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Back to the 80s: Applying lessons learned from the tech revolution to the modern energy age 

To set the stage for the AMC TV hit Halt and Catch Fire, the savvy market-maker Joe asks a room of computer engineering students in 1983 to tell him, “one thing that will be true about computers 10 years from now.” The show’s prodigy, Cameron, responds presciently that, “computers will be connected together across one network with a standard protocol.” Viewers of the show know that Joe and Cameron go on to create laptop computers and what will become the equivalent of Compaq, forever changing the way humans interact with personal computing technology. 

Today’s energy market looks eerily similar to the tech landscape of the 1980s, and one even sees familiar names across both industries’ early histories: IBM, Exxon, Apple, Panasonic. So what lessons can we learn from the dawn of the Information Age as we stand, perhaps at the cusp of the Modernized Energy Age? What are the energy infrastructure technologies and devices that will have the same impact as the modem, the computer mouse, or the laptop did on the downfall of the mainframe computer?

We can think about these futures within the context of microgrids, not necessarily because they are imminently poised to alter the utility grid as we know it today, but because they can encompass an array of technologies that represent the future evolution, in some unpredictable form, of the energy industry. Distributed generation assets, storage, smart switches, and self-learning controls form the core of a microgrid’s technology structure, which provide different options for reliable, resilient, renewable, and affordable power. The growth potential for each of these asset types individually, is extremely promising, and developing the engineering and business models to combine them most effectively for any number of applications is an opportunity for true pioneers.

Utilities are rightfully interested in understanding if deployments of microgrids on their networks is a solution to address future grid challenges and customer demands, and many have made progress through pilot projects and other initiatives. Since every microgrid is unique, industry participants—as disparate as utilities, manufacturers, regulators, financiers, and consumers—are seeing that numerous considerations need to be evaluated. Utilities, in particular, are learning that developing a business case is no longer a single-dimension linear equation, but rather a dynamic calculation of system impact that takes costs and benefits into account for both traditional wires and non-wires alternatives. Additionally, intangibles such as resiliency benefits to the community are now factors in the value proposition.

Microgrids straddle the line between distribution and distributed resources: they consist of an aggregation of assets and are assets unto themselves, they provide both grid and customer-sited energy services, and they can be viewed to serve as system loads, peaking resources, demand response assets, or renewable energy enablers. Due to their distributed generation and islanding capabilities, microgrids can also be positioned as alternatives to substation upgrades or line improvements for load management and reliability purposes. Finally, they are also laying the foundation for distributed energy markets by responding to wholesale price and system condition signals from behind the meter.

In light of the uniqueness of microgrids, it is important for regulations to evolve in parallel to support the future business models of utilities and third parties. However, utility microgrid business models only exist in a handful of locations worldwide, with thoughtful regulatory strategy allowing for the justification the premium distribution services offered. So far, the vast majority of microgrids throughout the U.S. and abroad have relied on government grants, private funding, or allocated public dollars. That said, it is possible for utilities to advocate for rate recovery of required utility-related microgrid capital expenditures, even under current regulatory constructs. 

In fact, several utilities are forging ahead through pilot projects and regulatory actions. Some well-known examples have sprung from Arizona Public Service, Baltimore Gas and Electric, Commonwealth Edison, Consolidated Edison, Pepco, and San Diego Gas and Electric. The successful business model integrates regulation, technology, operations, customers, and project financials. Utilities are well-positioned to serve as the liaison between stakeholders, which is largely why the Distribution Platform Provider model is taking shape in modern reforming markets.

There are several guiding principles for successful microgrid business modeling:

  • Stakeholder coordination to shape projects: Internally, this involves distribution planning, energy procurement, regulatory strategy, distribution engineering, interconnection, and DER evaluation teams. Early coordination efforts prove to be particularly valuable, as the results typically end up being more refined forward load planning, customer interface, rate case development, as well as a more informed platform from which to engage external stakeholders. Those external stakeholders—including developers, customers, regulators, and equipment manufacturers—then benefit from the utility’s organization, grid and technical knowledge, existing relationships, and proven ability to serve applied to a new asset class.
  • Utilities to diversify their assets: There has been a great deal of focus on the types of technologies that are used in a microgrid, but it is also important for utilities to focus on how to integrate those microgrid technologies into the larger grid. An understanding of the types of system upgrades that are necessary, and the alternatives that exist for utilities and microgrids are a significant part of the business model design.
  • Customers to make more informed decisions about their energy: Often, microgrids put forth by utilities see customers as an afterthought, but customer demands and grid improvements must overlap for a successful microgrid project. Single customers, such as military bases and college campuses, are at an advantage in this regard as they possess the load, the system design, and the initiative to develop a project. Meanwhile, community projects are proving to be more difficult, due to customer engagement and regulatory approval issues. Communicating the value proposition to the customers first will help a utility identify where there is greatest demand, and help develop a strategy with the highest likelihood of success.
  • Lessons to come from previous technology rollouts: The reality is that most microgrids are comprised of assets that utilities have gotten to know quite well in the recent past, such as distributed generation, storage, smart switches, controls, and renewables. The lessons that have been learned from previous pilot projects to integrate these technologies can and should be applied to microgrids, as they are aggregators of DER technologies. In fact, an argument can be made that microgrids may develop organically within utilities’ grids as customers site more DERs behind the meters and utilities respond through smart switching and distribution schemes.

IBM, which had controlled 60% of the computer market in 1970, was initially criticized for entering the personal computing world too late after it saw its share decline to 32% a decade later. Within three years of its PC debut, IBM had once again come to dominate the market and become the industry standard.

Utilities have many of the same advantages in terms of industry scale and know-how. However, in a world where policy, regulations and technology continue to evolve, it will be critical for utilities to determine their microgrid participation levels and the services they will provide to become a successful Next Generation Utility.

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