Report: Distributed Generation, Energy Storage, Microgrids Pose Grid Reliability Risks

Emerging energy technologies such as rooftop solar, microgrids, and distributed generation could adversely affect reliability of the nation’s grid, a new report from the Electric Markets Research Foundation (EMRF) warns. 

The non-profit research entity whose mission it is to fund studies on significant electric market issues notes in its report, “Changing Uses of the Electric Grid: Reliability Challenges and Concerns,” that use of the nation’s electric grid has been transformed in recent years.

We now have distributed generation (numerous scattered small-scale producers of electricity); smart grids (digital monitoring of electrical flows); microgrids (small-scale electrical networks able to be isolated from the grid); demand response (payments or credits to customers who cut their electricity use at critical times); energy efficiency (using less electricity) and energy storage (holding electricity for release at later critical times),” says the report authored by Build Energy America’s Steve Mitnick.

“In addition, we have competition at the wholesale level for electricity sales to utilities and/or, in many areas of the country, at the retail level for electricity sales to end use customers.”

The new technologies and business models can offer big benefits, but it will depend on how well, how cost-effectively, and how reliably the grid is able to accommodate those new uses, says the report.

With Customers Leaving the Grid, More Grid Investment Is Needed

One interesting finding is that despite the growth of distributed generation and energy storage, electric customers will remain reliant on the grid for some—if not all—of their electricity needs. It also concludes that to accommodate changes brought by new technologies and business models, more grid investment will be needed.

Among the technical challenges are that power flows in two directions caused by rooftop solar “can risk the reliability and safety” of the grid.

Other concerns span how utilities, under traditional regulation, can afford grid upkeep and expansion. That erosion of the grid’s funding could result in the utilities’ inability to maintain, refurbish, and replace aging plants and equipment, it suggests.

With a move to deregulation in some states, it is already apparent, for example, that the costs of electricity production/supply “are generally no longer fairly shared by customers,” says the report. “Instead generation costs are spread among end-use customers based on how expertly they buy from a complicated competitive market.”

Net Metering Is a “Double Whammy” to Utilities

The transition from a system in which costs are shouldered by many to a system where individual customers find the best deal for themselves is illustrated by net metering, it says.

“Net metering generally enables customers who generate electricity on their premises to be paid the full retail rate charged by their utility for the electricity they generate in excess of their own needs. But the utility saves only its variable costs when it takes this excess power from the customer. The difference between the utility’s variable costs (which is what it actually avoids) and its full retail rate (which includes both fixed and variable costs) is lost in this net metering arrangement.”

In the end, net metering is a “double whammy” to the utility, says the report. “It is an incentive for customers to partially leave the grid, thereby reducing their contribution to the fixed costs of maintaining the grid. And it imposes additional costs on other customers, most notably the increased costs of integrating customer-owned generation into grid operations.”

A Funding Squeeze

Ultimately, the transformation from the “sharing system” to an “each on their own” system imposes a “funding squeeze.” Utilities are enduring “downward pressure” on how much they collect from businesses and households by serving because of traditional regulated rate structures, but they are also enduring “upward pressure” on how much they pay out for investments in the equipment and technology needed to accommodate distributed generation, energy storage, and so on.

Meanwhile, utilities are also being pressured to increase what they pay to comply with government mandates, subsidies, and taxes (such as to subsidize energy efficiency, demand response, wind farms, rooftop solar, and energy research).

A practical option to prevent this funding squeeze is to change the mix of variable and fixed charges in electric bills, “appropriately reflecting that utilities’ costs for grid upkeep are largely fixed (while electric bills are largely variable based on kilowatt-hour usage),” the report suggests.

To reflect “true costs” in prices, end-use customers should pay for the electricity they take from the grid, based on the rate everyone pays, and for the grid to pay for the electricity it takes from those making electricity on-premises, based on the avoided costs to the grid of this distributed generation. Customers with distributed generation—a minority, the report notes—would simply have two meters: One to measure how much power they take from the grid and one measuring how much they put in.

Sonal Patel, associate editor (@POWERmagazine, @sonalcpatel)