Why Pay for Private Infrastructure with an On-Grid Microgrid?
Episode 3 of “How to Monetize a Microgrid?” : on-grid microgrids with private infrastructure
As we are all witnessing now, when any kind of crisis hits we realise that pursuing economic motives alone aren’t enough. There needs to be resilience and/or security in our critical systems.
The type of microgrids in this article offer precisely that. They have some active power flow on the grid lines, and continue operating even when the grid is down. While in normal operation some of them might look awfully similar to on-grid microgrids using existing infrastructure, they have the ability to ‘island’ (disconnect from the grid). This may be utilised for various reasons; in an emergency being the most obvious, but it could also be for cost savings. To be clear, they are not off-grid. They still have a connection to the utility grid and can buy or sell energy to the energy markets (to varying extents). Electricity prices via these grids will therefore be influenced by the market.
In short, they have features of both worlds; on-grid and off-grid:
- On-grid: Draw or inject power from the main grid — linked to energy market
- Off-grid: Control power flow and possess ability to island
There is an incredible diversity of these microgrids, ranging from “almost like on-grid microgrids with additional control” to “almost off-grid microgrids with an interconnection to the main grid”. This is why too often they are put in either of two types, depending on which is emphasised more. To me they deserve a separate category simply for implementing both worlds.This might seem redundant and costly at first glance, but it enhances resilience.
The Cost of Resilience
Only the grid operator or DSO (Distribution System Operator) is allowed and technically able to monitor and control the power flow on the national grid. Depending on the variability and intermittency of energy supply and demand, this can be a very complex job requiring balancing and safety equipment.
Given this, unsurprisingly, controlling the power and being able to island a microgrid means installing additional equipment. And although such equipment exists, it consists of complex technical solutions and they come with a substantial cost, which can double the microgrid’s costs [Source]. Furthermore, they face strong regulatory challenges[Source]. So in short, it is a very tough business case.
Why do it anyway? As mentioned earlier, it is when money doesn’t play a role and resilience, or energy security, is actually the prime motivation, making it hard to put a financial value to it. Critical services such as military bases or hospitals often use on-grid microgrids with private infrastructure. But before diving deeper into that, let’s understand how the interconnection to the grid or the islanding can be achieved in practice.
Technical Overview and Topologies
The on-grid microgrids as described will need to have private grid lines to exchange energy within the users. There are two ways of connecting them to the utility grid.
- Private infrastructure with Point of Common Coupling (PCC)
The connection with the utility grid is usually done via a Point of Common Coupling (PCC) which will serve as an interconnection point to manage islanding and energy exchange as well as synchronise frequencies.
2. National and private infrastructure (AC or DC)
Another option currently being explored is to build a private grid running in parallel to the existing one so that every house has two potential sources of power. Having two independent infrastructures gives more freedom for testing new technologies and energy exchange mechanisms, but might come at a prohibitively high cost for commercial application.
Having covered this, I’d like to dive now into the business cases for the microgrids a little more. They can be grouped into single entity and multi-user microgrids:
Single Entity Microgrids
Hospitals, Military, Research Institutes, Airports. Until now these have been the main use cases of on-grid microgrids with private infrastructure.
They have a single entity as user/consumer, who often also owns and manages the microgrid. Sometimes the DSO or a third party takes over the grid operation. As there is a single end user, there is no need for pricing strategies. Locally generated or stored energy is balanced or shared, not traded. This makes it a relatively simple business model where the end user finances the upfront costs and then only pays for the energy bought or sold from the grid.
Note that depending on the required islanding duration capabilities, the size of batteries and PV or other additional generation requirements will also vary. The longer the duration, the larger the batteries and the higher the capacity of the generation (increased CAPEX, lower OPEX).
Unless the end-customer has high needs for energy security, the islanding option is an overkill. In most cases you could build a microgrid without the islanding option and reduce infrastructure cost (see examples in previous article).
