ECC Platform Library

Microgrids: An Integrated 21st-Century Solution

20 December, 2013
Michael J. Zimmer and Elissa E. Welch

In 2012, Pike Research estimated that the global microgrid market would grow to US $17.3 billion by 2017. An impressive figure for certain. Even more impressive is the updated estimate released in early November by Navigant Research: by 2020, revenue from deployments of microgrids will be more than US $40 billion. They attribute this upward estimate in part to a recognition that the projects (new and retrofits) require a greater level of investment than previously thought.

North America continues to be a hotbed for microgrid development. The Navigant report finds that North America has a total planned, proposed and deployed microgrid capacity of 2.7 megawatts, a little more than half of which is currently online. This figure represents 65% of microgrid capacity worldwide. Commercial and industrial applications, currently estimated at 30 across the U.S., could climb to 300 in the next two years as the high-profile likes of Oracle Corp., EBay, University of California at San Diego, Lockheed Martin Corp., the U.S. Department of Defense and others champion their use. Green Energy Corp., a U.S. builder of commercial-scale microgrids, estimates that 24,000 U.S. commercial and industrial sites could be developed with large-scale microgrid conversions. And that doesn’t even include the other types of microgrids such as institutional/campus, community/utility, military and remote applications. For example, New York City and other East Coast communities are quickly reviewing microgrids to increase grid resiliency against extreme weather events. As we see time and time again, having power in times of crisis is invaluable for emergency response, healthcare facilities and rapid recovery.

So then, just how do we go from 300 to 24,000? Or even more?

First, let’s review the basics. A “microgrid” is defined as an integrated energy system of distributed energy resources and multiple electrical loads operating a signaled, autonomous grid – either in parallel to or islanded from the existing utility power grid. The types of technologies that can be integrated into a microgrid system are even more numerous than the applications themselves: distributed generation (DG), renewable energy and storage, energy infrastructure, demand-side management (DSM), and other energy-efficiency strategies. This bodes well for manufacturers of these applied technologies at home and abroad, such as Siemens, General Electric, ABB and more.

With increasing customer-owned distributed energy resource loads, it is essential to consider how these new resources will operate within the current wholesale market. Certainly, the entire notion of microgrids challenges the traditional business model of utility-based infrastructure and the system in use today. But considering that power outages cost business and government an estimated US $104 to $164 billion annually, there is ample reason for change. Other reasons are more application specific: the military seeks more reliability in the electric grid to circumvent vulnerabilities in their missions. Threats of cyber-attacks on critical infrastructure are partially driving the U.S. military interest. Disturbances in electric supply also impact industry and commerce causing significant losses of information, efficiency and productivity. If the trend for microgrid deployment continues, utilities will have to adapt to a new model of generation, transmission and distribution, and be open to the benefits that can result. Kevin Sullivan, business director at DNV KEMA, finds the following benefits for microgrid deployment:

Improves energy reliability and security of supply especially critical in healthcare and military operations
Net excess energy revenues and efficiencies (in the near future) will support funding of new grid investments
Ability to self-optimize assets with full self-control of energy operations where the microgrid operator has both supply and demand control and responsibility
Defers infrastructure investments to better match a visible and controllable load profile making peak load choices and longer-term investments more accurate
Enables emissions reductions that support sustainability targets when renewable energy assets are deployed and balanced
Supports a net zero strategy and the Microgrid Optimization Model
Increases reliability and back-up capability when storage options are deployed  
Allows management of generation variability with renewable energy sources

But 24,000? Rethinking the policies and promoting a supportive market environment are still necessary.

