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Prepared for client Strategy&
Emerging Technologies Perspectives - Microgrid.pptx
Executive Summary – Microgrids
• Microgrid growth is driven by:
– Government initiatives such as US military and federal R&D and demonstration efforts
– Changing electricity dynamics that have increased demand for reliability or eco-development
• Industry market growth forecasts may be overly optimistic for the next 10 years
– However, more is known about the US military microgrid programs, predicted at ~55MW in 2018
– Niche customers with high reliability needs due for security or cost purposes may demand services (e.g., hospitals, research centers, campuses, server farms, etc.)
• Microgrid technology is readily available today and broader could be triggered by removal of regulatory barriers, prices that make microgrid arbitrage attractive, and successful demonstrations that prove concept and value
• Microgrids are a natural extension of core utility capabilities, although a disintermediation risk exists from customer or third-party implementation
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Emerging Technologies Perspectives - Microgrid.pptx
Microgrids integrate numerous emerging technologies and allow users the ability to connect or disconnect from the grid …
Microgrid Definition: A group of interconnected loads and distributed energy resources within clearly defined
electrical boundaries that acts as a single controllable entity with respect to the grid. A microgrid (MG) is capable of
operating in both grid-connected and / or island mode.
Microgrid elements Microgrid types
• Microgrids generally include:
– Small (e.g., < 50MW) conventional generation assets
– Distributed generational assets
– Distribution system
– Advanced monitoring, control and automation
• Microgrids may include:
– Combined heat and power
– Electricity storage
– Demand response
– Energy efficiency
– Electric vehicle charging and / or Vehicle to Grid storage
– CVR, volt VAR
• Microgrids provide a holistic energy solution incorporating
several new technologies
Source: DOE, NRRI, Siemens, Distributech Conference Materials, Strategy& analysis
Single
parcel
Multi
parcel
Remote
• Single owner-campuses
• E.g., military installations, universities, medical
centers, commercial campuses. industrial
complexes
• Multi user areas
• E.g., industrial parks, community developments
• Locations with limited grid access
• E.g., mines, and gas / oil fields, rural villages,
mobile military operation
Microgrid Characteristics
Distinguishing Feature of
Microgrids v. Back-up Generation
Microgrids connect to the macrogrid. They have
a single point of common coupling with
switchgear to enable islanding
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Emerging Technologies Perspectives - Microgrid.pptx
… to offer an array of benefits that support energy surety for utilities, customers and the public-at-large
Utilities Customer / End-users Public-at-large
Reliability
Security
Efficiency
Power quality
Cost
Sustainability
• Enhanced reliability for those with a
high willingness to pay
• Load shedding or load shifting
• Avoided system-wide outages
• Near 100% uptime • Critical load operational during outages
(e.g., emergency response and
medical centers)
• Enhanced energy security and
resilience to critical load
• Superior resilience due to islanding • Increased fuel and technology diversity
• Insulation from operational disruptions,
including cyber attack
• Lower distribution system loss
• Enables demand response
• Lower energy intensity
• Facilitates combined heat and power
integration (avoided HVAC costs)
• Reduce land-use requirements
• Meet exact customer energy
requirements
• Supplies ancillary services to bulk
power system
• Higher power quality
• Local power quality control
• Expand generation to renewables and
cleaner fuel sources
• Defer infrastructure investment
• Reduced customer service costs
• Attracts private investment
• Potentially lower cost of delivered
energy services (e.g., on peak)
• Reduced price volatility
• Potential excess electricity sales
• Increased economic development
• Avoided outage costs
Source: DOE, NRRI, Siemens, Distributech Conference Materials, Strategy& analysis
Microgrid benefits by type and beneficiary
• Ease of integration of variable energy
• Power provided through outages
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However, even microgrid product vendors are wary of the market projections, and recognize the limitations to the market
Utilities aren’t necessarily
embracing microgrids….
