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Microgrid Market Potential

Disruptive Technology

April 2015 Perspective

Prepared for client Strategy&

Emerging Technologies Perspectives - Microgrid.pptx

Executive Summary – Microgrids

• Microgrid growth is driven by:

– Government initiatives such as US military and federal R&D and demonstration efforts

– Changing electricity dynamics that have increased demand for reliability or eco-development

• Industry market growth forecasts may be overly optimistic for the next 10 years

– However, more is known about the US military microgrid programs, predicted at ~55MW in 2018

– Niche customers with high reliability needs due for security or cost purposes may demand services (e.g., hospitals, research centers, campuses, server farms, etc.)

• Microgrid technology is readily available today and broader could be triggered by removal of regulatory barriers, prices that make microgrid arbitrage attractive, and successful demonstrations that prove concept and value

• Microgrids are a natural extension of core utility capabilities, although a disintermediation risk exists from customer or third-party implementation

Confidential property 1



Microgrids integrate numerous emerging technologies and allow users the ability to connect or disconnect from the grid …

Microgrid Definition: A group of interconnected loads and distributed energy resources within clearly defined

electrical boundaries that acts as a single controllable entity with respect to the grid. A microgrid (MG) is capable of

operating in both grid-connected and / or island mode.

Microgrid elements Microgrid types

• Microgrids generally include:

– Small (e.g., < 50MW) conventional generation assets

– Distributed generational assets

– Distribution system

– Advanced monitoring, control and automation

• Microgrids may include:

– Combined heat and power

– Electricity storage

– Demand response

– Energy efficiency

– Electric vehicle charging and / or Vehicle to Grid storage

– CVR, volt VAR

• Microgrids provide a holistic energy solution incorporating

several new technologies

Source: DOE, NRRI, Siemens, Distributech Conference Materials, Strategy& analysis

Single

parcel

Multi

parcel

Remote

• Single owner-campuses

• E.g., military installations, universities, medical

centers, commercial campuses. industrial

complexes

• Multi user areas

• E.g., industrial parks, community developments

• Locations with limited grid access

• E.g., mines, and gas / oil fields, rural villages,

mobile military operation

Microgrid Characteristics

Distinguishing Feature of

Microgrids v. Back-up Generation

Microgrids connect to the macrogrid. They have

a single point of common coupling with

switchgear to enable islanding




… to offer an array of benefits that support energy surety for utilities, customers and the public-at-large

Utilities Customer / End-users Public-at-large

Reliability

Security

Efficiency

Power quality

Cost

Sustainability

• Enhanced reliability for those with a

high willingness to pay

• Load shedding or load shifting

• Avoided system-wide outages

• Near 100% uptime • Critical load operational during outages

(e.g., emergency response and

medical centers)

• Enhanced energy security and

resilience to critical load

• Superior resilience due to islanding • Increased fuel and technology diversity

• Insulation from operational disruptions,

including cyber attack

• Lower distribution system loss

• Enables demand response

• Lower energy intensity

• Facilitates combined heat and power

integration (avoided HVAC costs)

• Reduce land-use requirements

• Meet exact customer energy

requirements

• Supplies ancillary services to bulk

power system

• Higher power quality

• Local power quality control

• Expand generation to renewables and

cleaner fuel sources

• Defer infrastructure investment

• Reduced customer service costs

• Attracts private investment

• Potentially lower cost of delivered

energy services (e.g., on peak)

• Reduced price volatility

• Potential excess electricity sales

• Increased economic development

• Avoided outage costs

Source: DOE, NRRI, Siemens, Distributech Conference Materials, Strategy& analysis

Microgrid benefits by type and beneficiary

• Ease of integration of variable energy

• Power provided through outages




However, even microgrid product vendors are wary of the market projections, and recognize the limitations to the market

Utilities aren’t necessarily

embracing microgrids….

but the regulated model

doesn’t allow them a lot

of flexibility

Source: Strategy& utility and vendor interviews

Industry

projections

Regulation

challenge Opportunities

We have been talking with

progressive utilities in Texas

and Arizona who want

to be providers of microgrid

solutions

5 years ago the concept of

utilities selling ‘premium power’

failed – but the concept of

energy districts

is more appealing

I don’t trust the industry forecasts.…

they are overly optimistic with giant

numbers and a claim that

it will happen overnight

Microgrids represent a paradigm

shift…. instead of designing for

general reliability, utilities can

offer areas with high reliability

Working with regulators

is one of the major

issues

Cities want to be cleaner.…

developers are interested and

eco-developments represent

a substantial opportunity

I don’t want to discount the

military application, but I don’t

think it will be the definitive

driver….commercialization

matters

I’m an old guy and I know it takes a

while to get things going. I’m not a

naysayer…. I’m probably

optimistic, but not overly so

Interview quotes by theme




There are two groups of factors driving growth in the microgrid market – government programs and changing electric dynamics