The Policies

Understanding how and when microgrids draw from and sell back to the grid is essential to the evolving energy paradigm in the U.S. Policies that tackle interconnection, pricing, net metering and standby rates will help microgrids to succeed in integrating into the existing business model and move it forward. Public policy leadership for successful grid modernization must provide:

  1. External funding from both public and private sources to promote realistic and cost-effective solutions, starting with pilot projects as necessary.
  2. Utility rate design that takes into account avoided costs for generation, transmission and distribution which are avoided by the microgrid and DG choice. The rate subsidies now in place subsidize the utility, and not the customer, through net metering.
  3. Tougher air conditioning, TV and appliance standards to ease summer peak challenges, and state-based policies that promote on-site power technologies and storage, increased energy-efficiency standards, cost-effective renewable resources, merchant transmission and enhanced building codes.
  4. Updated standby/back-up power rates that consider alternative rate designs without gouging customers.
  5. Amended franchise laws and “public utility” definitions that exempt DG and microgrids.
  6. Assurance that microgrids qualify for incentives in grant, tax code and public policy systems along with traditional generation, fuels and T&D to receive equal rewards and avoided cost recognition.
  7. Updated infrastructure considerations for utilizing public rights of way for grid connections.
  8. Ending state regulation as a “public utility” which is no longer necessary for steam, cooling and hot water sales from a microgrid or DG project.
  9. Ways to promote and leverage microgrid development partnerships between utilities, financiers, vendors, IT and telecom companies.
  10. Model rules and standards for shared energy and community development programs in rural and/or underdeveloped areas where density and customers offer a different scale and value proposition.

 

The Market Environment

Understanding the detailed economics of developing and operating a microgrid is critical for its success—all aspects must be considered. Different sizes, classes and locations of microgrid development targets will respond to different price signals—diversity in a microgrid portfolio optimizes its potential to effectively price products and offer services to its customers. Sophisticated tools can assess the economic, operational and emissions impacts of particular microgrid developments across various investment and deployment scenarios for the end-user’s benefit. For more on this topic, check out this IEEE report. Wholesale and retail electricity markets will need to adapt and harness the opportunities that microgrids represent for improved reliability, power quality, less price volatility, better control and smarter forecasts.

A thorough review and understanding of these issues by policymakers and project developers will help position microgrids as the “missing link” in leveraging energy security, state-based renewable portfolio standards and energy efficiency standards (such as Ohio’s Senate Bill 221 and those across the U.S.)—and could pave the way for the creation of a modernized, integrated North American grid based on electric stability, reliability, resiliency and security. For now at least, the piecemeal approach is gaining traction that cannot be ignored.

by Michael J. Zimmer, Executive in Residence, Energy and the Environment with

Elissa E. Welch, Project Manager, Consortium for Energy, Economics & the Environment,

Ohio University Voinovich School of Leadership and Public Affairs (Athens, Ohio)

Article
Source
Topic
Energy
Capacity Building

Region
North America

Topics

Adaptation & Resilience

All countries will need to adapt to some of the environmental, social and economic impacts of climate change that are already unavoidable. Food security, livelihoods, water resource availability and public health are some affected areas. People living in poverty are more vulnerable, having a lower capacity to adapt. Thus, it is essential to promote resilience building. The adaptation and resilience aspects need to be mainstreamed into planning by policy makers and the private sector as well as integrated into development strategies.

Biodiversity & Livelihoods

Nature protection is most sustainable if it essentially contributes to the long-term stability of human needs. Today many regions around the world are confronted with increasing destruction of the natural foundations of life. The consequences of wide-ranging resource destruction are no longer regionally limited, but rather represent a global threat. Those affected are mainly rural populations, who find the sources of their income and the foundations of their way of life swept away. The depletion and destruction of natural resources goes hand in hand with decreasing agricultural yields and increasing poverty, which in turn forces the affected populations to deplete the remaining resources.

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Capacity Building

On the one hand, conflicts are caused by structural factors, such as economic and social inequality or environmental destruction. On the other hand, conflicts are fuelled by a lack of democratic structures, deficient mechanisms of non-violent conflict settlement, inadequate rule of law, the destruction of social and cultural identity and the disregard of human rights. Against this backdrop, development policies have been dedicated to a broad concept of security, which comprises political, economic, ecological and social stability. As a consequence, development cooperation agencies and actors have developed a broad spectrum of approaches for conflict prevention and transformation as well as for sustainable use of natural resources.

