EPRI-SEPA Report: Challenges to Unlocking the Potential of Microgrids

A report released collaboratively on January 25 by the Electric Power Research Institute (EPRI) and the Smart Electric Power Alliance (SEPA) lays out three basic economic business models—third-party, utility, and hybrid—that are driving growth in the microgrid sector.

The study, Microgrids: Expanding Applications, Implementations, and Business Structures, finds that, to date, most existing microgrid installations have taken place in isolated campus situations – for example, at universities or military bases.

In the future, the researchers predict, microgrids will provide a range of customer and grid solutions for greater integration of distributed energy and enhanced resiliency. The installations will evolve along a continuum that flows from majority customer control at the third-party model end to overall utility control in the integrated utility model space. But in the end, customers will pay most costs, as follows:

• The third-party model will be driven by the end user(s) or by third parties, who will finance and own the microgrid, determine economic dispatch (potentially with utility guidance), agree on appropriate islanding conditions, and pass the operating costs on to customers in their monthly bills.
• The unbundled model will be financed and owned by a utility or third party, which will dispatch DER assets on behalf of customers and agree on appropriate islanding conditions (with the utility and end users always involved). Under this model, the end users pay the utility for grid assets, pay the implementer (utility or third party) for microgrid assets, and receive credit from their own distributed energy resources.
• The utility control model will be financed and owned by the power company, which will dispatch DER based on system economics and agree with end users on appropriate islanding conditions. Costs will be passed on to customers, who will pay the utility for added resiliency and premium power services.

The report also identifies two factors that will play a major role in the expansion of microgrids nationwide in the United States:

• Assigning value to microgrids — and monetizing a project’s potential value streams — has been complicated by a tangle of economic and industry factors, the researchers found. Clarity on price signals, rate structures, and regulations must be achieved, in order for the sector to expand.
• Current technical standards can provide guidance on microgrid development, but a more detailed and nuanced set of standards is needed, in order to put in place interoperable designs, and communication and testing practices.

“The disruptions caused by Hurricane Sandy on the East Coast amplified the need for greater grid resiliency,” said Nadav Enbar, EPRI principal project manager and co-author of the paper. “As part of EPRI’s Integrated Grid Initiative, we are looking at the capabilities and limitations of microgrids as well as their costs and benefits,” he said.

“What we are seeing is a proliferation of microgrids designed for specific operational, regulatory, and financial landscapes,” said Ryan Edge, SEPA program manager and report co-author. “Our study of the different microgrid business models is aimed at supporting and expanding this diversity—and the increasing integration of DERs these systems can make possible.”