The market for remote and grid-tied microgrids is expected to nearly quadruple by 2020 as prices for generation and energy storage technologies continue to decline, according to a presentation given by Peter Asmus, principal research analyst at Navigant Research, during the Microgrids Virtual Summit 2013 on December 17.
California is expected to be the largest market for microgrid expansion with approximately 150MW in the development pipeline through 2020 in addition to 240MW already underway through the fourth quarter of this year. New York, Connecticut, Hawaii and Alaska are the four other US states with the highest growth potential, Asmus said.
A combination of favorable regulations, incentives, government support and electricity market conditions are the driving forces behind growth in these states, but the conditions vary widely across the US. Microgrids in California have become increasingly competitive because of the state’s strong solar resources, which can offer prices at or below retail rates in high population areas like Los Angeles and San Francisco.
California is also pursuing the most aggressive renewable portfolio standard (RPS) in the nation, a 33 percent by 2020 goal that requires extensive upgrades to the existing transmission and distribution network. Microgrids with energy storage capabilities offer a solution to the power frequency problems caused by intermittent renewable generation, which the existing electric grid is ill-equipped to handle.
Electricity produced by solar photovoltaic (PV) arrays became cheaper than diesel generators in 2011, giving solar-based microgrids a cost advantage in remote locations, Asmus said. This advantage is particularly evident in Hawaii and Alaska where many existing microgrids serve remote military bases, mining operations and ports. In Hawaii, for example, the average retail rate of electricity in 2013 has hovered around 37 cents per kilowatt-hour (kWh) compared to observed prices of 7.2-9.2 cents per kWh at the Twentynine Palms Marine Base near San Bernardino, California.
The Twentynine Palms microgrid employs a mixture of solar PV and CHP generation, which is more cost competitive than purely solar microgrids. But microgrids employing solar with battery storage could achieve cost reductions from around 40 cents per kWh today to 15-20 cents per kWh over the next 10-20 years, according to Eric Maurer, manager of the Rocky Mountain Institute’s electricity program, who also spoke at the Microgrid Virtual Summit event.
Microgrids offer additional benefits beyond increased reliability, system resiliency and peak load shaving. Net metering equipment allows microgrid operators to sell excess generation back to the grid to earn additional revenue beyond the value of avoided power purchases. The creation of real-time markets for ancillary services and demand response programs offer another revenue stream for both the microgrid operator and its host customers. Asmus pointed to innovative power purchase agreements (PPA) developed by Green Energy Corp and Horizon Energy as proof that third-party microgrid developers have begun to unlock the potential of these additional profit generating opportunities.
“The jury is still out, but I believe [PPAs] will eventually be successful,” Asmus said. He added that PPAs have started to become the business platform for some third party-owned microgrid projects “only within the last year” and that many companies are still “conceptualizing” their own business models.
While microgrids offer clear benefits for a wide range of customers in multiple industries and a growing market for developers, they face challenges from utilities in many states where revenues are still tied to net electricity sales. These utilities have no incentive to support microgrids that provide distributed generation and improved efficiency that reduce total demand in their service territories.
Asmus and Rocky Mountain Institute senior associate Leia Guccione agreed that utilities stand to benefits from microgrid deployment in regions where grid operators maintain organized markets for ancillary services, demand response, frequency regulation and reactive power services. Microgrids may be able to provide these services at lower cost than traditional upgrades to the existing transmission and distribution grid.
Regulators in some states are starting to address microgrid-friendly policies that benefit both customers and utilities. Guccione highlighted rate design, customer eligibility, long-term resource planning and the development of uniform interoperability standards as the main levers regulators can pull to advance microgrid deployment without compromising the interests and viability of traditional electric utilities.
California, Connecticut, New York and New Jersey have all begun regulatory processes to investigate ways to facilitate the expansion of microgrids. In August, Connecticut announced it would set aside $18 million to support multiple microgrid projects across the state in the wake of devastation caused by Superstom Sandy. California regulators passed a mandate in late October that requires the installation of 200MW of energy storage by the end of 2014 and 1.3GW by 2020.
These states are early leaders in the US market for distributed energy generation that will foster robust growth in microgrid and smartgrid develoment through the end of the decade and beyond.
