A guide to bringing the resilience, economic, and/or environmental benefits of a microgrid to water, health, transportation, education, and other critical public infrastructure.
Microgrid Guide For
Publicly Owned Critical Infrastructure
1 Contents ACKNOWLEDGEMENTS ...... 4 Primary Author ...... 4 Contributing Reviewers...... 4 NOTICE ...... 5 ACRONYMS AND ABBREVIATIONS ...... 6 FIGURES AND TABLES ...... 7 A. INTRODUCTION ...... 8 A.1 What is a Microgrid ...... 9 A.1.1 Microgrid Definitions ...... 9 A.1.2 Microgrid Types: Grid-tied vs Remote ...... 11 A.2 Microgrid Functions ...... 12 A.2.1 Levels of Microgrid Sophistication: Basic, Intermediate, and Advance ...... 13 A.2.2 Services Provided by Advanced Microgrids to Markets ...... 16 A.3 The U.S. Microgrid Landscape ...... 17 A.3.1 Microgrid Ownership Models ...... 17 A.3.2 Microgrid Market Segments and Size ...... 20 A.4 Drivers for Microgrids ...... 24 A.4.1 Addressing Reliability and Accommodating Renewables Penetration ...... 24 A.4.2 Enhancing Resiliency in Certain Electricity Supply Dependent Applications ...... 25 A.4.3 Reducing Vulnerabilities to Weather Disruptions ...... 26 A.5 Lessons Learned from Hurricane Sandy ...... 26 A.6 Case Study: Sendai Microgrid ...... 27 B. MICROGRID DEVELOPMENT PHASES ...... 28 B.1 PHASE 1: FRAMING ...... 30 B.1.1 Step 1: Framing the Vision ...... 30 B.1.2 Step 2: Reviewing and Committing Resources ...... 33 B.1.3 Step 3: Crystalizing the Vision ...... 35 B.1.4 Step 4: Assessing Opportunities – Analysis Begins ...... 36 B.2 PHASE 2: PLANNING ...... 42 B.2.1 Involve Stakeholders in Project Preparation...... 42 B.2.2 Identify Project Team and Staff Resources ...... 43 B.2.3 Identify Planning Tools ...... 43
2 B.2.4 Recognize ISO/RTO Requirements (Applies to Advanced Microgrids, May Apply to Intermediate Microgrids) ...... 44 B.2.5 Understand PUC Requirements and Right-of-Ways ...... 46 B.2.6 Consider Other FERC Regulations (Applies to Advanced Microgrids, May Apply to Intermediate Microgrids) ...... 48 B.2.7 Interconnection, Network Upgrades, and Other Considerations ...... 48 B.2.8 Revenue Streams ...... 49 B.2.9 Develop Funding and Financing Pathways ...... 52 B.2.10 Consider Project Structure and Ownership Models ...... 56 B.2.11 Regulatory Issues ...... 56 B.2.12 NEPA, Environmental Reviews, and Permitting ...... 57 B.2.13 Costs, Operations and Maintenance ...... 58 B.2.14 Develop Project Performance and Reporting Plans ...... 60 B.2.15 PLANNING: Resources ...... 61 B.3 PHASE 3: IMPLEMENTATION ...... 66 B.3.1 Feasibility Studies ...... 66 B.3.2 Conceptual Design Phase ...... 67 B.3.3 NEPA, Environmental Reviews, Permitting ...... 67 B.3.4 Construction and Risk ...... 67 B.3.5 Operations and Maintenance ...... 68 B.3.6 IMPLEMENTATION: Resources ...... 68 C. APPENDIX ...... 70 C.1 Tools: Software and Modeling ...... 70 C.2 More on the U.S. Microgrid Landscape ...... 72 C.2.1 Location ...... 73 C.2.2 Resources for Generating Capacity ...... 73 C.2.3 Microgrids in Remote Locations ...... 74 C.2.4 Maturity Level ...... 75 C.3 Definitions ...... 77 C.4 Resources ...... 82 C.5 Example of a Microgrid RFI ...... 83 D. REFERENCES ...... 86
3 ACKNOWLEDGEMENTS Primary Author U.S. Department of Energy
Rima Kasia Oueid Contributing Reviewers Reilly Associates
Jim Reilly
NJ Transit Corp
Eric Daleo
Nick Marton
Steve Jenks
City of Burlington Electric Department
Casey Lamont
San Diego County Regional Airport Authority
Brendan Reed
Denver International Airport
Cullen Choi
White House Council Environmental Quality
Michael Patella
U.S. Department of Energy
Dan Ton
Eric Hsieh
The author is especially grateful for the contributions and support provided by John Lushetsky from the U.S. Department of Energy. John was instrumental in seeding the concept for this report and helped shape it for external benefit.
Although all these reviewers helped to make this report as technically sound as possible; any remaining errors or omissions are those of the author.
4
NOTICE This document was prepared in compliance with Section 515 of the Treasury and General Government Appropriations Act for Fiscal Year 2001 (Public Law 106-554).
This work was prepared as an account of work sponsored by an agency of the United States Government. Neither the United States Government nor any agency thereof, nor any of their employees, nor any of their contractors, subcontractors or their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or any third party’s use or the results of such use of any information, apparatus, product, or process disclosed, or represents that its use would not infringe privately owned rights. Reference herein to any specific commercial product, process, or service by trade name, trademark, manufacturer, or otherwise, does not necessarily constitute or imply its endorsement, recommendation, or favoring by the United States Government or any agency thereof or its contractors or subcontractors. The views and opinions of authors expressed herein do not necessarily state or reflect those of the United States Government or any agency thereof, its contractors or subcontractors.
