Emerging Microgrid Business Models

The idea of a microgrid—interconnected loads and distributed energy resources that can be controlled as a single entity—is appealing to increasing numbers of customers and communities, but figuring out how to design, develop, and finance nontraditional/non-campus microgrids in a manner that is replicable has proven challenging.

That business model question was a major focus at the Infocast Microgrid Markets Summit East (Microgrid Summit), held in Arlington, Va., March 17 and 18.

The Role of Utilities in Microgrid Development

Given recent developments to promote microgrids in the U.S. Northeast and California, the Microgrid Summit included panels devoted to the progress in individual states as well as at Department of Defense sites. Although the military has some obviously different and special considerations for microgrids, it does face at least one question that other new microgrids must address: Who develops, owns, and operates them?

The utility in some cases may be the obvious answer, as utilities have expertise in managing loads and generation. That said, the Navy has been more successful in partnerships with some utilities than others, said Monica DeAngela, director, installation energy program integration, assistant secretary of the Navy (Energy Installations and Environment). She specifically called out Groton Utilities as a good partner as well as Arizona Public Service (APS), with which the Navy is working on its microgrid at Marine Corps Air Station (MCAS) Yuma.

Two HH-1N “Huey” helicopters sit on the grounds outside of the Search and Rescue hangar aboard Marine Corps Air Station (MCAS) Yuma, Ariz., Friday, Feb. 12, 2016. The MCAS Yuma SAR team hosted a conference with regional emergency services personnel to discuss tactics, techniques and procedures. MCAS is leasing land to Arizona Public Service to develop a microgrid that will supply backup power for the installation. Photo by Lance Cpl. Brendan KingTwo HH-1N “Huey” helicopters sit on the grounds outside of the Search and Rescue hangar aboard Marine Corps Air Station (MCAS) Yuma, Ariz., Friday, Feb. 12, 2016. The MCAS Yuma SAR team hosted a conference with regional emergency services personnel to discuss tactics, techniques and procedures. MCAS is leasing land to Arizona Public Service to develop a microgrid that will supply backup power for the installation. Photo by Lance Cpl. Brendan King

The Yuma project uses a lease model wherein the Navy leases land to APS for 30 years for development, operation, and maintenance of a 25-MW diesel generating unit, which was selected because it provides the fastest reliable startup. In November last year, an APS press release noted that the microgrid, which is the first for the utility, will supply 100% of the backup power for MCAS Yuma should there be a grid disruption. The facility is expected to be online by the end of the second quarter of 2016. DeAngela noted that the Navy is also looking at adding fuel cells and renewables to the project.

How eager a utility is to develop microgrids or partner with third-party developers depends on its specific circumstances. Most are in the very early stages of considering their role in microgrid development. The state of Illinois, for example, asked ComEd to build six microgrids to protect critical public infrastructure, and the utility has two grants to date from the U.S. Department of Energy to support the work. In California, San Diego Gas & Electric (SDG&E) developed the Borrego Springs microgrid project (see photo below) on its own initiative, initially because it saw the project as a way to study the behavior of anticipated large amounts of distributed energy resources (DER) being added to its system, and it wanted to learn how to accommodate them.

Lithium-ion batteries are an important component of San Diego Gas & Electric’s Borrego Springs microgrid. Courtesy: SDG&ELithium-ion batteries are an important component of San Diego Gas & Electric’s Borrego Springs microgrid. Courtesy: SDG&E

SDG&E is, in fact, learning from this project. Disconnecting from the grid during a summer thunderstorm enabled the microgrid to remain online and power the community of Borrego Springs. But during a more recent disruption, the utility couldn’t operate the microgrid because of a problem with the transmission grid, and the microgrid failed to island. That experience is a reminder that microgrid operation isn’t easy.

