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Musings on Microgrids

Yakov Berenshteyn

In the wake of Hurricane Sandy, we’ve seen a renewed focus in the media on climate change. As it so often does, the conversation points to technology as a lever for both mitigation and adaptation.

Microgrids in particular are suddenly top of mind again, covered in MIT Technology Review, Fast Company, Christian Science Monitor, and Huffington Post in a span of just five days. These pieces praise microgrids for enabling distributed renewables (mitigation) and taking critical customers like hospitals off the main power grid in emergencies (adaptation).

While we applaud any effort to raise awareness of clean technology, it’s important not to have a knee-jerk response to climate events like Sandy. In the case of microgrids, it’s not what these authors wrote – but rather what they didn’t write – that has us giving a word of caution: the latest reports lay out microgrids’ great technological benefits, but give little advice as to how an institutional or commercial electricity customer should navigate the overwhelmingly complex regulatory structure behind utility operations in order to actually develop and deploy a microgrid.

In many regions of the US, the reality is that it will be up to the utilities and their regulators to determine the extent to which customers can actually build out microgrids, particularly as distributed generation represents a threat to utility revenues from electricity sales.

Understanding that utilities may be best positioned to drive microgrid development, we offer them a few preliminary tips:

  • Don’t think about a microgrid purely as a technology; think of it as an enabler of other goals. Just as Zipcar sells “mobility” rather than cars, focus on selling electric reliability and power quality rather than commoditized electrons. What kinds of new business models does this enable?
  • Thoroughly assess whether customer needs can be met with existing infrastructural upgrades and other capital improvements available through the rate base, avoiding the need for a customer to make risky microgrid investments in the first place.
  • Collaborate with customers to determine the ROI of microgrids by understanding what the costs and benefits of improved reliability and other benefits are to the individual customer versus the collective rate base. How does this change by industry?

Whether microgrids represent a looming decentralization or democratization of electricity delivery in the US is worthy of debate, but regulatory complexity means any change will be very slow in coming. It’s up to utilities to engage customers and regulators to develop business models and ownership models that satisfy everyone’s needs. What kind of innovative models could be developed for microgrids, and which industries can utilities draw from for inspiration?

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