Grid Divorce Just Got Easier

A new financing tool may accelerate the growth of microgrids and distributed generation. Along the way, it may make it much easier for customers to divorce themselves from the grid.

Under a Connecticut law passed in June, municipalities may now form “energy improvement districts” (EIDs) with the authority to issue state tax-exempt bonds. The name is a play on the familiar "local improvement districts" long used by property owners to band together to pay for things such as street paving, sewers, or street lighting In the case of EIDs, the bonds pay for small-scale, locally sited, self-sufficient microgrids.

We warned you a year ago that microgrids were an important and potentially disruptive trend. (See links at end.) Now we're back to suggest that this financing mechanism could accelerate their growth. In his Modern Grid Strategy article last edition, Steve Pullins stated “…7 to 10 years from now, it will be cheaper in many parts of the country to self-generate than to buy the service from the electric company.” SGN Prediction: it could happen in half that time!

A microgrid ties distributed generation sources together on their own feeder line. Then it links that feeder to the grid at a single point. In the event of a disturbance, a microgrid seamlessly separates and isolates itself from the utility, while maintaining power availability and quality. When the utility grid returns to normal, the microgrid automatically resynchronizes and reconnects itself.

Justifying an EID

Guy Warner is CEO of Pareto Energy, a Washington, DC-based strategic consulting firm that is pioneering the EID concept. He is very blunt about the justification for EIDs. “The current grid does not provide the reliability needed to retain and attract information-age businesses," he asserts. "We are all facing unacceptable risks of periodic, acute power disruption (i.e., blackouts and brownouts) as well as constant, chronic power quality fluctuations (i.e., surges and harmonics). Information-age businesses face large uninsured losses due to equipment damage, product loss and business interruption. Income and employment from high technology businesses lag as a result.”

EIDs give such businesses a new way to create their own power. A municipality with large information-age businesses (there are several large investment bank operations in Stamford, CT for instance) could finance an EID that would offer firms more reliable power in return for long-term power purchase contracts. That higher reliability might come at a higher cost per kilowatt. But Warner believes that higher prices combine with fewer outages, fewer business interruptions and multiple environmental benefits to make EIDs a compelling proposition.

Dr. Shalom Flank, Pareto Energy’s CTO, makes the point that an EID allows users to operate parallel to the existing grid. The EID can draw power from the existing grid or use its own. Using a transaction model based on cost, reliability and service, it will choose the best power source and delivery options for its customers. Dr. Flank believes that it is a "win-win" situation for strapped utilities and frustrated customers.

Why Utilities Must Monitor This Trend

You can see the PR and financial dangers to utilities. If major customers defect by building their own EIDs, it sends a terrible message to the rest of the utility's customer base. At the same time, it reduces revenue. Even so, as Dr. Flank points out, there are synergies that would benefit both customers and utilities, if utilities are willing to work with those proposing EID(s).

That's why forward-thinking utilities should be closely monitoring the trend. They should be testing microgrid concepts, as is happening now at AEP, Sandia and Chula Vista. And they should begin a dialog with regulators. For instance, the Distribution 2010 initiative spearheaded by WE Energies saw the growing demand for digital-grade power. They set out to pilot a "premium power park." They hope to eventually convince regulators to allow a higher rate for the improved service.

Given the development of this financing tool, SGN believes a growing number of real estate developers and systems integrators will set themselves up to, in essence, compete with regulated utilities. They will seek to sell and operate turnkey microgrids for high-end housing developments, office parks, military bases and high-rises. Michael Daly of developer Forest City Covington made just such a presentation at Grid-InterOP last week for a development called Mesa Del Sol in New Mexico.

But EIDs are as much an opportunity as a danger. If regulators will allow it, building and/or operating microgrids could become a new revenue stream for utilities, on their own or in joint ventures with systems integrators.

  Macro Trends Point to Microgrids

  Connecticut EID Act

Pareto Energy Web site

New Haven Register article, 'Ansonia eyes power grid for municipal, business use'

Mesa DelSol Web site