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Civil Society

Civil society is the first victim of environmental pollution, under-development and conflicts. Economically disadvantaged and politically marginalized population groups are particularly affected by violent conflicts as well as increasing resource degradation. Simultaneously, civil society is a fundamental pillar for implementing sustainable development. It contributes in many ways to strengthening conflict prevention and plays a significant role in the peaceful and democratic development of states. It must be supported to strengthen civil rights, adherence to human rights in general and democratic participation.

Climate Change

Climate change resulting from the emission of greenhouse gases represents one of the vital challenges for international environmental policy. Flooding, droughts, shifting of climate zones and increasingly frequent and intense extreme weather events will have serious economic and social consequences for entire regions. The climate problem is also directly linked to the question of future energy generation.

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Climate Diplomacy

To address the challenges posed by climate change, a new profile of climate diplomacy is evolving. This utilises a full range of policies, including development cooperation, conflict prevention efforts, and humanitarian assistance, in addition to more traditional measures of climate change adaptation and mitigation. Moving from a risk analysis of climate-related threats to well-timed preventive action requires a greater commitment to integrating climate change concerns into development, foreign, and security policies. Examples include strengthening diplomatic networks, building new alliances with partners, and raising awareness – not only of potentially negative climate change impacts, but also of opportunities to embark on a sustainable transformation of our societies.

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Co-Benefits

Climate action entails an array of economic, social, political and environmental co-benefits. It provides an opportunity for economic growth and new jobs. Many investments can take into account climate considerations without becoming more costly. Further important co-benefits include: improved energy security, less local air and water pollution, health benefits as well as ecosystem and biodiversity protection.

Conflict Transformation

In order to overcome the structural causes of violent conflicts and thus bring about an improvement in the framework conditions for peaceful and fair development, it is essential to have long term and broadly planned peace development and peace advancement. Various governmental and non-governmental, national and international actors and groups are involved in these processes.

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Development

Climate change and development are inextricably linked. Climate change endangers the development agenda and has the potential to reverse development goals. Furthermore, successful mitigation of climate change heavily depends on development choices around the world. Therefore, development strategies need to be climate-compatible to provide long-term success, and there are viable policy options that support this compatibility. Many mitigation and adaptation activities can present development opportunities to developing countries and avoid the lock-in to environmentally damaging technologies.

Early Warning & Risk Analysis

The reasons for the development and escalation of conflicts and the incidence of risks are multifaceted and complex. Simultaneously, the assessment of the specific causes in the form of risk and conflict analyses can contribute to a better understanding of these processes and make it possible to provide warning of negative developments, or ideally help prevent them. In the context of natural resource use, risks and conflicts have gained increasing attention in the past years. The debate on possible future water wars is merely one example.

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Energy

The well-being of individuals, communities and nations depends on the availability of energy resources. The gap between energy supply and demand appears to be growing, making the world vulnerable to serious economic shocks. At the same time, the burning of fossil fuels causing climate change is one of the vital challenges of international environmental policy. So far, only rudimentary approaches exist for shaping climate and energy security in a sustainable way. The components of a strategy that can contribute to reducing vulnerabilities related to climate change and energy policy include a greater role for renewable energies, the improvement of energy efficiency and a stronger decentralisation of energy supply.

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Environment & Migration

The economic, social and environmental consequences of climate change aggravate the breakdown of eco-system-dependent livelihoods and are likely to become dominant drivers of long-term migration. Natural disasters already cause massive shorter-term displacement and the number of temporarily displaced people is likely to further increase with climate change. For vulnerable populations in vulnerable regions, such as the Sahel zone or the Ganges delta, migration often becomes the sole survival strategy. In order to address climate-related displacement and migration successfully, knowledge of effective adaptation and an improved understanding of how environmental change affects human mobility is essential. 

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Finance

Climate finance, from all sources, plays a key role in supporting and enabling adaptation and mitigation action as well as climate and energy innovation. The Paris Agreement ensured that the Green Climate Fund and the Global Environment Facility are at the core of climate finance architecture as entities entrusted with the operation of the Financial Mechanism of the UNFCCC. Increasing climate finance from all relevant public and private sources is crucial. Furthermore, much needs to be done to redirect finance flows to sustainable paths, e.g. reducing fossil fuel subsidies, introducing maritime and air transportation taxes. The conditions for green investment in developing countries should also be improved.

