Microgrid Incentives: What’s Needed to Spur More Microgrids?

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Many energy technologies receive some sort of utility or government incentive — especially those that are new and promising — but need an early nudge to win the market’s confidence. Microgrid incentives, however, remain scarce in the U.S.

They do exist, but come mostly in the form of grants from a handful of states. Or some microgrids capture indirect subsidies. For example, if they incorporate green energy, they may be eligible for federal tax credits or state renewable energy credits (RECs).

So what will it take to effectively incentivize microgrids beyond this patchwork? Industry experts offer various ideas. But top on their list is recognizing and rewarding all the values microgrids provide to the grid and utility customers.

“Getting incentives right means taking into account and quantifying the range of values that microgrids can bring to the grid, as well as helping customers to understand the added benefits that will accrue to them,” said Steve Fine, vice president at ICF. “Benefits to the grid include identifying locational value by potentially avoiding capital expenditures on the grid, while benefits to consumers include increased reliability and resilience.”

Incentives also need to address the significant obstacles microgrid developers face: pricing, planning and regulation, according to Merrill Kramer, chair of Sullivan & Worcester’s Sustainable Energy practice.

Like Fine, he says that existing systems and practices don’t properly evaluate a microgrid’s long-run marginal value to the grid. What’s more, it’s hard to place a value on these benefits when utilities are “less than thrilled” about opening up transmission and distribution businesses to competition.

“Microgrids require a significantly longer lead time than generation for planning and permitting, including for obtaining easements and rights of way. Their configuration will also be affected by whether and where electric generating facilities, including solar and other renewables, are included as part of the reliability build out.” As a result, a chicken-and-egg dilemma is created; microgrid design must wait for community approvals on siting and installation of generating systems, he said.

What’s more, the transmission and distribution components of microgrids are often viewed as electric utility components subject to regulation. But it’s unclear whether state agencies plan to regulate them, creating uncertainty for private developers. They’re hesitant to develop projects that would prompt regulatory oversight, utility status and rate regulation, he said.

Microgrid incentives should compensate developers for such risks and costs, he noted.

Programs like the NY Prize provide important incentives that spur development of microgrids, said Dan Welsh, program director, Westchester Power, part of Sustainable Westchester.  The NY Prize is a state-sponsered competition that is providing $40 million for community microgrids. The program operates in three phases. The first phase funded feasibilty studies and the second phase technical studies. Still to come, the third phase will provide financial assistance for project development.

“By starting at the study level, they inspire these initiatives to move forward,” Welsh said.

Sustainable Westchester also maintians that adding incentives for energy storage “may have the potential to move the return on investment into active territory,” he said. “Anything that helps bring battery costs within reach might serve as an added incentive for the investment into microgrids.”

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 “Demand for microgrid benefits is what is truly driving the market.” — Mark Feasel, Schneider Electric

Tom Bourgeois, deputy director, Pace Energy & Climate Center, says that more attention needs to be given to the value of combined heat and power (CHP), which is often part of a microgrid.

“I would argue that central to a cost-effective microgrid is high-efficiency CHP,” said Bourgeois, who also is co-director of the U.S. Dept. of Energy’s Northeast CHP Technical Assistance Partnership.

Bourgeois said that he knows of only one state that has created a value stream for this under-appreciated technology. In Massachusetts, the Alternative Energy Credit—created by a 2009 law—states that the higher the efficiency, the higher the credit. And that’s why CHP is counted.

A number of universities that have microgrids—including New York University and Princeton—have shown the value of CHP in microgrids, he noted.

“In an ideal world, if I were designing an incentive system, I would make sure it was technology-agnostic,” Bourgeois said. “I wouldn’t want to disqualify any technologies. Don’t pick winners and losers. It should be done in the most cost-effective way possible with the highest environmental benefits. Let any resource do it,” he said.

New microgrid incentives would certainly help advance adoption of the technology. But in truth, the market is growing even without them, as Schneider Electric’s Mark Feasel pointed out.

“Energy users are organically motivated or incentivized to install microgrids because the technology improves their efficiency, resiliency, and sustainability; and thus overall business operations,” said Feasel, who is vice president, Electric Utility Segment & Smart Grid. “Demand for microgrid benefits is what is truly driving the market.”

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