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Microgrids - A New Utility Business Model?

image credit: Photo 159490181 © Faithiecannoise | Dreamstime.com

Extreme weather continues to wreaks havoc and leave regulators, utilities and customers investigating, evaluating, and sometimes questioning the current order of operations and the best course of action. “Every time there is a natural disaster, people start thinking about how we can have a different approach. They then think of microgrids, local generation and local distribution. There’s a lot of pressure to have resilience built into communities,” said Gary Oppedahl, vice president, emerging technology for Emera Technologies.  In Chelsea, Massachusetts’ Maria Belen Power, member of environmental group Green Roots, asked, “What would it look like if Hurricane Maria had hit Chelsea, and how could we be better prepared to deal with a disaster like that and the energy infrastructure that’s not set up to sustain that? It became clear that [the idea of a microgrid] connected with residents because of Hurricane Maria, and it became an opportunity for us to think: ‘How do we do things differently?’  The Boston suburb expects development to take a year or two.

However, microgrids present several challenges for utilities.  One, utilities aren’t permitted to own distribution and generation. Two, if an entire community were retrofitted with microgrids, the utility would earn less revenue.  Third, if regulations were not an issue, the cost of repairing or upgrading the current infrastructure verses installing new microgrids must be weighed in the balance.  With or without utilities, the demand for microgrids continues to increase.  Demand has jumped by as much as 1,000% in the last month and providers are having trouble keeping up with customer requests. 

Many are urging California’s PUC to encourage the installation and use of clean energy servers or microgrids.  P.J. Quesada, vice president of operations of Ramar Foods commented on the environmental benefits stating, “By utilizing a clean energy server to power our operations, Ramar Foods’ “microgrid” has prevented nearly 1 million pounds of carbon dioxide emissions since 2013. With recent upgrades, we’ll offset 330,000 pounds of CO2 annually, the equivalent of planting 2,475 trees each year.”  Nice ‘selling points’ for all parties involved but businesses and communities alike are taking an interest.  How are utilities getting involved?  Earlier this year, PG&E announced their plans to to set up temporary and permanent microgrids in California.  

In Gonzales, California an industrial park created a work-around to guarantee the resilience and reliability required to draw more businesses to the area.  Concentric Power struck a deal to build a 35-MW microgrid project.   The contract could serve as a model for other municipalities or campuses looking at microgrids. Concentric signed the wholesale power agreement with the Gonzales Electric Authority, formed in 2018 by the city to provide power to the industrial park. The city also created a municipal utility. So Concentric’s project company will sell power to the authority, which will then run that power through the municipal utility. The municipal utility will distribute it at retail rates to customers in the park. Because the industrial park is served by a municipal utility, the microgrid does not face ‘over-the-fence’ restrictions — prohibitions to wheeling power over utility rights of way — common in California and other states.  The city opted to build the microgrid after PG&E provided a 3 year, $25.4 million estimate to build the necessary utility infrastructure.  Again, it seems the use of microgrid systems are cutting out utility companies.

Until utilities can get more involved, Emera Technologies and other microgrid companies are working with community choice aggregations and cooperatives to develop microgrid systems wherever possible.  Arnold Leitner of YouSolar suggested a new utility business model by advocating for utilities owning microgrid systems. He believes they can be a good alternative to wires that serve small numbers of people in far-flung areas at high costs.  His suggestion, “What if we started rethinking: Maybe those customers should be supplied with microgrids paid for by Pacific Gas & Electric.”  Is that option viable for utilities companies, for PG&E?  Can they take advantage of the growing demand for microgrids? How is your utility navigating restrictions to provide solutions to businesses and communities?  

Nevelyn Black's picture

Thank Nevelyn for the Post!

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Dr. Amal Khashab's picture
Dr. Amal Khashab on Oct 15, 2020 1:19 pm GMT

he article explained two challenges for utilities :

(1) Utilities aren’t permitted to own distribution and generation.

(2) Utilities would earn less revenue, if entire communities were retrofitted with microgrids. 

My opinion is permitting utilities to own microgrids will enable them to better integrated resources planning (IRP) tending to decrease operations costs and increase revenue by maximizing  the sold electricity .

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