Multi-User Microgrids
Technically speaking these kinds of microgrids already exist, but the business case isn’t fully fledged yet and there is a real need for heavy subsidies. Some of them build either by DSOs and considered as infrastructure investments with no business model of its own and no impact to enduser. Private developers exist but are still rare as these are such complicated cases. Others fall into R&D projects, often subsidised.
- DSO-operated, DSO-owned microgrids
Owned, operated and built by utility: you might correctly note that sometimes DSOs themselves build these types of microgrids in particular in remote locations or islands where grid lines cannot or only with difficulty reach. Wildfires in Western USA also spurred their creation. They may be hindered by strong regulatory constraints depending on local unbundling requirements, which often makes them more of an infrastructure investment (national grid optimisation). The end customer typically is not impacted by these projects.
- DSO-operated, privately-owned microgrids
As regulations progress and DER becomes more price competitive, multi-user microgrids owned by the end user or a third party and operated by the DSO or another third party are coming into existence. Various combinations are possible but these models are highly complex, with both technical and regulatory barriers, and the islanding feature adds a substantial cost. Despite these challenges they have a high growth potential because they can provide a combination of resilience and sustainability at a relatively low cost (thought higher than on-grid microgrids using existing infrastructure).
- Research Microgrids
Although I vowed to talk about the business models of commercial microgrids, I’d like to make an exception here and talk about some research microgrids — or in other words microgrids using public funds.
There is a second motivation for creating on-grid microgrids with private infrastructure: enabling education and research. Universities or research centres might deploy them for testing and experimenting with technical innovations around decentralised microgrids. Due to the fact that these projects are often funded by governments, they tend to be “green” with a focus on a high penetration of renewable generation.
A lot of academic articles can be found on this topic. There is research around applying different technologies, for example exchanging AC (alternative current) to DC (direct current) distribution lines, or actively controlled power-flow, or different centralised or decentralised communication models. Interestingly, to take the first example, it turns out that DC could be much more efficient than AC because almost all of the appliances we use today run on DC (solar panels, batteries, EV cars to name a few).
An example of a microgrid using a parallel infrastructure for energy exchange in DC was successfully demonstrated by Sony CSL at the campus of the Okinawa Institute of Technology. Nineteen houses were connected with a DC power bus and could balance the energy needs locally without paying transmission fees, as it was using private lines.
Conclusion
On-grid microgrids with private infrastructure can function independently from the existing grid, they can disconnect and/or they can control power flow on parallel lines. This allows very high penetration of renewables and local energy management. They have been successfully implemented for special use cases such as hospitals or islands where resilience is the main driver, or else they have benefited from research or renewable subsidies to cover the high upfront costs.
Regulatory and cost constraints, as well as the technical complexity, still constitute a substantial hurdle for commercial scaling and widespread adoption. However, there is a new appreciation of the resilience and energy independence these microgrids provide.
Also, I would like to add that I believe it is important to keep funding these technologies as they will become ever more critical as the percentage of renewable penetration gets closer to 100%.
This article has gotten us one step closer to off-grid microgrids, a topic that I will discuss in the next and last article. In my opinion, it is the most interesting, so stay tuned!
[tirelessly authored by Annette, gently critiqued by Vicky. We work together to choose the best content and elevate each other’s work. More on us and our approach here]
*** Update ***
The article-series is complete now! Here are quick links:
- A Quick Overview of Microgrids (and How to Monetize Them) — Episode 1 of “How to Monetize a Microgrid?” : Introduction the world of microgrids
- How to Monetize Microgrids Running on the National Grid? — Episode 2 of ‘How to Monetize a Microgrid?” : on-grid microgrids on existing infrastructure
- (Current one) Why Pay for Private Infrastructure with an On-Grid Microgrid? — Episode 3 of “How to Monetize a Microgrid?” : on-grid microgrids with private infrastructure
- A Little Primer for Off-Grid Microgrids — Episode 4a of “How to monetize a microgrid?” building a grid from the bottom-up
- Designing an Off-Grid Microgrid 101 — Episode 4b of ‘How to monetize a microgrid?”: building a grid from the bottom up
