This is the second post in our New Energy Opportunities series that explores leading edge clean technologies that could revolutionize the way we buy and sell energy.
To understand the new energy opportunities transforming today’s energy markets, let’s first take a brief look into and note how sometimes things come full circle. Broadly speaking, electricity began as a decentralized luxury — generally, you only had it if it was generated onsite or very close by.
Electric power demand quickly grew as this once luxury became a necessity. In order to deliver the benefits of electrified power on a larger scale, the industrialized world increasingly shifted to a system that emphasized fewer, large-scale, centralized power stations to ship electrons far and wide to serve as many customers as possible.
Due to today’s market forces, we are now seeing a departure from this centralized power system and a return to smaller-scale, localized systems that optimize power demand, consumption and management. Increased access to locally generated and managed clean energy is allowing companies greater choice in how and when they use energy, producing a significant amount of cost savings for pioneering organizations.
If present trends continue, or even accelerate, decentralization of energy generation is a key component of the “energy future".
Microgrids are emerging as one of these decentralized techniques companies use to bridge the gap between relying on large, inflexible centralized systems of energy generation and delivery, to efficiently transitioning to renewables while addressing intermittency and other energy management costs and concerns.
But why microgrids and how can companies benefit?
The answer lies in changes currently affecting the primary cost-driver for electric power. Record low prices for power generation (charged by the number of kilowatt-hours (kWh) a buyer consumes) are causing power plant operators to struggle to maintain operation of these enormous, expensive utility-scale assets. Put simply, if the market price(s) per kWh are not sufficient, the generating sector has decreasing incentive to continue supplying a stable, plentiful power supply to the grid. To combat this challenge, some markets are beginning to incorporate higher capacity charges (charged by the kW,or rate of consumption) in addition to generation charges.
To use an analogy, this change in pricing for electricity is analogous to driving a car in an era when gasoline is getting cheaper, but drivers are now being charged not only on how much gas they use but also on how fast they drive. Generation (kWh) charges are measured by the odometer, capacity (kW) charges by the speedometer.
Capacity charge regimes set up a series of “speed traps” for companies that have high energy demand, especially during times of peak overall system demand. The “speeding tickets” are getting really expensive, but fortunately, the speed traps are increasingly avoidable.
The Internet of Things and improving analytics are awakening corporate energy buyers to the possibility of playing a more active role in the energy value chain. Companies are looking at microgrids as one way to take back control of their energy strategy to avoid changes in energy expenditure and risk. To return to the analogy, microgrids help companies use less gasoline and drive slower without compromising productivity.
One of the first steps to taking an active role is knowing how, when and where energy is used or created. By linking new energy technologies, including onsite solar, software-enabled and data-driven equipment, battery storage, etc., microgrids help companies better visualize their energy use patterns and quickly react to optimize total energy spend. The many connected components that make up a microgrid allow companies to avoid energy speed traps by closely monitoring real-time energy consumption, generating via renewable and other on-site sources when they are available, and otherwise deploying them at the optimal time.
In a recent report, Navigant Research notes that global capacity for commercial, industrial and institutional (C&I) microgrids could be as high as 5,400 megawatts (MW) by 2026, compared to today’s 448 MW. Though the application of C&I microgrids has been limited thus far, there are several examples that demonstrate their potential to shape the way energy is bought and sold in the future.
In California, microgrids are helping to deal with the reliability concerns sparked by a rapidly increasing percentage of solar power capacity. Due to the maturity of California’s clean energy market, in addition to the retirement of aging centralized generation assets such as the San Onofre Nuclear Generating Station, the state is confronting this challenge (commonly referred to as the “duck curve”) sooner than much of the country.
The situation in California provides powerful insight into the grid of the future; other states can expect to face similar challenges as renewable power continues to join the grid and large-scale baseload generation from fossil fuels becomes more difficult to build. Proposed solutions to this problem largely involve greater grid flexibility achieved through onsite storage, shifting energy demand to more optimal periods, cogeneration, integration of distributed generation, etc. — each potentially being elements of a microgrid.
For example, Apple has designed its new ‘Apple Park’ headquarters in California as a self-contained microgrid, using battery storage, solar PV, fuel cells and backup generators. In the event that a grid outage should occur, Apple’s microgrid will be able to operate autonomously, protecting the company from the effects of a compromised grid system.
Another potential application of microgrid technology is occurring in Ontario, Canada, where consumption (kWh) charges are very low, but demand (kW) charges are skyrocketing. Microgrids become much more attractive here because they can solve a customer’s need to keep its demand (the rate at which it takes energy off the grid) lower, as most companies cannot alter their daily consumption significantly or quickly enough to react to peak demand charges.
Though the precise state of the power grid of the future is yet to be fully defined, one thing we know for certain is that clean technology and software-enabled Active Energy Management will come to the forefront. Regulation and policy tailwinds, access to advanced analytics, and corporate uptick in energy investment are creating a perfect storm for C&I energy consumers to take an active role in the energy value chain to solve their own unique ambitions through microgrids.
Leading C&I energy buyers can realize substantial near-term cost savings by implementing technologies embedded within a microgrid that insulate their facilities from the risk and changing cost components of an ever-evolving energy market.
Get in touch with our team to learn how new energy opportunities, including microgrids, may complement your current energy management strategy.
Contributed by: Tom Muddell, a cleantech expert at Schneider Electric with experience in smartgrids, demand response and power markets