Paradigm shift ahead! How microgrids could help change the utility business model
By: SGN Staff
By Mike Gordon
In early 2012, I suggested that utilities must decide where they want to land on the volume/value continuum. I believe many utilities would be best off to adopt the role of intermediary. Mike Gordon, CEO of Joule Assets, thinks the advent of microgrids may be the precipitating event that pushes utilities into that kind of services role. I asked him to share his thoughts with you. - Jesse Berst
Microgrids have captured the limelight as the umbrella label for a diverse set of activities increasingly available to the grid’s distributed energy resources (a broader and possibly more useful term). The prevailing assumption is that these activities will complicate established utility functions, as if the rise of microgrids is mutually exclusive to the continued success of utilities.
Is this true? Is there a role for utilities in the emerging push to develop microgrids? In my opinion, that depends on the utility’s regulatory and market structures, and on strategy choices.
A "service model" for forward-thinking utilities
In many situations, forward-thinking utilities can include not only infrastructure management, but also concrete steps for focusing on customer service rather than on commodity supply. For example, in free wholesale markets there is an opportunity to aggregate behind the meter control and storage systems, install small storage systems at strategic points on the distribution system, and find a way to measure and introduce different VAR tariffs for power quality. Of course, this model would require a nimble approach with state regulatory and ISO/RTO engagement to create the right tariff structures. The model would be further enhanced by providing ISO market signals to distributed resources or microgrids to monetize the value they provide the grid.
With foundational elements in place, utilities could enable consumers to access information through software apps. Those apps would allow them to optimize efficiency offerings, demand tariffs and demand response/dynamic market earnings. The cash flow streams that result, I believe, will be attractive enough to draw private sector financial services firms to build financing packages for storage and control systems.
The most robust market would result from giving most of the market earnings to consumer groups and consumers to ensure maximum adoption. The utility could ensure reliability with control of storage and generation systems that are installed on medium voltage lines, supplemented with the opportunity to control consumption behind the customer meter on the rare occasion that it becomes necessary Utilities could build a platform for their deregulated subsidiary to invite vendors into their "marketplace.”
In this model, quite simply, the utility becomes a service firm, making money, building trust and providing reliability. This is a paradigm shift, and potentially a difficult one, but utilities are facing a challenging business environment and change is inevitable.