US Military

energy

programs

Government

mandates and

incentives

Research and

demonstration

initiatives

Demand for

reliability

Rise of

eco-districts

and smart

developments

Overview of interconnected microgrid adoption drivers Description and examples

• ARRA, DOE, DoD and national lab activities to support technology research and demonstration

• Cities / localities / developers and campuses increasingly interested in efficient, clean , “smart” and reliable energy districts

• Niche customers need more reliable and resilient power

• E.g., data centers, financial institutions, researchers, emergency response and medical / government / military centers

• Motivated by more frequent severe storms and threat of cyber security

• Value of lost load (VOLL)

Source: Interviews, Pike Research, NREL, NRRI, Siemens, Microgrid World Forum 2013, Strategy& analysis

• Government mandates energy efficiency, renewable generation

• Incentives for renewables, electric vehicles, and DG

• Microgrids support RE, DG, and EV integration

• Department of Defense energy security, energy efficiency and renewables mandates

• Energy Surety Microgrid program to deploy islanding technologies

Government programs

Changing electric dynamics

1

2

Unlike other technologies,

a technological breakthrough

is not required for microgrids




The US military and its ~$3B Energy Surety Microgrid program is supporting microgrid adoption, though still in an early stage …

Energy surety microgrids

Department of

Defense

objectives

• Funding R&D to establish a standard architecture

• Develop and deploy microgrid technologies for islanding

military bases

Key

supporting

policy

directives

• National Defense Authorization Act of 2011

• Quadrennial Defense Review Report

• Market will not mature unless there is a program of record

Status

• Through the Energy Surety Microgrid (ESM) Program, 14

military bases have received assessments / conceptual

designs

• Under the SPIDERS1 Program, which is designed to

demonstrate three ESM microgrids, Phase 1 has been

completed at Pearl Harbor / Hickam Air Force Base, Phase 2

at Fort Carson Colorado is underway and Phase 3 at Camp

Smith in Hawaii is in the preliminary stages

Estimated

market size

(2011-2025)

$0.3B-$3.0B

Department of defense microgrid overview

1) SPIDERS – Smart Power Infrastructure Demonstration Energy Reliability and Security

Source: Pike Research, National Renewable Energy Laboratory, Strategy& analysis

• Renewables integration

– Service renewable targets range from 25%

by 2025 for the Army and Air Force to 50%

by 2020 for the Navy

– Microgrids help to integrate renewables

• Synchronization / Demand management

– Energy Efficiency targets from 9% for the

Army to 15% for the Navy vis-à-vis 2003

• Increased energy surety

– Safety, security, reliability and

sustainability directly linked to critical

power needs

– Allows distributed energy resources to be

centrally managed

• Excess power exports

– Cut electricity costs or generate revenue

given fiscal pressure through PPAs with

utilities

Expected benefits

Progress slowed with the sequester and

spending is likely to be on the low-end, although

a major or sustained cyber-security event could

increase momentum




R&D Test Beds (DOE)

R&D Test Beds (Non-DOE)

DOE/DOD (Assessments & Spiders)

DOD ESTCP

… and in parallel, the federal government is funding other large scale microgrid demonstrations…

Select microgrid assessment & demonstration projects By funding source

Acronyms: DOE – Department of Energy; DOD – Department of Defense; ESTCP – Environmental Security Technology Certification Program; ARRA – American Reinvestment & Recovery Act; SGDP – Smart Grid Demonstration Projects,

Source: The Electricity Journal, Strategy& analysis

Discussion

• DOE aims to develop commercial scale

(<10MW) microgrids by 2020, capable

of:

– Reducing outage times by >98%

– Reduce emissions >20%

– Improve energy efficiency by >20

– All at costs comparable to non-

integrated baseline solutions

• The National Laboratories are

demonstrating the Consortium for

Electric Reliability Technology Solutions

microgrid concept at several sites

• ARRA SGDPs have also supported

microgrid technologies through funding

• The US military is focusing on

demonstration “test-beds” to establish

microgrid architecture, as discussed

Peak Load Reduction

ARRA SGDP

Industry/Utility/University/Other Fed Led




… as microgrids are an attractive means for integrating renewables and meeting state energy efficiency and renewable portfolio mandates

Mandatory RPS Mandatory RPS includes DG or Solar Carve

Out Energy Efficiency Resource Standard

Voluntary RPS

Microgrid Demonstration

Microgrid

demonstrations

correlate with state

mandates

Source: DSIRE, The Electricity Journal Strategy& analysis

Summary of renewable and energy efficiency mandates and correlation with Microgrid demonstrations