but the regulated model
doesn’t allow them a lot
of flexibility
Source: Strategy& utility and vendor interviews
Industry
projections
Regulation
challenge Opportunities
We have been talking with
progressive utilities in Texas
and Arizona who want
to be providers of microgrid
solutions
5 years ago the concept of
utilities selling ‘premium power’
failed – but the concept of
energy districts
is more appealing
I don’t trust the industry forecasts.…
they are overly optimistic with giant
numbers and a claim that
it will happen overnight
Microgrids represent a paradigm
shift…. instead of designing for
general reliability, utilities can
offer areas with high reliability
Working with regulators
is one of the major
issues
Cities want to be cleaner.…
developers are interested and
eco-developments represent
a substantial opportunity
I don’t want to discount the
military application, but I don’t
think it will be the definitive
driver….commercialization
matters
I’m an old guy and I know it takes a
while to get things going. I’m not a
naysayer…. I’m probably
optimistic, but not overly so
Interview quotes by theme
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Emerging Technologies Perspectives - Microgrid.pptx
There are two groups of factors driving growth in the microgrid market – government programs and changing electric dynamics
US Military
energy
programs
Government
mandates and
incentives
Research and
demonstration
initiatives
Demand for
reliability
Rise of
eco-districts
and smart
developments
Overview of interconnected microgrid adoption drivers Description and examples
• ARRA, DOE, DoD and national lab activities to support technology research and demonstration
• Cities / localities / developers and campuses increasingly interested in efficient, clean , “smart” and reliable energy districts
• Niche customers need more reliable and resilient power
• E.g., data centers, financial institutions, researchers, emergency response and medical / government / military centers
• Motivated by more frequent severe storms and threat of cyber security
• Value of lost load (VOLL)
Source: Interviews, Pike Research, NREL, NRRI, Siemens, Microgrid World Forum 2013, Strategy& analysis
• Government mandates energy efficiency, renewable generation
• Incentives for renewables, electric vehicles, and DG
• Microgrids support RE, DG, and EV integration
• Department of Defense energy security, energy efficiency and renewables mandates
• Energy Surety Microgrid program to deploy islanding technologies
Government programs
Changing electric dynamics
1
2
Unlike other technologies,
a technological breakthrough
is not required for microgrids
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Emerging Technologies Perspectives - Microgrid.pptx
The US military and its ~$3B Energy Surety Microgrid program is supporting microgrid adoption, though still in an early stage …
Energy surety microgrids
Department of
Defense
objectives
• Funding R&D to establish a standard architecture
• Develop and deploy microgrid technologies for islanding
military bases
Key
supporting
policy
directives
• National Defense Authorization Act of 2011
• Quadrennial Defense Review Report
• Market will not mature unless there is a program of record
Status
• Through the Energy Surety Microgrid (ESM) Program, 14
military bases have received assessments / conceptual
designs
• Under the SPIDERS1 Program, which is designed to
demonstrate three ESM microgrids, Phase 1 has been
completed at Pearl Harbor / Hickam Air Force Base, Phase 2
at Fort Carson Colorado is underway and Phase 3 at Camp
Smith in Hawaii is in the preliminary stages
Estimated
market size
(2011-2025)
$0.3B-$3.0B
Department of defense microgrid overview
1) SPIDERS – Smart Power Infrastructure Demonstration Energy Reliability and Security
Source: Pike Research, National Renewable Energy Laboratory, Strategy& analysis
• Renewables integration
– Service renewable targets range from 25%
by 2025 for the Army and Air Force to 50%
by 2020 for the Navy
– Microgrids help to integrate renewables
• Synchronization / Demand management
– Energy Efficiency targets from 9% for the
Army to 15% for the Navy vis-à-vis 2003
• Increased energy surety
– Safety, security, reliability and
sustainability directly linked to critical
power needs
– Allows distributed energy resources to be
centrally managed
• Excess power exports
– Cut electricity costs or generate revenue
given fiscal pressure through PPAs with
utilities
Expected benefits
Progress slowed with the sequester and
spending is likely to be on the low-end, although
a major or sustained cyber-security event could
increase momentum
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Emerging Technologies Perspectives - Microgrid.pptx
R&D Test Beds (DOE)
R&D Test Beds (Non-DOE)
DOE/DOD (Assessments & Spiders)
DOD ESTCP
… and in parallel, the federal government is funding other large scale microgrid demonstrations…
Select microgrid assessment & demonstration projects By funding source
Acronyms: DOE – Department of Energy; DOD – Department of Defense; ESTCP – Environmental Security Technology Certification Program; ARRA – American Reinvestment & Recovery Act; SGDP – Smart Grid Demonstration Projects,
Source: The Electricity Journal, Strategy& analysis
Discussion
• DOE aims to develop commercial scale
(<10MW) microgrids by 2020, capable
of:
– Reducing outage times by >98%
– Reduce emissions >20%
– Improve energy efficiency by >20
– All at costs comparable to non-
integrated baseline solutions
• The National Laboratories are
demonstrating the Consortium for
Electric Reliability Technology Solutions
microgrid concept at several sites
• ARRA SGDPs have also supported
microgrid technologies through funding
• The US military is focusing on
demonstration “test-beds” to establish
microgrid architecture, as discussed