5 ACRONYMS AND ABBREVIATIONS
DOE U.S. Department of Energy
PPA power purchase agreement
RFP request for proposals
CHP combined heat and power
DER distributed energy resource
MW megawatt
GW gigawatt
Kw kilowatt
PCC point of common coupling
PUC public utility commission
MOU memorandum of understanding
IRP Integrated Resource Plan
FERC Federal Energy Regulatory Commission
PURPA Public Utilities Regulatory Policy Act of 1978
QFs qualified facilities (QFs)
PJM Pennsylvania, Jersey, Maryland Power Pool
MISO Midcontinent Independent System Operator
CAISO California Independent System Operator
ISO-NE Independent System Operator New England
NYISO New York Independent System Operator
DERMS Distributed Energy Resource Management System
DMS Distribution Management Systems
6 FIGURES AND TABLES
Figure 1. Microgrids Types, Variations, and Market Segments ...... 9 Figure 2. Description of Microgrids ...... 10 Figure 3. Microgrids Are a Layered Combination of Networks ...... 11 Figure 4. Generalized Characteristics, by Microgrid Complexity ...... 15 Figure 5. Operational Microgrid Count by Ownership for Advanced Microgrids (Project Count, %) ...... 18 Figure 6. Evolution of Operational Microgrid Capacity by Ownership Type ...... 19 Figure 7. Generalized Ownership and Characteristics by Microgrid Complexity ...... 20 Figure 8. Expected U.S. Microgrid Market Potential by Market Segment, 2022E ...... 21 Figure 9. Operational Advanced Microgrid Projects by Capacity Range and Ownership Type ...... 23 Figure 10. Sample Project Team and Partners for a Basic Microgrid ...... 30 Figure 11. Sample Leadership Team and Partners for an Advanced Microgrid ...... 31 Figure 12. Map of Transmission Operators that Serve the United States ...... 45 Figure 13. PJM Interconnection Process Flow ...... 46 Figure 14. U.S. Grid-Tied, Non-Military Microgrids by Business Model Projects: 2015-2016 ...... 55 Figure 15. U.S. Grid-Tied, Non-Military Microgrids by Business Model Capacity: 2015-2016 ...... 55 Figure 16. Navigant and Wood Mackenzie Power & Renewables Microgrid Tracker Projects by Number72 Figure 17. Navigant and Wood Mackenzie Power & Renewables Microgrid Tracker Projects by Capacity ...... 73 Figure 18. Operational and Planned Microgrids by Energy Source, 2016 ...... 74 Figure 19. Planned and Existing Distributed Generation by Technology for Remote Microgrids ...... 75 Figure 20. Transformation of the Utility Value Chain ...... 76
Table 1. U.S. Microgrid Market Segments ...... 22 Table 2. Approximate Size Range for Microgrids ...... 22 Table 3. U.S. Advanced Operational Microgrid Resource (MW) by Ownership Structure ...... 23 Table 4. Microgrid Development Phases Per Microgrid Type ...... 28 Table 5. Illustrative Timeline Example Using a GANT Chart ...... 33 Table 6. Potential U.S. Microgrid Revenue Streams, System Impacts, and Challenges ...... 50 Table 7. Subset of Potential Grid Ancillary Service Value and Response Time Per Resource ...... 52 Table 8. Potential U.S. Microgrid Sources of Capital by Type of Owner ...... 54 Table 9. Microgrid Cost Components as a Percentage ...... 58 Table 10. Microgrid Cost Components as a Dollar Range for a 5 MW multi-DER installation ...... 59 Table 11. Available Microgrid Development and Analysis Tools ...... 70
7 A. INTRODUCTION Local governments, military officials, university heads, utilities, water and waste facilities, as well as executives overseeing hospitals, transit, airports, and port authorities are exploring the feasibility of microgrids for their operations and seeking relevant examples to emulate. According to analyses conducted by Lawrence Berkeley National Lab, between 80 and 90 percent of all outages occur at the distribution level of electricity service. [1], [2], [3]
This document is intended to serve as a guide for owners of critical public and large private infrastructures and assets who seek the resilience, economic, or environmental benefits of a microgrid. The guide is intended to support microgrids of varying types and uses, at sizes that can vary from a 50kW basic microgrid at La Presa Community in Texas [4] to over a 100 MW advanced microgrid at New Jersey Transit. [5] Although this guide supports varying types of microgrids, allowing the reader to skip to sections relevant to a specific microgrid type, it is useful for even those contemplating only a basic microgrid to familiarize themselves with the intermediate or advanced features and requirements (which will be defined later). The additional marginal cost to building an intermediate or advanced microgrid may be a fraction of the overall microgrid cost. In some cases, it may be immaterial or cost beneficial in the long run to initially invest in an intermediate or advance microgrid, or at least allow the option for a basic microgrid to scale to a more sophisticated system in the future.
The first section of this guide highlights the functions and benefits of co-locating a microgrid with critical infrastructure. The term “microgrid” has traditionally described a means of aggregating local generation resources to serve customers’ critical infrastructure and electricity needs on-site, or sometimes with the ability to “island”—or disconnect from the power grid—during energy disruptions such as a powerful storm or some other threat. Today’s microgrids can also provide benefits beyond just the loads within their prescribed boundaries, including the delivery of additional generation or grid support services to the distribution system operator, such as ancillary services, including reactive power for voltage support and real power for frequency support. [2], [3], [4] These additional grid services can be an additional source of value that can be monetized to help pay for the microgrid as explained further in this guide.
The second section of this guide outlines a phased process and primary considerations for federal, state, local, and tribal governments when building microgrids. In addition to outlining considerations for framing, planning, and implementing a microgrid, the guide begins with a basic introduction to microgrids including the history of their evolution, a brief description of the current landscape, drivers, and a taxonomy by function and market segment.
This guide was inspired by the experiences of States affected by Hurricane Sandy including New Jersey and New York. High winds, coastal flooding, and other hazards of the “superstorm” caused damage which cost the federal government $50 billion to restore. [1] More specifically, the storm disabled distribution grid infrastructure in critical areas and created prolonged outages that, among other things, debilitated the critical transportation corridor between New Jersey and Manhattan. Superstorm Sandy caused widespread outages that in some areas lasted for weeks. Despite extensive damage at the distribution level, a handful of locations with microgrids were able to maintain power, demonstrating the resilience benefits of microgrids. These examples include Princeton University, Bergen County Utilities Authority, and New York University, which are discussed in the Lessons Learned section.
8 A.1 What is a Microgrid Microgrids can be defined or organized by various characteristics, groupings, or features (see Figure 1). This section will lay out the most widely used microgrid definition and explore the different applications of microgrids (grid-tied vs. remote), and variations of technical complexity and sophistication (basic, intermediate, advanced). Microgrids can also be categorized by market segments (commercial/industrial, community, campus/institutional, military, remote, utility) and ownership models (self-ownership, mixed and/or third-party, and investor-owned or municipal utility).
Figure 1. Microgrids Types, Variations, and Market Segments
A.1.1 Microgrid Definitions The U.S. Department of Energy (DOE) and the IEEE provide a commonly used definition for a microgrid, which captures both grid-tied and remote microgrids:
"A group of interconnected loads and distributed energy resources (DER) within clearly defined electrical boundaries that act as a single controllable entity with respect to the grid. A microgrid can connect and disconnect from the grid to enable it to operate in both grid-connected and island mode." 1 [2] [3]
1 The U.S. Department of Energy’s Office of Electricity is planning to modify the definition to be consistent with the definition in the IEEE p2030.7 Standard for the Specification of Microgrid Controllers and the language of IEEE p1547-REV and IEEE 1547.4 for islanded systems: "A group of interconnected loads and distributed energy resources (DER) within clearly defined electrical boundaries that acts as a single controllable entity, and that can be either normally connected to a distribution grid or operate permanently isolated from a larger grid. A microgrid which is normally connected to a grid can connect and disconnect from the grid to enable it to operate in islanded mode and serve local loads in both modes. Isolated and remote microgrids do not exchange power with any surrounding electric transmission or distribution grid. Both types of microgrids require a control system that manages the dispatch of DER, including generation, storage and load. For grid connected microgrids, the control system also manages the exchange of power and ancillary services with the main grid and the transitions between grid connected and islanded modes."
