Microgrids: where the action will be in the next few years
This author no longer works for DNV GL.
Microgrids appear to be a bottom-up market-driven phenomenon that is gaining penetration and market share based on decisions by facility operators and real estate developers, without additional government incentives or regulatory intervention.
Smart grid—meaning large-scale advanced metering infrastructure (AMI) deployment—may be stalled in many jurisdictions as regulators wait on the results of pilot and stimulus projects before they commit to large investments. And, many of the benefits of AMI can only be realized once tariffs that encourage time-of-use or real-time pricing are in place, especially for residential and small commercial customers. By contrast, microgrids occur based on the anticipated benefits to the facility. Existing state and federal incentives for energy efficiency and photovoltaic (PV) generation are sufficient to drive investments in those technologies, and the key regulatory issue affecting microgrids is around net metering and virtual net metering, plus feed-in tariffs where applicable. In California, the existing zero net energy goals for new development are another powerful incentive. A key point is that regulatory approval for rate-based investment is not a requirement.
Recent estimates show that the microgrid market will experience a growth rate of more than 20 percent during the next five years, in excess of $17 billion. How much capacity will microgrids represent in the next decade? The forecasts are as high as 50 GW, but there is little doubt that understanding how and when microgrids draw from and sell back to the grid is a core piece for an evolving energy paradigm. Wholesale and retail markets will need to adapt to harness the opportunities that microgrids represent for improved reliability, better control schemes, and smarter forecasts.
Facility operators and real estate developers need to understand the economics of microgrid investment and energy operations in detail—how each critical technology factors into achieving objectives for energy costs and zero net energy, minimizing emissions impacts, and maintaining occupant/user satisfaction and comfort. This is a complex problem given the number of different technologies available today—building technologies such as advanced lighting, HVAC, advanced automation, and general energy efficiency upgrades; electrical and thermal storage; PV; and combined heat and power—and the use of all these not only for facility operations but also for energy market participation. Market operators need to understand how microgrids will alter their load profiles in response to day-ahead and hour-ahead prices. Utilities need to understand the difference between the potential load a microgrid can impose when the sun is not shining and there is some failure of microgrid technology (an outage, in other words) vs. the normal peak load. Also, grid operators need to think about the interconnection issues if microgrids are designed to trip off the grid at any momentary disruption.
DNV GL is working on all these issues, and forthcoming blog posts will illustrate some of them. Next week, DNV GL will introduce a new microgrid game.