Source: Vendor and utility interviews, Strategy& analysis

Several niche markets reflect the high human or financial costs of outages and microgrids could emerge as a reliability offering

Critical Services Commercial /

Industrial users

Reliability-driven microgrid customer segments

• Customers for whom loss of

electricity could result in loss of life

or breach of security

Description:

Examples:

• Customers for whom loss of

electricity could result in substantial

lost revenue

• Hospitals

• Emergency preparedness and law

enforcement (e.g., jail)

• Military or intelligence installations

• Data centers / server farms

• Financial institutions

• R&D centers (e.g., with

temperature sensitive research

environments)




Another group of niche customers reflects environmental, high-

tech or efficiency needs, e.g., eco-developments, smart cities and

campuses

Source: Interviews, World Microgrid Forum 2013, NRRI, Galvin Electric Institute, Strategy& analysis

Customer Description Rationale Lessons Learned

Borrego

Springs, CA

(SDG&E)

• Progressive community with high rooftop PV

Received $8.0M from DoE, $2.8M from the

CA Energy Commission (CEC)

• Use “smart” technology to integrate DG,

improve reliability and reduce peak

• Enable customer managed energy use

• Test alternative service delivery model

• Key challenges – permitting and

integration

• No further technology is required to

implement microgrids

University of

California, San

Diego (UCSD)

• 42MW microgrid, including 30MW of natural

gas cogeneration, 2.8MW fuel cells and

3.2MW of solar PV for ~90% of power

• ~$10M investment, including CEC grants

• Cost savings - “a greedy microgrid”

• Reduce carbon footprint

• Control–improved engagement with SDG&E

demand response program

• System interoperability is critical

• Savings estimated at ~$800K per

month

Princeton

University

• 40 MW system of CHP, gas generation, ice

storage, solar, automation / demand

response and back-up generation

• Voltage and frequency support

• Real time and day ahead response

• Sought an integrated system that:

– Provides electricity, HVAC through

outages

– Improves power quality & demand

response

– Enables bulk power / off-peak purchases

– Produces energy efficiency / cost savings

– Reduces emissions

• Increased reliability – SAIDI of 0 in

2012, even during Sandy

• Enabled savings of $13M annually –

including reliability improvements

• Demonstrates how price incentives

encourage private investment

Chattanooga,

TN

• Installed an intelligent, self-healing system

with redundant circuits for each customer

• Aimed to attract new businesses by offering a

high-tech, smart and reliable grid

• Resulted in avoided restoration costs

(e.g., ~$1.4M during a July 2012 storm)

Naperville, IL

• Redesigned local grid for resiliency (e.g.,

installed controls, moved lines underground)

• Upgrade power grid reliability to become more

cost-competitive and efficient

• Attract business

• Improved reliability without raising rates

• Put city on Fortune’s Small Business

Best Places to Live & Launch list

Denmark

• 60 MW in western Denmark

• High wind penetration due to feed-in-tarriff

• Implemented by the Danish Tx authority

• Integrate wind resources and manage

intermittency associated with wind

• Manage outages through a “cell” network to

optimize reliability

• Incorporate several value streams for

maximum value creation

Eco

-

Dev’ts

C

am

pu

ses

S

mart

-Cit

ies

“We are seeing a lot of interest from

eco-developers for our microgrid

technologies” -- Vendor

Niche market microgrids Examples by customer type




Given these drivers, North American microgrid capacity could grow 5X by 2020, while US military grids could grow even faster

North America microgrid market size:

2010–2020 Forecast, MW

Sources: Pike Research, Inc., Strategy& analysis

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

2010 2012 2014 2016 2018 2020

MW

Low

High

US Military microgrid capacity:

2012 – 2018 Average case forecast, MW

6 4

10

12 12

3 3

7

14

16 20

3 4

5

7

9

10

2018

55

7

6

2017

49

6

6

2016

40

4

5

2015

22

2 4

2014

13

2 2

2

2013

15

1 2

2012

4

2 2

Other Navy Marines Army Air Force

14X Growth

in 6 Years 5X growth in 10

years in average

case

Estimated about 50 micro-grid

projects currently in operation

or development

Estimated about 50 micro-grid

projects currently in operation

or development




Utilities see a customer-driven microgrid opportunity, but only if the regulatory challenges can be overcome

To monetize microgrids through

the regulatory structure will require

a lot of education of the regulators

Post Hurricane Sandy, we are

thinking about how to use

microgrids to improve

resiliency

The technology is

not that far away

Source: Strategy& utility interviews

Customer driven

demand

Challenges Threats &

opportunities

We see different customer

tranches with varying reliability

needs.… the amount that

customers are willing to pay for

reliability varies.