9 A stand-alone DER such as solar, wind, combined heat and power (CHP), or storage, without a controller or islanding capability (if grid-tied) is not a microgrid. Intermittent DER, such as solar and wind, must be paired with storage or another non-intermittent generation source, such as natural gas, to be a microgrid. This pairing applies to grid-connected, islanded, and remote microgrids, which will be explained in the next section. However, certain emerging technologies, such as small modular reactors, could someday serve as generation sources within a microgrid if they can provide firm reliable power in either grid connected, islanded, and remote applications. According to Wood Mackenzie Power & Renewables, defining features include i) advanced DER and grid asset control, monitoring and dispatch, ii) heat and/or electricity co-optimization, iii) islanding capabilities, iv) close proximity of generation and load. [6] Microgrids can deliver a wide variety of benefits to end users and the grid, such as electric and thermal generation, demand response, balancing of renewables, and ancillary services (as shown in Figure 2).
Figure 2. Description of Microgrids
Source: Wood Mackenzie Power & Renewables, U.S. Microgrid Tracker Q3 2016
One way to envision a microgrid is as a layered combination of networks (see Figure 3). Such a microgrid is more sophisticated than historically basic microgrids designed to supply power to critical infrastructure in the event of an extended power outage. [7] More sophisticated microgrids may provide electricity and heat to multiple customers, as well as communication between customers and the grid to optimize and transact services (e.g. excess power, ancillary services, and demand response).
10 Figure 3. Microgrids Are a Layered Combination of Networks
Source: Wood Mackenzie Power & Renewables, North American Microgrid Report 2014 A.1.2 Microgrid Types: Grid-tied vs Remote There are two operating modes for microgrids as defined by IEEE 2030.7: grid-tied and islanded, including remote and/or isolated. Grid-tied microgrids can run in parallel with the grid or be islanded (operate separately). The distinguishing feature is that these microgrids have a point of interconnection with the grid. For the most part the point of interconnection is with the distribution network, although sometimes it is at the substation or transmission level. Grid-tied microgrids vary significantly in size and sophistication.
Remote microgrids are typically not interconnected with any utility grid or may interconnect with a highly unreliable grid. [8] [9] Similar to grid-tied microgrids, remote microgrids can also vary significantly in size and sophistication. However, remote microgrids are often employed as small, isolated power systems that provide electricity to communities that do not have access to a larger grid. [10] Therefore, remote microgrids operate in island mode most of the time. [8], [9] These off-grid systems were some of the first to be called “microgrids” in the 1970’s. [9] Isolated and islanded systems have been used for back-up power (e.g. at hospitals and other critical sites), and as primary power in remote locations. Remote microgrids are typically smaller in size and currently outnumber other types of microgrids in terms of global deployments, though the use of grid-tied microgrids is increasing. [11], [9]
11 A.2 Microgrid Functions Typical microgrid functions include the ability to provide grid-connected, stand-alone power, islanding, facility load management, and grid load management. [12] [2] [13] A discussion on microgrid impacts to non-participating customers and the grid is provided in the section on Interconnection. The following section describes the functions and the related characteristics of microgrids, and the subsequent two subsections help define the various levels of microgrid sophistication and services that microgrids could provide.
Stand–alone power microgrids may or may not have islanding capability and lack controls and switches needed to interact with distribution utilities. This lack creates an inflexibility that provides limited resiliency benefits. The components, technologies, and markets for developing stand-alone microgrids are relatively mature.
Islanding capabilities include control and switching schemes that can ensure ongoing operations when the grid goes down, thereby providing a redundant power source to the loads it serves. This capability provides resiliency to the microgrid customer. Reliability is increased if the microgrid has both grid connection and islanding capability. Islanding can be provided by a standard microgrid; the components, technologies, and markets are relatively mature.
Facility load management includes dynamic load management for demand response, and provides the microgrid customer with options for reducing the cost of electricity. Advanced microgrids can provide controls and sophisticated tools for dynamic load management and management of assets within its boundaries to address changing needs. Active load management can increase reliability in island mode and be considered a flexible resource to help with load frequency control. This function is especially important when non-dispatchable renewable resources are part of the microgrid generation. In advanced microgrids, capabilities like load management go beyond reliability to provide efficiency and optimization of resources, thus improving the financial savings associated with the investment. Technology and markets are evolving, and regulatory reforms are creating a new environment that is better suited to microgrid resource organization and management with distribution utilities. [12] Grid load management is a process that provides electricity supply and load balancing between the grid and the microgrid. It requires controlling or adjusting the electrical load and enables more effective use of demand response to support the grid. Advanced microgrids can provide controls and sophisticated tools to enable bilateral energy flows, interactive exchanges of power, and support services such as ancillary services and black start. Eventually, these services may be monetized as part of transactive wholesale or retail markets. Grid load management requires a market design and regulatory framework capable of allowing microgrid-designated generation resources, including renewables, to supply the grid on an as-needed basis. The speed and types of grid load management capabilities vary depending on the project’s characteristics. While the components and technologies for basic grid load management are mature, enabling market mechanisms are still evolving. Advanced grid load management services are being explored for advanced microgrids, but these are still under development and business models and markets are just now being explored. The business models for grid load management are highly dependent on the policy and regulation of the specific microgrid location.
12 A.2.1 Levels of Microgrid Sophistication: Basic, Intermediate, and Advance This section describes the various forms of microgrids in terms of their operation and sophistication, as currently categorized by the U.S. Department of Energy. Grid-tied and remote microgrids vary widely on a spectrum of sophistication. For purposes of this guide, the spectrum of functionality will be simplified to three varieties of microgrids: basic, intermediate, and advanced.
Basic microgrids have the ability to provide reliable local power managed by a controller and using backup generators to provide emergency power. [12] Basic microgrids provide enhanced energy security and islanding capabilities. In contrast, a standalone backup generator (without a controller) or photovoltaic system that is grid-connected would be vulnerable to grid surges, which would cause either damage to the system or for the system to become disconnected from the grid. However, basic microgrids may lack advanced switching technology to enable dynamic or automatic islanding, making them more vulnerable than intermediate or advanced microgrids to power interruptions. The Cape Canaveral Air Force Base microgrid in Florida is a good example of a basic microgrid.