Peak Load Reduction
ARRA SGDP
Industry/Utility/University/Other Fed Led
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… as microgrids are an attractive means for integrating renewables and meeting state energy efficiency and renewable portfolio mandates
Mandatory RPS Mandatory RPS includes DG or Solar Carve
Out Energy Efficiency Resource Standard
Voluntary RPS
Microgrid Demonstration
Microgrid
demonstrations
correlate with state
mandates
Source: DSIRE, The Electricity Journal Strategy& analysis
Summary of renewable and energy efficiency mandates and correlation with Microgrid demonstrations
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Emerging Technologies Perspectives - Microgrid.pptx
Source: Vendor and utility interviews, Strategy& analysis
Several niche markets reflect the high human or financial costs of outages and microgrids could emerge as a reliability offering
Critical Services Commercial /
Industrial users
Reliability-driven microgrid customer segments
• Customers for whom loss of
electricity could result in loss of life
or breach of security
Description:
Examples:
• Customers for whom loss of
electricity could result in substantial
lost revenue
• Hospitals
• Emergency preparedness and law
enforcement (e.g., jail)
• Military or intelligence installations
• Data centers / server farms
• Financial institutions
• R&D centers (e.g., with
temperature sensitive research
environments)
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Another group of niche customers reflects environmental, high-
tech or efficiency needs, e.g., eco-developments, smart cities and
campuses
Source: Interviews, World Microgrid Forum 2013, NRRI, Galvin Electric Institute, Strategy& analysis
Customer Description Rationale Lessons Learned
Borrego
Springs, CA
(SDG&E)
• Progressive community with high rooftop PV
Received $8.0M from DoE, $2.8M from the
CA Energy Commission (CEC)
• Use “smart” technology to integrate DG,
improve reliability and reduce peak
• Enable customer managed energy use
• Test alternative service delivery model
• Key challenges – permitting and
integration
• No further technology is required to
implement microgrids
University of
California, San
Diego (UCSD)
• 42MW microgrid, including 30MW of natural
gas cogeneration, 2.8MW fuel cells and
3.2MW of solar PV for ~90% of power
• ~$10M investment, including CEC grants
• Cost savings - “a greedy microgrid”
• Reduce carbon footprint
• Control–improved engagement with SDG&E
demand response program
• System interoperability is critical
• Savings estimated at ~$800K per
month
Princeton
University
• 40 MW system of CHP, gas generation, ice
storage, solar, automation / demand
response and back-up generation
• Voltage and frequency support
• Real time and day ahead response
• Sought an integrated system that:
– Provides electricity, HVAC through
outages
– Improves power quality & demand
response
– Enables bulk power / off-peak purchases
– Produces energy efficiency / cost savings
– Reduces emissions
• Increased reliability – SAIDI of 0 in
2012, even during Sandy
• Enabled savings of $13M annually –
including reliability improvements
• Demonstrates how price incentives
encourage private investment
Chattanooga,
TN
• Installed an intelligent, self-healing system
with redundant circuits for each customer
• Aimed to attract new businesses by offering a
high-tech, smart and reliable grid
• Resulted in avoided restoration costs
(e.g., ~$1.4M during a July 2012 storm)
Naperville, IL
• Redesigned local grid for resiliency (e.g.,
installed controls, moved lines underground)
• Upgrade power grid reliability to become more
cost-competitive and efficient
• Attract business
• Improved reliability without raising rates
• Put city on Fortune’s Small Business
Best Places to Live & Launch list
Denmark
• 60 MW in western Denmark
• High wind penetration due to feed-in-tarriff
• Implemented by the Danish Tx authority
• Integrate wind resources and manage
intermittency associated with wind
• Manage outages through a “cell” network to
optimize reliability
• Incorporate several value streams for
maximum value creation
Eco
-
Dev’ts
C
am
pu
ses
S
mart
-Cit
ies
“We are seeing a lot of interest from
eco-developers for our microgrid
technologies” -- Vendor
Niche market microgrids Examples by customer type
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Given these drivers, North American microgrid capacity could grow 5X by 2020, while US military grids could grow even faster
North America microgrid market size:
2010–2020 Forecast, MW
Sources: Pike Research, Inc., Strategy& analysis
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
5,500
2010 2012 2014 2016 2018 2020
MW
Low
High
US Military microgrid capacity:
2012 – 2018 Average case forecast, MW
6 4
10
12 12
3 3
7
14
16 20
3 4
5
7
9
10
2018
55
7
6
2017
49
6
6
2016
40
4
5
2015
22
2 4
2014
13
2 2
2
2013
15
1 2
2012
4
2 2
Other Navy Marines Army Air Force
14X Growth
in 6 Years 5X growth in 10
years in average
case
Estimated about 50 micro-grid
projects currently in operation
or development
Estimated about 50 micro-grid
projects currently in operation
or development
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Emerging Technologies Perspectives - Microgrid.pptx
Utilities see a customer-driven microgrid opportunity, but only if the regulatory challenges can be overcome
To monetize microgrids through
the regulatory structure will require
a lot of education of the regulators
Post Hurricane Sandy, we are
thinking about how to use
microgrids to improve
resiliency
The technology is
not that far away
Source: Strategy& utility interviews
Customer driven
demand
Challenges Threats &
opportunities
We see different customer
tranches with varying reliability
needs.… the amount that
customers are willing to pay for
reliability varies.