Forests

Forests are disappearing at an alarming rate. Competition for forest resources triggers, exacerbates, or finances numerous crises and conflicts in tropical developing countries. Illegal logging and timber trade foster instability and sometimes violent conflict by strengthening illegal and armed groups, increasing corruption and exacerbating use and claim conflicts among local communities, the state and the business sector. Forests are a vital resource to poor people but they can also become areas of conflict. Sustainable management of forest resources is therefore key to preventing violent conflict over and within forests.

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Gender

Gender plays an important role as a category of conflict for many reasons. The interlinkages between gender, environment and conflicts are complex and much research is still needed. Existing insights suggest that conflicts may worsen gender inequalities that existed before the outbreak of violence. The unequal distribution of land property rights in many parts of the world serves as an example. Moreover, women (and children) are among those most affected by both violent conflict and natural disasters. At the same time, women carry much of the burden of trying to implement rehabilitation measures after crisis events.

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Land & Food

Increasing water scarcity, desertification and crop failures due to extreme weather events are becoming more and more of a threat to global food production. While the world’s population continues to grow rapidly, food production is unable to keep pace. Due to the global food crisis in 2008, the number of hungry people reached the symbolic one billion threshold for the first time – corresponding to about 16 percent of world population. Food insecurity may be a consequence or cause of conflicts. Violent conflicts often lead to the destruction of agricultural infrastructure and means of production, as well as to the displacement of local communities.

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Minerals & Mining

In the past, the discovery and tapping of valuable or strategic resources like valuable minerals, oil and natural gas, particularly in developing and emerging countries, has often led to large scale environmental contamination and negative development. The "resource curse" of some countries shows that the wealth from resource yields is frequently unfairly distributed; instead of serving development it advanced the formation of corrupt elites and in some cases even led to conflicts and civil wars. Measures in various sectors and at all levels are important in order to use the potential of these natural resources in a manner that is sustainable and prevents conflicts.

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Private Sector

The spread of violent conflict not only affects people but also companies located in such regions. Destruction of investments and infrastructure, collapse of markets and trade partnerships, flight and expulsion of employees are phenomena of conflicts and environment-induced crises that directly affect companies in unstable regions. Almost all branches of the economy thus have a clear interest in a stable and peaceful environment for their activities. Conversely, the business sector plays an important role in the interaction of economic growth, social development and a healthy environment, all of which can advance peace and sustainable development. 

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Security

Environmental issues have a significant security dimension. Access to, and overuse of, natural resources often play a key role in civil wars or other forms of internal domestic conflict. This is compounded by climate change and environmental degradation. Climate change is now widely recognised as a non-traditional, risk-multiplying threat that will have increasing security impacts. Key risks with possible implications for human and national security include water scarcity, food crises, natural disasters, and displacement. More preventive diplomacy and advocacy is needed to address the strategic implications of climate and environmental change.

Sustainable Transformation

Sustainable Transformation allows societies to profit from a growing, environmentally sustainable and socially inclusive economy – especially in emerging and developing countries. This requires a higher up-front investment, but the benefits of a sustainable transformation in the medium and long term are significant. For instance, energy cost savings and reducing the impact of price volatility offer major incentives for deploying renewable energies and promoting energy efficiency. Such benefits exist in all key sectors of the economy.

Technology & Innovation

Innovations and technologies are already readily available and affordable but their global diffusion and uptake remains a challenge. Innovation and technology are crucial to achieving ambitious climate change mitigation and adaptation targets. However, research and development often do not receive appropriate public support. Developing countries can leapfrog high-carbon industrialisation phases by adopting, deploying and improving existing innovations and technologies. For this, it is essential to minimise financial, administrative and political barriers.