Intermediate microgrids provide optimization and integration controls to enhance internal DER and load management and improve or balance economic, environmental, or engineering objectives. The requirements for economic, environmental and engineering optimization may differ, and even be contradictory, introducing trade-offs which will be discussed below. Intermediate microgrids may use forecasting to help manage and optimize internally dispatchable and intermittent resources, such as solar and wind. Intermediate microgrids often provide scalable and interoperable architectures with secure communication that can enable demand response capabilities. They may also provide grid compatible communication and protocol as well as integration of multiple generation sources (e.g., CHP, diesel, renewables, and storage) and capability. Intermediate microgrids can manage both dispatchable and intermittent resources (e.g. solar and wind) paired with storage or another firm resource.
The intermediate microgrid goes beyond the basic microgrid or building-designated back-up emergency generation in that it can operate in parallel with the grid and can island in response to disturbances on the grid or at the instruction of the utility. For example, the intermediate microgrid has sophisticated switches that can automatically island in the event of a grid surge, thus protecting its own distribution network, serving its own loads, and sometimes preventing further disturbance on the grid itself. The Hudson Yards microgrid in New York, NY is a good example of an advanced microgrid.
Basic or intermediate microgrids have been used effectively in various configurations for many years and are currently in use at many military installations, industrial plants, university campuses, and remote communities. [14] They are often used where no large grid exists or where conditions dictate the need for or benefit of local on-site electric power generation and energy management. [14] A basic or intermediate microgrid:
Operates and manages its own resources to supply its loads as required or operates separately from the grid; Often includes a central power/energy plant, that may be used to provide thermal energy for space heating and cooling, in addition to electric power generation; and Can provide limited grid support2, depending on the interconnection and capabilities. [5]
2 For example, intermediate microgrids can participate in demand response to provide grid support but does not require two-way flow power capabilities.
13 These types of microgrids are used at major industrial plants and many large college campuses nationwide to provide heating, cooling, and electricity, often independently of the grid. [14] An intermediate microgrid often meets many energy security and resiliency needs because the central power plant is controlled internally at the site and therefore acts as an independent energy utility service. [14]
Advanced microgrids go beyond the intermediate microgrid to provide two-way power flow capable of delivering optimized, reliable and resilient power, and ancillary services to support both the internal operation of the microgrid and to the main distribution grid customers. [2] [15] This introduces potential new revenue streams for advanced microgrid operators in certain electricity markets. This will be discussed more below.
“An advanced microgrid is one that provides functions at the point of common coupling (PCC) beyond basic islanding (disconnect) and synchronization (reconnection) functions. An advanced microgrid interacts with the larger grid (macrogrid) cooperatively managing power flows across the PCC optimizing benefits for both the microgrid and macrogrid.” [3]
In the future, a network of advanced microgrids may be able to dynamically collaborate with each other and/or the grid manager, such as the distribution utility, to balance and optimize economic, environmental, and engineering needs for either internal microgrid or macrogrid operations. This may form the basis of a virtual microgrid, which is beyond the discussion of this guide.
Intermediate or advanced microgrids integrate distributed generation, and use metering and power flow management to control resource use, provide control in both islanded and grid-tied modes, and allow optimum use of energy resources for both addressing power outages and providing grid support (see Figure 4 for generalized characteristics and examples of microgrid complexity). Advanced microgrids have capabilities to dynamically interact with the grid (grid-tied microgrids) and to mitigate the impact of high penetrations of renewable energy on both distribution and transmission systems.3 This level of dynamic integration is in the early stage of field demonstration. [2]
3 The National Renewable Energy Laboratory conducted simulations at its Energy Systems Integration Facility demonstrating how microgrids can help manage variability of renewable energy on the grid (https://www.nrel.gov/docs/fy17osti/68349.pdf). EPRI has also conducted simulations demonstrating that microgrids could support the grid by helping to offsetting grid instability which could be caused by high penetration of intermittent renewables. (https://www.epri.com/#/pages/product/000000003002007067/?lang=en).
14 Figure 4. Generalized Characteristics, by Microgrid Complexity
Source: U.S. Department of Energy4
In addition, Figure 4 helps define microgrids that are either basic, intermediate, or advanced microgrids, as well as what is not a microgrid. As mentioned earlier, an intermittent distributed energy resource such as solar and wind without adequate storage is not a microgrid. A microgrid must provide firm power within its boundaries to ensure reliability. Moreover, sophisticated microgrids that are grid connected and choose to provide services to the grid must have dispatchable generation resources. Advanced microgrids are therefore able to monetize services and energy arbitrage opportunities through internal and external dynamic and planned energy using forecasting and interactive controls (e.g, wholesale, retail, capacity, demand response, and ancillary services). This includes transactive services. As a result, advanced microgrids may be able to collaborate with the utility and help increase
4 U.S. Department of Energy, based on data internally gathered from Navigant and Wood Mackenzie Power & Renewables, 2017
15 grid reliability and resilience which will be explained in the next section. The Princeton University microgrid in Princeton, NJ is a good example of an advanced microgrid.
As mentioned earlier, the majority of microgrids today are basic and very few advance microgrids have been developed. However, existing basic and intermediate microgrids may be prime candidates for upgrade investments into advanced microgrids because much of the capital costs for microgrids (e.g. generation) has already been made.
Microgrids that are connected to the grid are typically linked at the distribution level. However, distribution connected microgrids can also benefit the transmission system. As mentioned previously, analysis by Lawrence Berkeley National Lab has found that between 80 and 90 percent of all grid failures begin at the distribution level. Microgrids like the Princeton University and New York University microgrids, were able to island and avert distribution level grid outages during Superstorm Sandy and even provide grid support. [16] In regions with electricity congestion challenges, such as the U.S. northeast, microgrids offer the possibility of protection for critical facilities from outages and could be a step toward grid modernization by providing two-way flow communication and grid services. There has been growing support for the expansion of microgrid deployments to improve facility resilience and grid modernization through initiatives such as the New York Prize Competition, [17] the 100 MW+ New Jersey TransitGrid northeast corridor project, [5] the $210 million New Jersey Energy Resilience Bank, [18] and the Massachusetts’ Community Microgrid Program. [19]
Understandably, the definition of microgrids is evolving as the benefits they offer have expanded to include integration of renewables, distributed generation, energy storage, cost savings, and grid reliability and resilience. Early microgrid definitions have evolved from islanded or basic generation and load support to include broader grid support that manages local generation and load for a more resilient and efficient grid. [12] These new applications and changing definitions have led to an expanded concept of “advanced microgrids” which are interconnected to smart utility grids. [12] Advanced designs could be structured in line with new business models built around decentralized and resilient generation embedded within existing distribution systems to aid the grid. [12]
A.2.2 Services Provided by Advanced Microgrids to Markets An advanced microgrid can provide an array of ancillary services that support grid operations. The specific ancillary services vary from market to market and continue to evolve. [20] [21] Depending on the eligibility provisions of each market (e.g. PJM, NYISO, CAISO), microgrids or storage and generation within the microgrid can participate in one or more of the following services. Performance and participation will also vary depending on the generation resources used in the microgrid which is discussed in the section on Revenue Streams.