Tom Weaver, PE, manager, distribution system planning for American Electric Power (AEP) commented that although his company doesn’t yet have a commercial microgrid, it has experience with all the parts and sees multiple benefits of microgrids, including the abilities to:

  • Provide distribution circuit–level reliability
  • Power community critical loads
  • Power customer critical loads
  • Integrate renewables

However, AEP and other utilities need to figure out who owns what parts of a microgrid, because regulated utilities can only ratebase the portion that fits with their regulatory compact.

Another potential role for utilities is “microgrid as a service,” something Duke Energy is developing.

Beginning in 2013, Duke began pitching the idea of a consortium of companies involved with a variety of grid modernization pieces, from meter manufacturers to control systems providers. Getting companies onboard was challenging, because Duke’s plan was that everyone would “openly share their knowledge, products and expertise,” according to a Duke statement. Initially, only six companies joined what Duke calls the Coalition of the Willing: Echelon, S&C Electric, Alstom Grid, Verizon, Ambient Corp., and Accenture. Since then, a total of 25 companies have joined the initiative, including ABB, GE, Honeywell, Schneider Electric, Schweitzer Engineering Laboratories, and Siemens.

A related step for Duke has been moving into “green microgrids” and selling microgrids as a service to businesses as well as state and municipal agencies. It has even suggested that it might offer this service beyond the U.S. through Duke Energy International. Duke has developed a Mount Holly, N.C., microgrid test center that has been focused on interoperability issues and what it calls a “field device interoperability solution designed framework,” known as the trademarked Open Field Message Bus (OpenFMB).

One microgrid-as-a-service customer is coalition partner Schneider Electric, which announced early this year that it is developing a microgrid that includes solar generation and battery storage at its Andover, Mass., campus. At IHS CERAWeek in February, Andy Bennett, senior vice president, infrastructure and energy for the company’s U.S. operations, said in an interview with POWER that, instead of paying National Grid about $0.14/kWh, Schneider is “paying Duke to pick up our energy bill . . . and now we’re going to pay $0.085/kWh.” Duke Energy is also picking up the capital costs because “it’s a good investment for them,” he said.

Bennett anticipates that regulated utilities, especially investor-owned ones, are going to “look at taking market share out of some of their potential competitors’ territories” with microgrid-as-a-service offerings. He said his company expects to see “grid parity in a majority of the states for PV plus battery storage by 2020,” and at that point, microgrids will become more compelling.

Other Microgrid Business Models

Utilities may not be the only front-runners for developing, owning, and/or managing the newer non-campus types of microgrids.

In a Microgrid Summit session on Connecticut’s microgrid grant and loan program, Dr. Sudipta Lahiri, team lead–microgrids, DER for DNV GL-Energy, commented that “the time is ripe for a microgrid service provider”—someone who brings the vendors, engineer/procure/construct firm, finance, and all the other pieces together and then sells the service (rather than the physical microgrid assets).

When POWER asked Dr. Lahiri what type of entity that might be—utility or non-utility—he responded, “It can be a startup.” He suggested it was possible that someone less entrenched than a utility, yet with deep financing, would come in and get stakeholder agreements, do performance validations, and develop the project. The end user shouldn’t have to worry about any element, he said.

Session moderator Steve Pullins, vice president, microgrid solutions for Hitachi Social Innovation Business-Americas, added that his company is one of those service providers, especially for campus customers. Other vendor companies, especially control system providers, also have played the role of system integrator to one degree or another.

The service provider, Dr. Lahiri clarified, could be independent from the technology provider. During one of the event breaks, an industry participant suggested to POWER that Lockheed Martin could potentially be positioned as a one-stop shop to integrate and develop entire projects, but “nobody has all the pieces,” he said. One reason is that microgrids might include any of the following generation types—diesel, gas, fuel cell, photovoltaic—all of which have different suppliers and inverters.

Whether utilities, technology providers, or independent third-party upstarts are best suited to create a reliable recipe for microgrid development remains an open question.

This article is a preview of a longer article on microgrids that will appear in the May issue of POWER, which will also be available on powermag.com.

Gail Reitenbach, PhD, editor (@GailReit, @POWERmagazine)