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Economy Of Small: How DG and microgrids change the game for utilities.

by Michael T. Burr of Fortnightly Magazine

At its White Oak headquarters in Silver Spring, Md., the U.S. Food and Drug Administration doesn’t worry about power outages. That’s because the FDA’s sprawling campus near Washington, D.C., is home to one of the most sophisticated microgrids on the East Coast.

The system is connected to PEPCO’s grid. But with 21 MW of onsite generating capacity, and with solar arrays, thermal storage, and load management systems installed by Honeywell, the White Oak microgrid is capable of isolating itself from PEPCO and running in island mode almost indefinitely—depending on a steady supply of fuel and sunshine, of course. And White Oak has done exactly that several times in recent years, including during and after Superstorm Sandy last fall. While neighboring buildings were in the dark, White Oak kept the lights on.

The U.S. General Services Administration financed the $71 million microgrid project—a tidy sum for a 21-MW system. But Honeywell says it will save the FDA about $11 million a year in energy and O&M costs. That means in less than 10 years, the federal government should start seeing payback from its investment—or sooner if the region gets hit by more storms like Sandy.

EarthSpark International representatives install prepaid meters to connect microgrid customers in Les Anglais, Haiti.

Meanwhile, further south along the Atlantic basin, electricity is reaching people in some Haitian villages for the first time ever. A not-for-profit company, EarthSpark International, is setting up tiny utility systems to serve residential and commercial customers. EarthSpark installs microgrids—which tap existing diesel generating capacity, and add solar PV, battery storage, SCADA, and prepaid metering systems—to provide power for nearby homes and businesses. Local service reps set up energy sales contracts for customers, and sell LED lighting and other efficient electric appliances through EarthSpark’s retail subsidiary, Enèji Pwòp (“clean energy”).

Compared to the White Oak system, the EarthSpark microgrids are miniscule; in the village of Les Anglais, for example, EarthSpark is on track to install 150 kW of solar capacity, augmented by about 15 kW from a diesel generator at a Digicel cell phone tower, to provide service for 400 customers. But the potential effect of microgrids in Haiti is anything but miniscule. The availability of microgrid electricity allows customers to cut their monthly energy budgets by as much as 80 percent by reducing or eliminating the need to burn kerosene and candles—and vastly improving their indoor air quality in the bargain. And now Enèji Pwòp micro-power systems are sprouting up across northern Haiti through a partnership with Organisation des Jeunes Visionnaires Haïtiens, a group that provides job training and supports entrepreneurship for Haitian youths. The idea is to spread microgrids as profitable enterprises.

“We’re looking to replicate microgrids in Haiti with a commercial financial model,” says Richenda van Leeuwen, executive director of the UN Foundation’s Energy Access Initiative (See sidebar, “Microgrids for the World”) . “The ideal approach would involve a known, stable revenue stream that allows the sponsor to calculate a return profile.”

That’s the key phrase that has transformed the microgrid concept from an unlikely curiosity into a bona-fide development opportunity. Microgrids already are cost-effective in some locations, and seem destined to become more so in the future. Several major trends are pointing in that direction—from growing supplies of natural gas to fuel onsite generation, to rapidly improving energy management technologies and practices. And of course photovoltaics (PV) technology is advancing at an exponential rate, bringing costs down to grid parity in many places, and providing almost immediate payback in locations where expensive diesel fuel provides most of the electricity.

When these and other factors come together in a microgrid package, the potential benefits are promising enough that they’ve given rise to a whole new industry, with a community of developers focused on financing, building, and operating microgrids around the world, across the full range of sizes. And just like the independent power industry did for generation, microgrids could break the seal on the utility compact, introducing competition into the energy industry’s last great monopoly—the electric distribution business.

“It could, in fact, be the final game changer,” says Michael Zimmer, senior counsel at the Thompson Hine law firm. “It’s much like cell phones were a game changer for the centralized landline telephone system, starting the transformation in the mid-’80s that led to the vibrant competitive mobile telecom system that we see today. The microgrid is a logical outgrowth of IT development in the energy sector, and it’s a solution to the inadequacies of the status-quo regulated utility system.”

Optimization and Economics

“Microgrid” has emerged as the hottest buzzword in the utility industry. But the fact is, depending on how you define the term, the microgrid really isn’t new. For decades, hospitals and government facilities have used backup power systems to keep the lights on during outages, and manufacturing and processing industries have operated their own inside-the-fence cogeneration systems in a variety of configurations—grid-tied, utility dispatchable, and entirely off-grid. But a better definition of a microgrid involves more than just distributed generation (DG)—which is a disruptive trend in its own right, but is incomplete without the other components that make a microgrid work. Specifically, a microgrid combines various types of distributed energy resources (DER)—generation, storage, and demand management—in a discrete, smart package. In an integrated utility network, like ours in the United States, the optimal microgrid also is a grid-friendly package that can be isolated on the fly, or conversely, dispatched as a controllable resource.
It’s an elegant idea that heretofore hasn’t gained much traction, because it requires complex and expensive technology to accomplish—not to mention a supportive electric utility. But a few factors are making microgrids easier and more cost-effective to build than their simpler ancestors.
First, the core resource in a microgrid—distributed generation—has gotten cheaper. Or rather, it’s cheaper for gas-fired systems in markets that are enjoying the fruits of the shale-gas boom; diesel fuel remains stubbornly expensive. But other supply technologies definitely have dropped in price— i.e., the aforementioned PV, and also wind turbines, fuel cells, and batteries. PV in particular is dramatically changing the economic calculus in remote locations that lack a supply of cheap gas, and those that offer government incentives for solar energy. And batteries and other forms of integrated storage are increasingly cost-effective and useful for stabilizing the frequency and voltage of small-scale grids.
“Storage is the great leveler,” says Steve Pullins, president of design and development company Horizon Energy. “Every microgrid we install has energy storage. It allows us to actively manage the system.”

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