Regulation and frequency response service is used to constantly and automatically balance small fluctuations in supply and demand in real-time. Generation units providing regulation service must be able to respond to automatic generation control (AGC) signals from the system operator and, in a matter of seconds, change their output accordingly. [21]
Spinning reserves, sometimes referred to as synchronized reserves, are intended to help the system respond quickly to unplanned outages or other contingency events. Spinning reserves are provided by generation units that are online but are not generating at full capacity and can therefore increase their output quickly to provide additional capacity to the system. [21]
16 Non-spinning reserves, sometimes referred to as supplemental reserves, are also intended to help the system recover from unplanned contingencies. However, non-spinning reserves can also be provided by generation units that are offline so long as they are able to deliver output to a target level within a predefined period of time (typically less than 30 minutes). Spinning and non-spinning reserves may also be collectively referred to as Primary Reserves, Supplemental Reserves, or Contingency Reserves. [21]
Voltage support service produces or absorbs reactive power. This service maintains a specific voltage level under a variety of operating conditions subject to the limitations of the resources stated reactive capability. Although voltage is expensive to manage at the distribution level, this service has yet to be monetized by providers and is typically provided without compensation. [12] Voltage support can be provided by microgrids at the distribution level, especially for feeders with high penetrations of renewable generation.
Black start capability is the ability of a generating unit to start from a cold shutdown to delivering power without assistance from an external power system. Since many generation units require input energy to startup and begin operation, some power systems must maintain a black start capability so that they are able to restore operations in the event of a system-wide power outage. Such black start capability typically relies on small diesel generators or other forms of energy storage to provide the initial energy needed for startup. Microgrids as islands can be used for power system restoration schemes, and thus accelerate the process for the entire grid.5 [22]
Capacity markets6 ensure long-term grid reliability by procuring the appropriate amount of power supply and demand reduction resources needed to meet energy demand for a period of time (often one to three years).7 Capacity represents a commitment of resources to deliver when needed, particularly in case of a grid emergency. Capacity markets create prices that attract energy-related investments and power supply resources needed to meet consumer needs for electricity years into the future. Microgrids can participate in capacity markets according to the same market rules as demand resources, acting through qualified curtailment service providers. [23] This can be an important revenue source beyond ancillary services. A.3 The U.S. Microgrid Landscape This section provides a high-level overview of the microgrid landscape. This includes a summary of the microgrid market segments and size, as well as a discussion on ownership models and trends.
A.3.1 Microgrid Ownership Models There are six major market segments for microgrid projects with differing ownership structures and sources of capital which will be discussed in the Planning Phase. The market segments include (1) commercial/industrial, (2) community, (3) campus/institutional, (4) military, (5) utility, and (6) remote, (which are discussed in more detail in the next section and shown in Table 1). [11] [24] [25] For
5 Black start is the ability of a generating unit to go from a shutdown condition to an operating condition and to start delivering power without assistance from a power system. Microgrids can provide this type of black start to the overall grid when the grid shuts down, thus enabling a more resilient grid. The NJ TransitGrid project will provide one of the largest microgrids with black start capability. 6 Capacity markets only exist in some ISO/ RTO markets – large portions of the country still do not have ISO/RTO’s therefore capacity markets do not cover a significant part of the country. 7 PJM’s Capacity Market is called the Reliability Pricing Model.
17 simplicity, the ownership structures may be grouped into five main buckets; end user (self-ownership which can be a commercial/industrial customer or a public entity or facility), third-party, mixed (some combination of end-user, third-party, utility, or muni owned), utility (investor owned and considered a private utility), and municipal utility (muni or public utility). Self-ownership includes any private or public entity, such as military installations, university campuses, hospitals, transit systems, water and waste water facilities, and privately owned commercial facilities such as data centers or grocery stores. Third-party ownership includes private developers providing the micro-grid as a service to end-users or utilizing some other contracting mechanism such as PPA’s, while utility and/or muni include microgrids are solely owned by a private or public utility respectively. A mixed or jointly owned microgrids could include some combination of developers, utilities as third-parties along with the end-users. Note, Wood Mackenzie Power & Renewables’ definition of advanced microgrids better aligns with how basic, intermediate, and advanced microgrids have been defined in this guide, which can go beyond 24 hours of continuous operation if needed.
Figure 5 shows that 60% of installed advanced microgrids tracked by Wood Mackenzie Power & Renewables are customer owned, followed by utility-owned projects at 26%, and municipality/community developments at 6%. Note, Wood Mackenzie Power & Renewables’ definition of advanced microgrids better aligns with how basic, intermediate, and advanced microgrids have been defined in this guide, which can go beyond 24 hours of continuous operation if needed.
Figure 5. Operational Microgrid Count by Ownership for Advanced Microgrids (Project Count, %)
Source: Wood Mackenzie Power & Renewables, U.S. microgrid forecast: H1 2019
The optimum ownership structure for a resilient microgrid can often be unclear and complicated. Ownership structures are shaped by the needs, ability, or preference of the end consumer and host. Sometimes, these can be conflicting. Data regarding specific ownership structures is not publicly available, and there are no established business models for who should own and pay for certain components of the microgrid when it is grid connected and participating in markets. Ownership can affect how a microgrid is treated in the regulatory environment. For example, should microgrids be treated as independent power producers or as utility-rate based investment? Who pays for the microgrid; end users, ratepayers, or market participants? Who actually reaps the operational benefits? These are evolving industry questions that create special considerations which we will explore in the
18 Planning Phase. Based on the subset8 of U.S. microgrids tracked by Wood Mackenzie Power & Renewables, microgrid ownership appears to be evolving due to new business models and project specific value propositions (see Figure 6). Another contributing factor to evolving trends is that stakeholders who benefit from the microgrid often do not have the technical ability or financial incentive to own and operate the microgrid. There are often legal, regulatory and financial implications to consider. For example, who should own the microgrid or certain components of the microgrid for operational or cost efficiencies? Who should be liable for performance and costs? What does the regulatory structure allow in allocating ownership of certain components of a system or the system as a whole? Who should own the value creation reaped from a microgrid? Value creation includes cost savings and/or revenue streams, so in most cases, the owner of the microgrid will also own the revenue streams. With advanced controller technology, certain locations (where market rules allow) and generation resources could enable microgrids to monetize a variety of revenue streams. According to EPRI, ownership of the generation equipment and wires can be one of the most contentious issues for microgrid developers, especially for larger microgrids with a large number of diverse end users. [10]
Figure 6. Evolution of Operational Microgrid Capacity by Ownership Type8, 9
Source: Wood Mackenzie Power & Renewables, U.S. microgrid forecast: H1 2019
Figure 7 provides a generalized comparison of microgrid end-customers with respect to microgrid complexity and ownership structures. Campus and publicly owned microgrids tend to be more advanced, medium large in size, and are often owned by the end user.