Microgrids are a potential

inevitability that could impact our

business if storage technologies

and distributed generation

become cost competitive

Because of the natural

threat that microgrids

present, we are looking for

ways to turn it into an

opportunity

We could lose out on this

opportunity if we wait

for the regulators

The microgrid demonstration in our

service territory is really a customer

driven project rather than

something being driven by us

We will provide what the

customer wants as long

as it doesn’t negatively

impact the system

A micro-grid is a mini utility

….if you operate on the

unregulated side, there

could be some issues

The threat exists if enough

people come in and install

microgrids themselves and drive

up rates for everyone else….

but we believe that we can

turn it around and sell

it to top rate payers

The challenge isn't the

technology…. it’s the

integration

Utility interview quotes by theme

Customers are coming to us and asking

about microgrids…. for large commercial

customers, even short duration

outages can have substantial

impacts on revenue




No niche microgrid industries –

Hawaii economy based on tourism

and some agriculture

Increasing DG penetration (PV) due

to high electricity costs

Few university / campuses

Low population and low load

Some states, such as California, and Hawaii, have seen customer and government driven microgrid developments

Government

drivers

Consumer

drivers

California

Result

Hawaii

High military installation presence

Successfully attracted other

government funding (e.g., ARRA,

SPIDERS)

RPS mandate

Strong rooftop solar mandate

Energy efficiency resource standard

Niche industries that demand

reliability (e.g., tech / server farms,

large universities)

High DG penetration (solar PV)

Large university / campus presence

Many eco-minded communities

High military installation presence

Successfully attracted other

government funding (e.g., DOE

Test-beds, SPIDERS)

Voluntary RPS

+

-

+

+

+

+

+

+

+

+

Source: DOE, DOD, State Chambers of Commerce, Strategy& analysis

+ +

High adoption state driven by strong

government programs and specific

consumer characteristics

Early adoption state driven by

military presence, but few natural

consumer drivers

-

+ -

-

Early microgrid adopter state characteristics




Adoption will likely be led by the military and then campuses, to prove concept and value, and then followed by industries and cities …

Sources: World Microgrid Forum 2013, vendor interviews, Strategy& analysis

Growth trajectory discussion

• Military installations will drive initial growth

through DoD military test-beds

• Campus demonstrations likely to phase in

next

– Campuses are the most likely to achieve

cost efficiency savings as they combine

microgrid concepts with combined heat

and power

• As resource adequacy and reliability concerns

increase, microgrids may become

increasingly attractive for industrial customers

• Neighborhoods and eco-cities are likely to be

late adopters

– But further development requires proof of

concept and ease of implementation (e.g.,

vendor consolidation to provide holistic

solutions)

Microgrid adoption phases

And customer types over time - Illustrative

Military

Installations

Campus

Expansions/

Conversions

Industrial

Complexes

Neighborhood/

Eco-City

Developments

Today 2020

Proof of concept Commercialization

2030




Nascent regulatory

framework Low electricity rates

Trigger-

points

to monitor:

Lack of proof of concept

Barriers and trigger-points to broad adoption

• Lack of clear microgrid standards

• Utility role not yet defined

• Recovery of costs or user rates has

not yet been tested

• Some states don’t permit islanding

• Regulatory clarification of market

participation rules and recovery

(e.g., riders or performance based

rates or customer specific rates)

• Islanding permitted, e.g., through

adoption of international standard

• Electricity rates in the CLIENT area

already low, so microgrids do not

represent a low-cost alternative

today

• Dynamic pricing is a key incentive

• Higher adoption of or mandated

TOU rates

• Rising electricity rates and /or

incentives that make DG more

competitive

• Need to see microgrids functioning

as expected for long durations

• Need to realize monetary value of

improved reliance and other services

• Multiple, large scale demonstrations

that perform as expected and justify

ROI

• Alternatively, a major or sustained

cyber-security grid event would

trigger momentum

… however, for microgrids to reach sizable market penetration, several barriers must be addressed

Sources: Utility and vendor interviews, NRRI, Microgrid World Forum 2013, Strategy& analysis

Description:

Implications:

Barrier:

• Microgrids will remain few unless the

ability to island is permitted

• Regulatory framework could help or

hinder utility microgrid participation

• Lack of cost drivers limit microgrid

growth to niche markets

• Without concept, regulators may not

support recovery and growth would

be limited to niche markets

• A cyber-security event could force

adoption prior to readiness




April 2015 Confidential property

For further information:

Christopher Dann Vice President Energy, Chemicals & Utilities

4 Embarcadero Center #2350

San Francisco, CA 94111

T: 707-761-3189

[email protected]

mailto:[email protected]

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Disruptive Technology - Agrion Technologies Perspectives... · Disruptive Technology ... Critical Services Commercial / ... • Voltage and frequency support • Real time and day