Seizing Microgrid Opportunities

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by Dan Watkiss, McDermott Will & Emery LLP

Discussion of national energy policy—to the extent it occurs at all in today’s political climate—focuses on spurring power generation from sources that pollute less and building transmission capacity to interconnect that generation with often distant load within the macrogrid.

The importance of that discussion is obvious, particularly as it seeks to curb greenhouse gas emissions. The need to interconnect low-emission generation, however, should not divert the attention of energy policymakers from the equally compelling need to move the country toward a power delivery system anchored in microgrids that co-locate generation, load and storage while minimizing energy sprawl and transmission losses. This different paradigm distributes generation close to load—distributed generation—and enables investment in microgrids that reliably can deliver generation free of traditional but often unnecessary regulatory overhang. Incentives for microgrids should be priority energy policy at federal and state levels.

Explaining how an Arizona Public Service Co. line worker who was switching out a capacitor could have caused a power outage for millions of households and businesses in the Southwest and Mexico, Rich Sedano of the Regulatory Assistance Project said, “There are a lot of critical pieces of equipment on the system and we have less defense than we think.”

Sedano’s summation could apply to power failures that seem to occur with increasing frequency in recent years, including the colossal 2003 outage that cast into darkness 50 million people in the Midwest and Northeast and the 2005 outage that sapped energy out of Los Angeles. The cost of these outages runs into the hundreds of millions and even billions of dollars.

The underdefended system to which Sedano referred are North America’s three high-voltage macrogrids. Those grids comprise interdependent tradeoffs between high- and low-voltage transmission lines, large and small generating stations proximate to or remote from load and storage or the absence of storage.

Brittleness is a characteristic of how the grid has evolved. In general, the more a grid’s ability to deliver energy reliably depends on the uninterrupted and interdependent operation of large, centralized power stations and long-distance transmission lines, then the more brittle and vulnerable the system is to disruption from causes both natural—storms and earthquakes—and human—errors or intentional acts of sabotage or terrorism. Today we depend predominantly for our power on a brittle, outdated, centralized system that wastes power and frequently experiences cascading failures producing brownouts or blackouts.

In contrast, a microgrid is a localized grouping of electricity generation, energy storage and loads that operate synchronously connected to but sometimes independent of a traditional macrogrid. A distinguishing feature of a microgrid is its ability during a grid disturbance to separate and isolate itself from the macrogrid seamlessly with little or no disruption to the quality of power service to loads within the microgrid and without exacerbating disruptions in neighboring systems. To operators of the surrounding macrogrid and neighboring microgrids, the microgrid presents itself as a single, self-controlled entity. These characteristics produce many desirable attributes. The microgrid can seal itself off from and open its circuits to other failing elements of the macrogrid and stop cascading outages. It also can accommodate interconnection with many small-scale distributed energy resources, including storage in the form of electric vehicles and other innovative applications, without the same concerns for excessive current flows into faults and voltage fluctuations. Taking these attributes as a whole, the microgrid has been characterized as power industry democracy in which local landowners, generators and resource managers can become largely self-sufficient.

Although it’s not a near-term substitute for the macrogrid in many applications, the microgrid can become a valuable complement to it. But for microgrids to achieve their potential, incentives to invest in microgrids must be extended and expanded, and regulatory barriers to the proliferation of microgrids must be ended.

Distributed forms of generation, such as building-appurtenant solar generation, and remote metering capability are core infrastructure for a functioning microgrid. To put these investments on a level playing field with utility investments in central-station generation and metering requires grants and special tax incentives such as credits and accelerated depreciation. The American Recovery and Reinvestment Act of 2009 provided tens of millions in seed money for many projects, including an 8.28-kW bank of solar collectors on my roof. Those incentives must be made permanent in recognition of the cost-saving and reliability benefits microgrids provide.

Reforms to utility regulatory regimes, primarily at the state level, also will be required for microgrids to mature. Particularly helpful would be model legislation from think tanks such as the National Regulatory Research Institute (NRRI). NRRI would be particularly well-suited to the task because democratizing knowledge needed to regulate the power industry is embedded in its mission statement. This legislation could reform how small-scale public utilities are defined so that distributed generation within a microgrid could reliably provide localized service beyond net metering for its own usage, without becoming subject to the regulatory overhang of traditional utility accounting and ratemaking.

Author

Dan Watkiss is a partner in the law firm McDermott Will & Emery LLP and is based in Washington, D.C. He focuses on transactional and regulatory matters in energy and related infrastructure industries. Reach him at dwatkiss@mwe.com.

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