8 Wood Mackenzie Power & Renewables’ definition of advanced microgrids better aligns with how basic, intermediate, and advanced microgrids have been defined in this guide, which can go beyond 24 hours of continuous operation if needed. 9 From Q1 2010 through the end of Q4 2018, 210 microgrids were installed with a total of 1,238 MW.
19 Figure 7. Generalized Ownership and Characteristics by Microgrid Complexity
Source: Wood Mackenzie Power & Renewables, U.S. Microgrids 2016 adapted by DOE
A.3.2 Microgrid Market Segments and Size The value proposition and key drivers for investment in microgrids largely depend on the market type or segment. [8] For example, according to NEMA, microgrid deployments at military bases and communities are typically driven by the need for increased reliability for critical infrastructure. [12] In contrast, many commercial facilities and universities are primarily concerned with power cost reduction. [12] Manufacturers expect the total market opportunity for microgrids is to reach almost $2.8 billion by 2022 where a significant portion of the investment opportunity is expected to be in grid-tied generation and distribution enhancements (see Figure 8). [12] For background, major U.S. electric utilities— representing about 70% of total U.S. electric load— spent approximately $51 billion on electricity distribution systems in 2017. [26]
20 Figure 8. Expected U.S. Microgrid Market Potential by Market Segment, 2022E
Source: Wood Mackenzie Power & Renewables’ U.S. Microgrid Tracker Q3 2017
Although the microgrid market arose from the necessity to serve critical loads, the market has expanded well beyond that. There are six major market segments for microgrid projects with differing ownership structures and sources of capital. The market segments include (1) commercial/industrial, (2) community, (3) campus/institutional, (4) military, (5) utility, and (6) remote. [24] [25] [11] As previously mentioned, ownership structures generally include self-ownership as a private or public entity, third- party ownership via a developer or utility, or some combination of these/mixed.
Table 1 below provides a list of the six major market segments for microgrid projects, as well as ownership options for each type. [12], [25], [24], [27]
21 Table 1. U.S. Microgrid Market Segments
Source(s): Literature Review – Microgrid Implementations in North America, EPRI, 2016 The Bankable Microgrid: Strategies for Financing On-Site Power Generation, Navigant Consulting, 2015 Powering Microgrids for the 21st-Century Electrical System, NEMA, 2016 Community Microgrid Case Study and Analysis Report, Navigant Consulting, 2015 Navigant Research provided the percentage for each market segment
The scale of microgrids, an important characteristic often driven by market segment, is increasing due to a variety of factors such as declining technology costs and demand for resilience. [12] Microgrids can range in size from <1 MW, typical for many privately-owned projects, to over 100 MW such as the federally funded NJ TransitGrid (100 MW+). [11], [28] Table 2 provides approximate size ranges for microgrids within residential, small commercial, commercial, and campus applications. [11], [12], [8] However, community microgrids are an emerging segment not represented in the table below and their size can vary dramatically.
Table 2. Approximate Size Range for Microgrids Residential Less than 10-kW, single-phase Small Commercial From 10-kW to 50-kW, typically three-phase Commercial Greater than 50-kW up to 10MW Campus Microgrid As large as 100 MW Source: Microgrid Deployment Tracker 4Q15, Navigant, 2015
As mentioned, data regarding specific ownership structures are limited or not publicly available, and it is also not always clear who should own and pay for certain components of the microgrid when it is grid connected. For example, if a new substation is needed as a result of the new microgrid and it improves
22 overall grid operations, should the microgrid owner pay for the substation? What if the microgrid owner does not want the responsibility of owning and maintaining the new substation? Quantifying the benefits of such upgrades can be difficult to assess and assign to appropriate parties. Beneficiaries of upgrades to the system may also change overtime.
Based on a subset of data available through Wood Mackenzie Power & Renewables, it appears that behind-the-meter customers prefer direct ownership of CHP-based microgrids for electricity and thermal load, whereas utilities prefer natural gas systems with fast ramping capabilities to provide ancillary services to the grid (See Table 3). Table 3 and Figure 9 show the status of microgrid resources and size ranges per ownership type. Third-party and mixed ownership is an emerging trend. [4] The larger the project then the more likely it is to either be utility owned.
