How can Resilience Tariffs Improve Microgrid Economics?

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Microgrids bring benefits to communities and cities, but economic barriers can stand in the way of their deployment. Mehdi Ganji, smart cities vice president at Willdan Energy Solutions, discusses the use of resilience tariffs to overcome these barriers in an interview with Yasmin Ali, Microgrid Knowledge contributor.

How do microgrids fit into cities, and what benefits can they bring?

Mehdi Ganji, smart cities vice president, Willdan Energy Solutions

Mehdi Ganji: Microgrids can help cities improve power grid cost effectiveness, safety, sustainability and resilience. This, in turn, helps cities serve their citizens with high-quality energy, water and wastewater, transportation, and communication services. These services are planned and operated independently of each other, but have strong interdependencies.

As such, it’s vital that cities have a backbone of economic, resilient, safe and clean energy infrastructure. Despite the benefits microgrids bring, barriers remain that delay their commercialization. Many of the benefits, such as resiliency and reliability, have not been monetized yet; public funding can help us to quantify these benefits and commercialize the solution through the development of suitable microgrid tariffs.

What is a microgrid tariff and how would it work?

MG: A microgrid tariff is a mechanism that can be offered by regulators to monetize more of a microgrid’s benefits, increasing financial benefits to the developer and creating a stronger economic case for the project. Tariffs can also address another existing barrier – the resistance of utilities to adopt microgrids into their ecosystem.

During the development, permitting, and construction stages of a microgrid project, the utilities may not have enough information about the performance of the microgrid in relation to their network over the lifespan of the asset. This can lead to additional requirements that delay the project, increasing CAPEX.

Resilience tariffs

Past, present, and future monetized versus non-monetized benefits, and private versus public funding for microgrids. Courtesy of Willdan.

During microgrid operations, utilities lack real-time visibility of the microgrid’s performance. Additionally, the utility’s control, communication and cyber security requirements are not always taken into consideration. Just as a building owner may choose not to lease an office to a third party who denies the owner access or visibility into the leased space, the utilities are hesitant to embrace microgrid adoption and its potential grid services offerings due to lack of transparency and control. Introducing appropriate microgrid tariffs or rates provides the necessary financial incentive – in combination with addressing microgrid visibility and control issues – to create a win-win situation. The utility can use tariffs to incentivize microgrid project developers, unlocking additional revenue for the microgrid while ensuring the utility’s requirements are met, allowing the overall system to benefit from increased resiliency.

Are there examples of microgrid tariffs or rates under development today?

MG: Yes, Senate Bill 1215 proposes several changes to the existing law, Senate Bill 1339 requiring the California Public Utilities Commission (CPUC) to develop guidelines and separate rates and tariffs that serve to reduce barriers to microgrid deployment. One of the tracks of work focuses on accelerating the interconnection of resiliency projects and modernizing tariffs to maximize resiliency benefits. If this is approved in June 2020, the CPUC will direct the utilities to update the Net Energy Metering (NEM) tariff. At the moment, this tariff is structured in a way that forces ratepayers to choose between the resiliency offered by a microgrid and the revenue offered under NEM. The proposed changes would provide resiliency benefits by allowing storage to charge up using grid power in advance of planned Power Safety Power Shut-off events.

In addition to this tariff modernization initiative, Willdan strongly recommends that the CPUC consider developing a separate locational microgrid rate to monetize un-quantified microgrid benefits like reliability, resilience, and deferral of distribution infrastructure upgrades. This rate can be used as a tool to encourage non-utility microgrid developers to consider utility planning and operation requirements. This can be built on Willdan’s Develop, Design, and Operate guidelines, which consider optimal placement of the proposed microgrid and sizing of the DER mix, within the larger framework of distribution network constraints.

Finally, how can public utility commissions in other states develop microgrid tariffs?

MG: Willdan’s Develop, Design and Operate methodology, which is built on our Microgrid Planning and Operation Technology Stack (MPOTS), can support the public utility commissions in establishing locational microgrid rates, defining the most suitable microgrid locations, revising the optimal DER mix (initially defined for economic and environmental purposes) to also address local grid stability concerns, and providing a platform that gives utilities real-time visibility and control of microgrid operations. All of these parameters are critical to achieving economic, safe, resilient and reliable grid operations.

Mehdi Ganji is the smart cities vice president at Willdan Energy Solutions and smart city R&D committee chair at IEEE.

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