Three Paths Ahead as Utility Microgrids Reach Inflexion Point: Navigant

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Utility microgrids are at an inflexion point, according to a new report from Navigant Research.

utility microgrids

Duke Energy and Schneider Electric partnered to develop a microgrid at a public safety facility in Montgomery County, Maryland. Courtesy of Schneider

The inflexion point comes from the confluence of two trends. First is the global growth of distributed energy resources (DER). The second is a change in utility attitudes toward microgrids.

According to Navigant projections, global deployments of distributed energy resources (DER) will exceed centralized generation deployments in 2018 and will continue to outpace central station deployments. Navigant projects that DER deployments in the United States will grow almost three times as fast as central station deployments.

The second trend is a growing acceptance of microgrids. Historically, “utilities have viewed microgrids with suspicion,” said Peter Asmus, research director at Navigant Research and author of the report, Utility Microgrid Strategies Leveraging DER for Grid Benefits. Microgrids were “popping up on the system with no planning” and were seen as a threat to reliability and to a utility’s franchise.

Now, however, “smart utilities realize the world is changing” and are beginning to “dip their toes in the water,” Asmus said. They are finding that microgrids can serve as tools to reduce demand response and to provide extra capacity and that makes them more attractive and less threatening to a utility’s business model.

Three paths for utility microgrids

Utilities that move now can shape future microgrid markets to create new revenue opportunities, says the report, which lays out three pathways for utility microgrids.

  1. Utilities can take a traditional regulated rate-based approach.
  2. They can invest in microgrids through an unregulated subsidiary.
  3. They can take a hybrid approach with investment in microgrids or acquisition of microgrid vendors.

Some utilities have already taken that initiative. Last February, Commonwealth Edison won approval for a $30 million microgrid cluster in the Bronzeville neighborhood of Chicago’s South Side. A Department of Energy grant will cover $5 million of the costs. The rest will be put in rate base. However, ComEd had to be flexible to move forward with the project. Instead of owning the generation assets, as it had originally proposed, ComEd agreed to allow the assets to be bid on and owned by third parties. ComEd also agreed to let third parties form their own microgrids.

Navigant also highlights Duke Energy, calling the utility’s microgrid efforts “a model blueprint for other utilities.” Duke is investing in microgrids through both its rate regulated and its unregulated businesses. Asmus found that Duke’s key insight to putting a microgrid in rate base is to take a non-wires alternative approach. By using a microgrid to avoid a more costly investment in poles, wires or other equipment, a utility is able to justify spending ratepayer’s money for infrastructure that creates broad benefits beyond a small group of customers.

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For instance, Duke is seeking regulatory approval for a microgrid project in Hot Springs, N.C., that would consist of a 2 MW solar array and a 4 MWh battery storage facility. Duke says the project would provide a safe, cost-effective and reliable grid solution for Hot Springs while deferring maintenance of an existing distribution line that serves the remote town, as well as providing energy and grid support for all customers.

Duke also invests in microgrids through its unregulated Duke Energy Renewables subsidiary. That path way allows a utility to avoid the need to leap over the regulatory hurdles to ratebasing and to act as an investor in third-party microgrids outside its regulated service area.

That is what Duke did in Maryland where, working through a public-private partnership, Duke Energy Renewables owns and operates the system under 25-year terms and Schneider Electric built and maintains the system.

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Duke and Schneider partnership

Montgomery County, Maryland, installed the microgrid at the county’s public safety headquarters in Gaithersburg to ensure the resiliency of critical public services. The project includes 2 MW of solar canopies over a parking lot and the upgrade of an existing generator bank. The county was able to move ahead with the project without any upfront capital investment because Duke provided the capital.

“Utilities would be wise to look carefully at the benefits of microgrids” such as demand reduction, the ability to provide backup capacity, and to defer more costly transmission and distribution investments, Asmus said. They should also hedge their bets by not just looking at rate basing a microgrid project. “Don’t lock in one strategy; take different approaches,” he said.

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