By Dawn Santoianni

“Energy independence” is a concept that has become part of the political lexicon and touted as a panacea for a downturn economy. Recently, the concept has morphed into “energy security” which encompasses not only a domestic abundance of energy resources, but freedom from energy market manipulation. Still, there are numerous and conflicting definitions for energy security. Does energy security mean using only renewable or carbon-neutral energy resources to prevent further anthropogenic global warming? How do fossil fuels, particularly natural gas, fit into a secure energy future? One thing is certain - we know an energy security failure we when we see it…or worse, experience it. The aftermath of Superstorm Sandy was the most recent example of how vulnerable society is to disruptions in energy supply. According to the Department of Energy, more than 8.6 million customers were without power following Sandy, more than any other storm in history. However, amidst the extensive Northeast blackouts were “islands” of power that may point the way to true energy security. Microgrids kept the lights on when the electric transmission system failed.

A microgrid is the interconnection of local generating resources and electric users (loads) optimized for reactive and sustainable operation. As opposed to the large, centralized generating plants that provide the backbone of the transmission grid, microgrids utilize distributed generation (DG), which can be derived from conventional generators, fuel cells, efficient combined heat and power systems, and renewable energy sources. Although microgrid systems may normally be connected to regional transmission networks, they also have the ability to be self-sustaining or “islanded” when the electric grid goes down.

The Climate Change Case for Microgrids

Over the last two years (2011 and 2012) fourteen (14) extreme weather events, each causing more than a billion dollars in damage have occurred in the U.S., according to the Center for American Progress. Many of these events have caused widespread power outages. Ongoing drought is also a huge concern, as many energy technologies rely heavily on water, including steam electric power and natural gas fracking. According to the International Energy Agency (IEA), 50 percent of global water usage is for energy production. While nationally there has not been a coordinated policy effort to address energy security impacts from climate change, the situation is causing some states to investigate microgrids as a solution. After a series of storms walloped the state with large-scale outages, Connecticut is exploring policy to encourage microgrid development. Connecticut will be an important case study in how policy must be crafted to facilitate adoption, and the issues involved with community-based microgrids including parity, utility involvement, and economics.

The sustainability of energy supply amidst emergencies that take down regional power systems has been a primary driver for microgrids. Consider the difference between the microgrid approach and centralized power generation. Centralized power generation relies heavily on large baseload nuclear, coal, and natural gas plants. Disruption of power between the centralized generating plants and the delivery of that electric to end users can occur anywhere along the network of transformers, transmission lines and substations that is hundreds of miles long. Vulnerability is not limited to winds and flooding. Voltage instabilities, equipment malfunctions, unplanned generator outages, terrorist attacks, ice, and lightning can cause widespread blackouts. In contrast, a microgrid system has multiple (and often diverse) generating sources as well as energy storage capability that are local to end users. Control is also local, allowing responsiveness to instabilities in the transmission grid, compensating load reduction, and efficient deployment of available generation.

The U.S. military has been exploring the use of microgrids for obvious energy security needs during field operations. A recent Department of Defense (DoD) study cataloged 44 existing, planned, or demonstrated DoD microgrid installations. Other applications for microgrids include remote areas that do not have access to larger transmission networks, hospitals, data centers, and other mission critical systems that can’t afford to lose power. Two noteworthy institutional microgrids are the Santa Rita jail and the “living laboratory” microgrid at UC San Diego. In the Netherlands, PowerMatching City is a 22-home community where advanced microgrid technologies are being demonstrated. These microgrid systems provide valuable technology vetting and learning opportunities. Globally, Pike Research has identified a total of 3.2 gigawatts (GW) of existing microgrid capacity.

The Sustainability Case for Microgrids

Besides improving reliability, microgrids offer other benefits including energy efficiency and integration of renewable energy sources. Microgrids employ sophisticated technology architecture and controls to allow demand response, optimizing loads in response to changes in generation, and switching to islanded operation if disruptive events in the regional transmission grid occur. Microgrids are designed and customized to the mix of electric (and sometimes heat) needed for a particular mixed-use community or installation, and allow automated adjustable and sheddable loads to improve efficiency and reliability.

