Why Decentralized Systems Are the Immediate Path Forward for America’s Energy Goals
The extreme freeze in Texas and ensuing power outages in February were the latest reminders that energy is the backbone of our society. From wildfires in the west to hurricanes on the Atlantic seaboard, climate related events are increasing in severity and frequency, illuminating the vulnerability of our power grid across the nation.
COMMENTARY
Nationwide, electric disturbance events are rarely the result of failing power generators, be they renewable or powered by fossil fuels. The distribution system for our electricity is far more fragile, accounting for 90 percent of all customer power outages. It will take considerable time and investment to update our aging power grids and to build out the transmission lines to interconnect solar and wind to achieve a greener grid. In the meantime, we must explore distributed clean energy systems—small, modular, energy generation and storage technologies that provide electric capacity or energy where you need it—that can help support the proper functioning of our economy and society.
The reliability and resilience of our country’s energy infrastructure received top billing in President Biden’s $2.3 trillion infrastructure and climate action bill. The recent revival of the Green New Deal by progressives seeks to take Biden’s plan even further, with proposed legislation to authorize spending aimed at accelerating state and local efforts around the transition from fossil fuels. This long-awaited momentum is promising, but any attempts to improve electrical infrastructure must combine resilience, emissions reduction and long-term cost-effectiveness to ensure the greatest return on investment.
Enhance Energy Resilience and Reliability
2020 was a record-shattering year, with 22 separate “billion-dollar” weather and climate disasters in the U.S., eclipsing the previous record of 16 events. Damage from such disasters in the last five years alone exceeds $600 billion. Of course, it’s not only bottom lines that are at stake but human lives. Hospitals, first responder facilities, water treatment, and other critical services all depend on reliable electricity to provide services.
Decentralized energy resources such as solar and energy storage are essential for relieving pressure on the grid and providing backup power when the grid is down. With advancements in intelligent control systems, it’s possible for organizations to run on a self-contained electrical network that generates electricity on-site and optimizes how and when the organizations use that energy. These systems, often referred to as microgrids, can work in concert with the utility grid or “island” to distribute energy locally in times of outages, so that facilities can continue to operate without interruption.
Reduce Greenhouse Gas Emissions Contributing to Climate Change
The unfortunate truth is that we’re behind on meeting the commitments of the Paris Agreement. Meeting Biden’s aggressive goal to slash greenhouse gas emissions to 50-52% below 2005 levels by 2030 will require things like mass vehicle electrification, building energy efficiency upgrades, and the retiring of coal plants that our current economy is not currently equipped to do without. However, bolstering the grid with localized distributed energy systems that make it easier to integrate low-cost renewables is a step in the right direction.
Utilities alone can’t make the investments in renewables required to decarbonize our electricity systems; they must focus on managing and maintaining electricity supplies. To prevent blackouts, electricity supply must always match demand, meaning some energy must be stored for later. However, it’s currently not cost-effective to store electricity in batteries at the large quantities required by the grid. Due to their smaller scale, microgrids can store renewable energy generated on site in batteries at a much lower cost. Further, microgrid owners can sell back the clean energy that they don’t use to the utility during times of high demand, which can lower retail costs for consumers. It’s a win-win situation.
Secure Long-Term Energy Cost-Effectiveness
The market volatility impacting electricity prices is a major problem, particularly for commercial and industrial organizations with high energy needs. This certainly holds back the revitalization of the U.S. manufacturing sector — another major focus in Biden’s Jobs Plan.
Paradoxically, the dropping cost of wind and solar doesn’t necessarily translate to lower electricity costs for consumers. For example, in California, where there is some of the strongest renewable penetration in the country, electricity prices have been rising and are now nearly 60 percent higher than the national average. Why? Two main reasons: Because the policies that mandate renewable use have driven up the retail price of electricity, and this retail price is more reflective of the cost of delivering the electricity. Energy generation only accounts for 44% of the total price; other cost factors include transmission and distribution of electricity to its point of use, reliability costs to maintain stable voltage and frequency, maintenance needed to keep the system running, and depreciation and taxes. Indeed, it’s these costly factors that have spiked electricity prices in California where the largest local utility, PG&E has been investing in grid maintenance to prevent emergency shut-offs in the wake of catastrophic wildfire seasons.
By augmenting utility services with on-site renewable generation, energy consumers can benefit from greater cost predictability over time. With a grid-connected microgrid, organizations can optimize when they take advantage of low-cost utility energy and when they switch over to use low-cost renewable energy generated on site.
Widespread electrification and decarbonized transport is undoubtedly driving up the demand for electricity, which utilities aren’t equipped to supply, especially not in predominantly clean form. Until utilities have figured out a way to economically integrate renewables at scale, distributed energy systems are needed to pick up the slack in a cost-effective manner for consumers, enhancing reliability while maintaining or even reducing prices.
Spurring Investment in Distributed Energy Systems
It could cost up to $2 trillion by 2030 to maintain current levels of grid reliability – which are not adequate to meet today’s needs, let alone future needs in a changing climate. Microgrids are a standout area where three of the country’s top energy priorities come together. With the emergence of new private financing vehicles that can be coupled with federal and state grants and incentives, microgrids are an increasingly economically viable solution proven to deliver infrastructure wins nationwide.
—Juan Macias is CEO of AlphaStruxure, a joint venture of The Carlyle Group, a global asset management companies, and Schneider Electric.