they justify the premium costs associated with building a microgrid for a hospital, data center or other customer with a particular need for back-up power? Regulators are unlikely to look kindly upon spreading the costs among the utility’s other customers who may not directly benefit.
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What’s needed, says Ackerman, is a distribution-level planning model, one that takes into account new grid priorities, such as resiliency and climate change. When these priorities are considered, a microgrid or other form of distributed energy might prove less costly than a traditional wires or generation alternative.
Such planning is highly location specific. What works on one part of the grid may not be cost-effective elsewhere. The approach compares in detail distributed energy and traditional utility solutions, such as wires upgrades or central power additions. California is leading the way in pursuing this kind of locational net benefits analysis, Ackerman said.
Other distributed energy models also are being explored by utilities, some which make room for competitive companies.
The Exelon utilities are arguing to regulators that it makes sense for utilities to build microgrids that serve a larger public purpose, leaving private microgrids to the competitive market. In New York, National Grid wants to offer microgrid services, such as billing and underground wiring, while others own the actual generation. And in North Carolina, Duke Energy has struck a 35-year agreement to build and operate a microgrid-ready CHP plant on Duke University’s campus. The project creates various synergies, providing power to the grid, steam to the campus, and lowering the college’s overall carbon footprint.
From the competitive side, a partnership with a utility can offer several benefits. Utilities house extensive customer data. They have ability to make interconnection to the grid easy or difficult. And utilities typically have stable financial balance sheets.
Defining non-weird…
Some competitive companies – those that have been entrenched in long and difficult turf wars with utilities – may balk at an olive branch. But then, even Musk is interested in working with utilities. And his company, SolarCity, is engaged in perhaps the most contentious battle today between utilities and independents — the net metering wars. Yet at the same time, SolarCity has begun offering new special services for utilities and has formed partnerships with Southern California Edison and other utilities.
So walls still exist, but not everywhere. There is a long road ahead and it’s hard to know what business models will prevail. Who knows, just as Musk sees his grandkids looking oddly upon the fossil fuel era, maybe they’ll be a story to tell them that goes: ‘Once upon a time we had these companies — utilities and independents — and they never got along, until one day…’
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