Table 3. U.S. Advanced Operational Microgrid Resource (MW) by Ownership Structure Natural Solar Fuel Ownership Type CHP Diesel Storage Hydro Wind Gas PV Cell End User 382.6 71.2 100.9 166.9 45.7 1.5 13.0 66.6 Third Party 4.6 0.0 1.1 2.6 1.6 0.0 0.1 0.4 Utility 9.1 342.2 230.4 52.0 34.4 204.2 48.8 0.2 Muni/Community 3.9 1.2 49.0 5.1 11.2 69.4 9.0 1.2 Mixed 0.0 50.0 30.2 21.8 17.4 12.0 2.1 0.0 Grand Total 400.2 464.6 411.5 248.4 110.3 287.1 73.0 68.4 SourceWood Mackenzie Power & Renewables, U.S. microgrid forecast: H1 2019
Figure 9. Operational Advanced Microgrid Projects by Capacity Range and Ownership Type
Source: Wood Mackenzie Power & Renewables, U.S. microgrid forecast: H1 2019
23 A.4 Drivers for Microgrids With a majority of grid failures at the distribution level of electricity service, an increasing number of industry officials and critical infrastructure owners are concerned about grid reliability, security, and accountability. [10], [2] [8], [14] There is a growing focus on physical and extreme weather events, and the need to provide resilient power for critical users and emergency services through these events. Other drivers include the declining cost of generation from distributed renewable energy sources, such as solar and wind. [10], [2] [8], [14] Incentives for deployment include energy cost savings through peak shaving and reduced power purchases, enhanced renewables integration (as advanced microgrids can optimize distributed energy resource integration using sophisticated controllers), increased energy efficiency, and lowered emissions. [12], [29], [30] Microgrids using CHP leverage waste heat, achieving thermal efficiencies exceeding 75%. [31] Generation near load sources can introduce an additional 6% efficiency. [32] Further, strategic microgrid deployment can strengthen weaker parts of a distribution system thereby deferring some major infrastructure upgrades that would otherwise be necessary. [12], [29], [30] Policy makers who desire to create incentives for a high penetration of generation from renewable resources in the distribution system must take into consideration the capacity of the network to “host” them. Microgrids offer possible options for mitigation of interconnection issues and grid instability due to high penetration of renewables. This will be further explained below. Although reliability and resiliency are the primary drivers, return on investment can be a deciding factor on whether a microgrid project can be pursued. For example, reducing future fuel prices and associated supply chain cost uncertainty is one of the microgrid drivers for islands and remote communities that want to transition away from diesel generators toward renewables with storage that can be optimized within an intermediate or advanced microgrid. [12], [8] In addition, natural gas prices have declined significantly in recent years, making CHP-based microgrids more cost effective relative to diesel. [10], [8]10 A.4.1 Addressing Reliability and Accommodating Renewables Penetration Reliability is the capacity of a system or its components to operate within their limits so that disturbances will not result in instability, uncontrolled events, or cascading failures. [33] Reliable systems are able to limit the size and duration of disturbances regardless of whether they are caused by a disruption outside the system or an unanticipated failure of system elements. [33] The term “reliability” is also used by the utility industry to refer to systems whose components are not subject to unexpected failure under normal conditions. Reliability can be measured in terms of the number of hours per year, number of events per year, and average duration of failure events for a given system, to assess and compare the historical reliability of different systems. [33] For example, in the Northeast
10 While a microgrid can provide cost savings to its host, major changes in electricity consumption patterns could shift costs to other customers or reduce revenues to other resources. The 2017 DOE Staff Report to the Secretary on Electricity Markets and Reliability discusses the cost shifting issue in the similar context of distributed PV: “[A]nother potential challenge to affordability is determining how the proliferation of distributed PV [and microgrids] across much of the Nation is changing the cost structure for non-participating customers. A growing body of research considers whether and how distributed PV users continue to benefit from their grid connection for balancing services and energy storage, as well as how to reallocate utility energy, capital, and system costs and rates fairly among all users. Concerns about more customers installing distributed PV under net metering tariffs, which potentially shifts costs and increases the burden on non-distributed PV customers, have caused multiple states to re-open their net metering tariff processes and, in some cases, implement new policies.” [67]
24 Corridor, Amtrak is currently unable to obtain enough power to support traction load during certain times of the day, which was a major driver for their partnership in the NJ TransitGrid project. [28] There are regions where congestion exists on the transmission and/or distribution system preventing certain customers from obtaining enough affordable power to support normal operations. [2], [12]
Also, the past several years have seen tremendous changes in power distribution systems in response to the increasing penetration of renewables at the transmission and distribution level. [2], [12] , [29] [13] When intermittency from renewables exceed a grid’s operating limits, microgrids can contribute to reliability. [12], [28] Advanced microgrids can potentially serve to provide ancillary services and participate in capacity markets to enable greater integration of intermittent power sources. [12], [29]
A.4.2 Enhancing Resiliency in Certain Electricity Supply Dependent Applications Microgrids have the ability to provide both grid- and facility-level resiliency benefits. According to the Presidential Policy Directive 21, resiliency refers to the ability of a system or its components to adapt and respond quickly to changing grid conditions, to withstand and rapidly recover from disruptions. [33] Actions that improve a system’s ability to withstand disruptions might be characterized as enhancing reliability, or resiliency, or both. [33] The ability to recover from a disturbance quickly, particularly in the case of large natural disasters or potential major cyber-attacks, is specific to resiliency. [33] An advanced microgrid can improve facility resiliency (within the microgrid) by using advanced controls to island and optimally manage internal resources when the grid is compromised or cannot deliver reliable power. [2] An advanced microgrid can also supply essential services to the grid to help it recover more quickly and maintain stability in the distribution system. [2], [12]
Studies performed by Argonne National Lab and others highlight the importance of continued electric service to commercial, industrial and federal government consumers who require reliable and resilient power supply, and microgrids are a potential solution. Examples of industries identified in these studies include: [34], [35]
Key petroleum terminal points along the East Coast Petroleum refinery clusters along the East and Gulf Coasts Petroleum pumping stations along the East and Gulf Coasts Port facilities along the East, Gulf, and West Coasts Water and wastewater treatment plants located on the West Coast
Resilient electric power supply that could potentially be provided by microgrids is also critically important in many other sites including:
Water and waste water plants Hospitals and healthcare centers Transit systems and airport Natural gas processing plants Electric-driven compressor stations on natural gas pipelines Communication data centers and Internet exchange points; Gasoline service stations
25 A.4.3 Reducing Vulnerabilities to Weather Disruptions As mentioned, microgrids and advanced microgrids can sustain power to facilities when the grid goes down and can potentially provide ancillary services to the grid to help it recover from an event. [12] The microgrid itself must be resilient with reliable control systems that can operate with and without communications to the distribution utility. These controls mean microgrids are particularly suited to making facilities and the grid more resilient to weather-related disturbances. Historically, weather- related disturbances have been the leading cause of grid outages. [36] For a 5-year period from 2008 to 2012, estimated costs of weather-related power outages ranged from $107 billion to $202 billion. [33] Weather-related disturbances have a far greater impact on grid reliability—measured in terms of customer interruption hours—than component failures, physical attacks, and cyber incidents combined. [33] The frequency and severity of certain types of extreme weather events have led to greater vulnerabilities for electric transmission and distribution systems. [36] Recent DOE analysis examining the effects of climate change on infrastructure exposure to storm surge and sea-level rise found that vulnerabilities are likely to increase for many energy sector assets, including electricity. [37]
A.5 Lessons Learned from Hurricane Sandy Hurricane Sandy hit land in the New Jersey and New York area in October 2012 during high tide, causing surges that reached 17 feet above mean sea level. At least 159 people in the United States were killed as either a direct or indirect result. [38] [39] More than 650,000 homes were damaged or destroyed and hundreds of thousands of businesses were damaged or forced to close at least temporarily. [38] [39] Estimates of the damage exceed $70 billion [40], a total surpassed only by Hurricane Katrina. [41] The inability of the electric power grid to deliver electricity to critical local loads exacerbated the economic impact and prolonged recovery. The effects of Hurricane Sandy resulted in electric grid failures that had cascading effects in both small and large communities. Emergency services were hindered by the loss of electric power. [42], [43], [44] Facilities necessary for emergency response such as hospitals, transit systems, police stations, gas stations, and community shelters often lacked reliable emergency generators. [39] [45] Backup generators were prone to failure and had limited local fuel storage, so even customers with backup generators experienced unreliable electricity supply. [39] [46] However, Federal experts in disaster response, including the U.S. Department of Homeland Security (DHS) Regional Resilience Assessment Program (RRAP), hail the strong potential for microgrids to enhance resiliency to such major disasters. [39]. For example, a handful of locations with microgrids were able to maintain power during Hurricane Sandy, demonstrating the resilience benefits of microgrids. These facilities, included Princeton University, Bergen County Utilities Authority, and New York University.