And because microgrids often use renewable energy sources and fuel cells, they support carbon reduction and green living goals. Renewable energy sources are well suited for microgrids for a couple of reasons. Regional electricity balancing authorities consider most renewable sources as stochastic (unpredictable) and for forecasting purposes treat them as negative loads rather than a generation source. Adequate operating reserve must be available from generating sources to meet the highest projected demand for a given time of day. That means a great deal of redundancy (some would call it waste) in generating resources. Further, if a renewable source such as a wind farm produces more generation than expected, the transmission network must compensate for potential voltage and frequency fluctuations along transmission lines caused by that increased power. By matching renewable generation to demand on the load side (locally) and utilizing energy storage, microgrids help smooth out the variability in renewable generation delivered to the grid. A hybrid power supply also reduces reliance on traditional generator fuels such as diesel, propane, and gasoline.

Making the Economic Case for Microgrids

Even with a renewed attention on the energy security benefits of distributed generation and microgrids, the technology requires large upfront investment which can be a barrier to entry. Siemens, a key developer of microgrid power generation resources and management software, has estimated that a microgrid to support a 40 megawatt (MW) load can require an investment upwards of $150 million. Although large-scale energy storage has been cost prohibitive, the smaller scale of microgrid storage, efficiency improvements, and the ability of local distribution networks to manage intermittency are expected to improve the economics.

In addition to enhanced energy security, the economic justification for microgrids includes energy savings, efficiency improvement, and reduced emissions. Because there are numerous technology options for generating resources, energy storage, smart meters, transformers, control system architecture, and communication networks, microgrid planning is a complicated exercise in investment optimization. The impact of each of these choices on the system cost and return on investment (ROI) is not obvious. DNV KEMA, an energy and sustainability company with extensive experience in smart grids, microgrids, and energy markets has developed an intuitive visualization tool to assist with master planning of microgrids. DNV KEMA’s proprietary Microgrid Cost/Benefit Analysis model evaluates the financial decisions for a range of technologies including generation, energy storage, building efficiency, load automation, thermal load management, distributed system infrastructure, telemetry and controls. The location-specific optimization tool allows the user to evaluate the cost, ROI, emissions performance, reliability, and occupancy rate (i.e. for mixed use developments) while evaluating uncertainty and risks associated with climate, technology costs, energy prices, and changing demand. Such optimization tools help identify long-term investment approaches, track energy balances, and quantify the duration of support for critical loads. In addition for making the business case, microgrid optimization models can also inform policymaking by comparing the impacts of different rate structures, incentives, and new technologies.

Despite the cost barriers, a recent survey of smart grid executives commissioned by IEEE reported that hospitals and healthcare institutions were the largest expected market for microgrids over the next five years. The report concludes that private- and public-sector funding for microgrid, DG, and grid-level storage projects would advance cost-effective application of these technologies. By 2020, the global microgrid market is projected to reach $13.40 billion, a nearly three-fold increase from 2012 investments.

Regulatory Hurdles

Policy and regulatory hurdles complicate microgrid development and can make the economics less than favorable. Issues such as regulations governing generating asset ownership, classification of a microgrid as a distribution or steam utility under state laws, utility legal responsibility as the provider of last resort, grid interconnection, transmission charges, rights of way, state policies on net metering that don’t apply to microgrids, and feed-in tariff structures for renewable generation present legal and regulatory hurdles. New York State conducted an extensive assessment of regulatory definitions and legal requirements to which microgrids would be subjected, and developed a roadmap for facilitating microgrids in the state. The comprehensive report serves as a valuable tool for developing state-level policies.

Utility response to microgrid opportunities has been tepid, in part due to lack of established microgrid standards. In 2011 IEEE published “Guide for Design, Operation, and Integration of Distributed Resource Island Systems with Electric Power Systems” and the Federal Energy Regulatory Commission proposed implementation standards for demand response which provided much needed engineering protocols. Utilities that are at the forefront of microgrid development are rural electric cooperatives, with service areas that do not have the option of connecting to a larger transmission grid.

Because of the regulatory and economic challenges, microgrids will likely remain a niche application over the next several years. But as the costs for energy storage, renewable generation, and smart grid automation become more competitive, microgrids will play an expanding role in the quest for energy security.

About the Author: Dawn Santoianni is a combustion engineer who has worked on energy and environmental issues for 20 years. She has conducted air pollution research as a contractor for the U.S. Environmental Protection Agency and testified before a Congressional subcommittee on a proposed environmental regulation. Dawn currently works as technical writing consultant through her company, Tau Technical Communications LLC. When she is not debating or blogging about energy policy, Dawn spends time at her “cool” job – volunteering at an educational wildlife facility where she helps care for lions, tigers and wolves. She enjoys reading about particle physics and is intrigued by the experiments at the Large Hadron Collider. Follow on Twitter @tautechnical. Dawn was invited to guest post by Plugged In‘s Melissa C. Lott.