Microgrids are a potential
inevitability that could impact our
business if storage technologies
and distributed generation
become cost competitive
Because of the natural
threat that microgrids
present, we are looking for
ways to turn it into an
opportunity
We could lose out on this
opportunity if we wait
for the regulators
The microgrid demonstration in our
service territory is really a customer
driven project rather than
something being driven by us
We will provide what the
customer wants as long
as it doesn’t negatively
impact the system
A micro-grid is a mini utility
….if you operate on the
unregulated side, there
could be some issues
The threat exists if enough
people come in and install
microgrids themselves and drive
up rates for everyone else….
but we believe that we can
turn it around and sell
it to top rate payers
The challenge isn't the
technology…. it’s the
integration
Utility interview quotes by theme
Customers are coming to us and asking
about microgrids…. for large commercial
customers, even short duration
outages can have substantial
impacts on revenue
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No niche microgrid industries –
Hawaii economy based on tourism
and some agriculture
Increasing DG penetration (PV) due
to high electricity costs
Few university / campuses
Low population and low load
Some states, such as California, and Hawaii, have seen customer and government driven microgrid developments
Government
drivers
Consumer
drivers
California
Result
Hawaii
High military installation presence
Successfully attracted other
government funding (e.g., ARRA,
SPIDERS)
RPS mandate
Strong rooftop solar mandate
Energy efficiency resource standard
Niche industries that demand
reliability (e.g., tech / server farms,
large universities)
High DG penetration (solar PV)
Large university / campus presence
Many eco-minded communities
High military installation presence
Successfully attracted other
government funding (e.g., DOE
Test-beds, SPIDERS)
Voluntary RPS
+
-
+
+
+
+
+
+
+
+
Source: DOE, DOD, State Chambers of Commerce, Strategy& analysis
+ +
High adoption state driven by strong
government programs and specific
consumer characteristics
Early adoption state driven by
military presence, but few natural
consumer drivers
-
+ -
-
Early microgrid adopter state characteristics
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Adoption will likely be led by the military and then campuses, to prove concept and value, and then followed by industries and cities …
Sources: World Microgrid Forum 2013, vendor interviews, Strategy& analysis
Growth trajectory discussion
• Military installations will drive initial growth
through DoD military test-beds
• Campus demonstrations likely to phase in
next
– Campuses are the most likely to achieve
cost efficiency savings as they combine
microgrid concepts with combined heat
and power
• As resource adequacy and reliability concerns
increase, microgrids may become
increasingly attractive for industrial customers
• Neighborhoods and eco-cities are likely to be
late adopters
– But further development requires proof of
concept and ease of implementation (e.g.,
vendor consolidation to provide holistic
solutions)
Microgrid adoption phases
And customer types over time - Illustrative
Military
Installations
Campus
Expansions/
Conversions
Industrial
Complexes
Neighborhood/
Eco-City
Developments
Today 2020
Proof of concept Commercialization
2030
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Nascent regulatory
framework Low electricity rates
Trigger-
points
to monitor:
Lack of proof of concept
Barriers and trigger-points to broad adoption
• Lack of clear microgrid standards
• Utility role not yet defined
• Recovery of costs or user rates has
not yet been tested
• Some states don’t permit islanding
• Regulatory clarification of market
participation rules and recovery
(e.g., riders or performance based
rates or customer specific rates)
• Islanding permitted, e.g., through
adoption of international standard
• Electricity rates in the CLIENT area
already low, so microgrids do not
represent a low-cost alternative
today
• Dynamic pricing is a key incentive
• Higher adoption of or mandated
TOU rates
• Rising electricity rates and /or
incentives that make DG more
competitive
• Need to see microgrids functioning
as expected for long durations
• Need to realize monetary value of
improved reliance and other services
• Multiple, large scale demonstrations
that perform as expected and justify
ROI
• Alternatively, a major or sustained
cyber-security grid event would
trigger momentum
… however, for microgrids to reach sizable market penetration, several barriers must be addressed
Sources: Utility and vendor interviews, NRRI, Microgrid World Forum 2013, Strategy& analysis
Description:
Implications:
Barrier:
• Microgrids will remain few unless the
ability to island is permitted
• Regulatory framework could help or
hinder utility microgrid participation
• Lack of cost drivers limit microgrid
growth to niche markets
• Without concept, regulators may not
support recovery and growth would
be limited to niche markets
• A cyber-security event could force
adoption prior to readiness
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April 2015 Confidential property
For further information:
Christopher Dann Vice President Energy, Chemicals & Utilities
4 Embarcadero Center #2350
San Francisco, CA 94111
T: 707-761-3189