Water

The availability of freshwater resources in sufficient quantity and quality is essential for the preservation of human health and sound ecosystems. The use of water resources is also vital, however, for economic development: whether for agriculture, industrial production or for electricity generation. The world's freshwater resources are distributed very unevenly in terms of geography and seasons. In addition, water shortage is becoming more prevalent in several regions due to population growth, economic development, urbanisation and increasing environmental pollution. Thus, water resources can hold potential for conflicts between parties who have different interests and needs.

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Regions

Asia

The environment in Asia is already under tremendous pressure as a result of the unsustainable use of land, forests, water and even air in many regions. Climate change will only exacerbate these challenges. Rising sea levels will likely endanger densely populated areas, changes in the monsoon patterns can strongly impact agriculture, melting glaciers will increase long-term water scarcity, and extreme weather events such as heavy rainfall and cyclones can pose further hazards.

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Central America & Caribbean

Natural disasters and water scarcity are key challenges for most of Central America and the Caribbean. These challenges will become even more pronounced as the climate changes. Weak resource and disaster risk management and land disputes pose additional security challenges for large parts of the region. Several countries of Central America and the Caribbean have limited adaptive capacities as they face political instability caused by high social inequality, crime, corruption, and intra-state conflicts.

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Europe

As one of the most developed and most densely populated regions in the world, Europe makes heavy use of its resources, resulting in difficult trade-offs and negative consequences for the environment and ecosystems. Land is used for settlements, agriculture and dense infrastructure, creating problems of soil degradation. Water resources are stressed due to unsustainable agricultural practices. Despite nature protection policies, Europe continues to lose biodiversity at an alarming pace. Some of these trends are exacerbated by climate change, which is expected, for instance, to lead to shifts in water availability.

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Global Issues

Resource scarcities, environmental pollution and climate change are not limited by national borders, but often have a transboundary or even global impact. These issues interact with political stability, governance structures and economic performance, and can trigger or worsen disputes and violent conflicts. Exacerbating some of these trends, climate change is likely to lead to the degradation of freshwater resources, declines in food production, increases in storm and flood disasters and environmentally induced migration. All these developments pose potential for conflict.

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Middle East & North Africa

The geopolitical position of the Middle East and North Africa (MENA), its fossil fuel resources, high population growth and the political changes spurred by the Arab Spring all make the region one of the most dynamic in the world. Nevertheless, it is also one of the most arid and environmentally stressed. Dwindling water resources, limited arable and grazing land, high pollution from household and industrial waste, remnants of conflicts and increasing desertification are key environmental challenges.

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North America

Climate change has various impacts on the three North American countries of Canada, Mexico and the US. Canada and the US have well-developed adaptive capacities and foster the strengthening of capacities in other regions as well. With high per capita emissions, these two countries also bear a greater responsibility for a changing climate. Mexico has a sound national strategy for climate change adaptation, yet fewer capacities than Canada and the US. The poorer and rural populations of Mexico are especially vulnerable to climate change, due to an increased sensitivity and a lower adaptive capacity.

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Oceania & Pacific

In Oceania, population growth and economic development trends put a strain on oceanic and island ecosystems. Freshwater scarcity, overexploitation of fisheries, loss of land biodiversity, forests and trees, invasive species, soil degradation, increasing levels of settlement, poor management of solid and hazardous waste and disproportionate use of coastal areas are some of the problems. Climate change exacerbates most of these trends, while also raising questions about the future sovereignty of some island states.

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South America

South America has diverse and unique ecosystems and is very rich in biodiversity. Weak natural resource management, land disputes and extreme weather events bring about significant challenges for the region. While South America accounts for relatively few CO2 emissions, the changing climate will alter its ecosystems and greater climate variability will lead to more hurricanes, landslides, and droughts.

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Sub-Saharan Africa

In many African states, environmental security issues rank high on the political agenda. Throughout the continent, countries suffer from water scarcity, food insecurity and energy poverty. These chronic and worsening resource scarcities have severe livelihood implications and are exacerbated by political conflicts over access to and control over these resources. Climate change may seriously threaten political and economic stability in Africa. It may also put a severe strain on the capacities of states and societies to co-ordinate activities, to communicate and to organize.

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