PA Consulting Utility Microgrid

Utility microgrids - where is the value?

Frontrunning utilities are finding that utility-scale microgrid pilots are revealing the business case and value. Engerati asks PA Consulting to explain more.
Published: Wed 20 Dec 2017

“Microgrids are making headlines as well as headaches,” PA Consulting’s microgrid expert Jared Smith said in an introduction to a podcast on the subject produced in 2017.

Smith explains that many utilities are doing microgrid pilots but the value of them isn’t truly understood yet and the drivers might be regulatory rather than self-motivated.

He says: "Microgrids sit in-between the modernisation of electric distribution technologies, regulations and business models. Regardless of their future rate of adoption, microgrids in whatever form are creating conversations across the industry.”

There is however a perception of microgrids as threats to the utility model, says Smith, who encourages utilities to view them as a testbed for digital transformation.

The lessons learned from developing a microgrid can be transitioned into a broader business model in terms of what it looks like on the grid, how they can meet customer demand and what those demands might be.

To understand how utilities are finding the value microgrids, PA Consultancy approached major US energy company National Grid to participate in a podcast on that has embraced microgrid pilots.

A key value point that both PA Consultancy and National Grid has observed is about collaboration.

Smith says: “A microgrid pilot is often the first time that utilities recognise the critical importance of the collaborative process between their experts and the community they serve.”   

In the podcast, Carlos Nouel, VP New Energy Solutions Team at National Grid, supports this view.

In the course of doing microgrid pilots in New York State, National Grid spent a lot of time discovering what customers within the microgrid wanted to achieve.

Nouel says for customers like university campuses or medical institutions, “a lot of these investments are not their core business so it’s important for us to really recognise what they're trying to do. Then we can tailor the rates, solutions and requirements in a way that doesn't disrupt their core business.”

National Grid asked questions like ‘why are you investing in distributed resources and why are you thinking about having solar panels in your facility?’. “Just asking those questions gives a good line into what is possible in terms of opportunities to monetise some of the investment,” he says.

Microgrid pilot - internal collaboration

On another level, a utility microgrid pilot also promotes internal collaboration, observes PA Consultancy’s Smith.

“A microgrid pilot brings together different business functions in a utility that might not normally work together - such as distribution planning, rates and tariffs, regulatory planning, asset management and customer service.

“A pilot might be the first time that they’ve been brought together for a single purpose. It’s not natural, but it has significant implications for how utilities can approach further technology projects.”

There is also value in learning to work with microgrid technology vendors as partners instead of competitors.

Nouel says: “Utilities are inherently good at managing power systems, but it doesn't mean we do it all - we work with many partners and many vendors to do that.

“On microgrids, we’re working with GE, which you could argue is a competitor, but in reality is looking at us for expertise in managing large underground assets that are required for the microgrid.”

Utility role in microgrid market

When it comes to the question of ownership and not losing a controlling hand in microgrid development, National Grid is exploring different options - as operator and backbone of microgrid, as a controller or playing a limited role in settling transactions.

However, Nouel is realistic about how the market will pan out. “Utilities will have a role but we won't be in every microgrid.

“There'll be cases where a utility is not the answer and there's more value to customer by doing it as a private microgrid. Ultimately, our role in those cases will still be to ensure that there is value created for the broader system and we're also protecting that broader system.”

Who pays for microgrids?

In terms of drawing monetary value from microgrids, Nouel says for the concept of microgrids to take off, funding needs to move beyond private investment such as for community projects defined as a multitude of customers that are part of the grid, and not all belonging to same institutions.

National Grid took a novel way of deciding who pays for microgrids. “Most existing microgrids are done through private funding or grants for a specific need with most of the value going directly to those customers.”

In a community microgrid, the closer you are to the microgrid and the more benefit you from it - such as keeping the lights on and services running during extreme weather conditions - the more you contribute.

Nouel says: “Traditionally utility investments are spread against multiple rate customers and the value of the system is socialised.

“The value of microgrids is localised. Customers in the first tier - defined as everyone within a microgrid including the ones that have generation assets - are paying most into the microgrid as well as receiving the most benefit.”

While customers in the second tier, further away from microgrid assets, will pay less towards to it.

National Grid’s approach to utility microgrid pilots exemplifies PA Consulting’s approach to experimenting with new technology, whether a microgrid or distributed energy resources.

“Don’t be too focused on the word microgrid,” he cautions. “They are an experiment with specific applications but the lessons can apply more broadly to how a utility operates its grid.

“It’s better to view microgrids as not a standalone asset that is a threat to their business model but as a path to grid modernisation.”