During Hurricane Sandy, Princeton University disconnected from the grid and powered part of the campus with about 13 megawatts of local generation. [16] According to Princeton’s Energy Manager, the capability for islanding cost more upfront, but resulted in vast benefits during the storm, providing power for residents, emergency workers and critical facilities. [47] The university served as a “place of refuge” for police, firefighters, paramedics and other emergency service works as a staging ground and charging station for phones and equipment. When the grid recovered, Princeton coordinated with local utility Public Service Electric and Gas Company (PSE&G) and successfully reconnected to the grid. In August 2005, the Princeton microgrid demonstrated a capacity to provide resilience benefits to the overall grid as well. That summer, campus peak demand on the grid reached 27 MW. As a result of the advanced controls schemes implemented as part of the Princeton microgrid in 2006, campus peak demand on the grid reached only 2 MW that year which helped the local utility avoid brownouts, enhance reliability, and also support the local economy due to avoided productivity losses. [47]
26 At the Bergen County Utilities Authority (BCUA), electricity and natural gas represent the largest operating costs, which reached almost $2.75 million and $1.5 million respectively in 2008. BCUA decided to implement a combined heat and power (CHP) cogeneration plant to produce energy savings and reduce greenhouse gas emissions. In the first year of operation, the facility recognized $400,000 in savings in electric and natural gas purchases and cost avoidance of $2 million from biogas usage. The projected savings over the project’s 25-year lifespan is estimated at approximately $26 million. [48] While cost savings was the primary driver behind BCUA’s decision to invest in their microgrid system, the county did experience a resiliency benefit during Sandy and maintained operations during the storm. New York University (NYU) developed a microgrid to run independent of their local utility, Consolidated Edison Inc. Typically, the microgrid system provides hot and cold water for up to 40 buildings by leveraging waste heat that would otherwise be released into the atmosphere. The microgrid’s CHP facility is more efficient than the oil-fired power plant it replaced, which reduces greenhouse gas emissions by 30 percent. [49] During Hurricane Sandy, NYU maintained power to 26 key buildings on campus using a 13.4-megawatt CHP plant within the university’s microgrid. A.6 Case Study: Sendai Microgrid The Great East Japan Earthquake, with a magnitude of 9.0–9.1 (Mw), occurred on March 11, 2011 at 2:46 PM off the coast of Tohoku. [50] Over 15,000 people died and the World Bank's estimated economic cost was $235 billion. [51] [52] The local electric utility system in Tohoku did not recover until March 14th. The gas supply system also suffered enormous damage, and sixteen gas utilities were forced to suspend gas supply. However, the Sendai Microgrid, located in the Tohoku region and part of Tohoku Fukushi University, was able to supply power to loads within its service area continuously, including a nearby hospital and nursing facility. Specifically, the Sendai microgrid continued to supply PV generation and battery power without any interruptions. The two gas units in the Sendai microgrid recovered by noon on March 12th and supplied power and heat for 43 hours during the grid outage. This was critical for hospital patients and the elderly, who would have suffered from the temperature drop on March 12th, which fell below 0℃ from midnight through early morning the next day. [53] Mr. Toshiharu Nakabayashi of Tohoku Fukushi University, provided the following comment:
“I believe that the quick rerouting to form the additional bypass of power supply to B3-Class Load resulted in saving people’s lives. I am really glad that we introduced the microgrid into our university because energy supply involving human lives is extremely important. I would like to improve the reliability of the energy supply system for the facilities with life-support systems.” [53]
27 B. MICROGRID DEVELOPMENT PHASES The Microgrid Development Phases are based on combined best practices obtained through DOE project experience working on energy infrastructure projects and consensus building efforts, such as NJ TransitGrid, NY Prize, CT Green Bank, and NJ Energy Resilience Bank. The phases in this section were also adopted and influenced by standard power project models and classical consensus building processes. [54], [55], [56], [57], [58], [59]
The Microgrid Development Phases outlined in this document are organized under three main sections: Framing, Planning, and Implementation. These three sections contain six development phases that follow one another in sequential order to either enable or produce deliverables for implementation. Phase 1- Steps 1 and 3, and Phase 2 focus on foundational development efforts such as developing the team, refining the vision, and gathering regulatory and financial information to inform the Implementation Phase where significant project investments and bidding work begin (e.g. formal studies, detailed designs, construction, etc.). Phase 1 - Steps 2 and 4, and Phase 3 facilitate a five-step deliverable process directly relevant to technical and economic analysis, evaluation, and project implementation:
Preliminary Analysis (Phase 1- Steps 2 and 4) Site Screening Analysis (Phase 1- Step 4) Feasibility Study (Phase 1 – Step 4 and Phase 3) Conceptual Design and Financial Analysis (Phase 3) Detailed Design and Engineering Analysis (Phase 3)
The analysis and deliverables will be conducted by either the leadership team, project team, stakeholders, or outside consultants. For simplicity, any work conducted under the review of the leadership team or project team will be referred to as the “leadership team”, though it will likely be performed by a lead agency, a consultant or contractor, or an adhoc member of the leadership team.
The following table outlines the key steps within each of the Microgrid Development Phases for the three main types of microgrids. Some steps may fully, partially, or not apply depending on the microgrid type. This guide is meant to be flexible and assist with all three microgrid types.
Table 4. Microgrid Development Phases Per Microgrid Type Applies, May apply or partially applies, Does not apply
MICROGRID DEVELOPMENT PHASES MICROGRID TYPE Framing Phase 1: Step 1 Framing the Vision BASIC INTERMEDIATE ADVANCED o Establish a leadership team o Establish a project team o Develop a vision statement o Develop a project goal o Develop a resource and process road- map o Set an initial timeline Framing Phase 1: Step 2 Reviewing and Committing Resources
28 o Create inventory and interdependencies analysis o Identify and convene decision makers and resources o Establish a partnership agreement among committed parties Framing Phase 1: Step 3 Crystalizing the Vision o Adjust the timeline o Engage stakeholders and communities Framing Phase 1: Step 4 Assessing Opportunities o Detail current energy system o Review opportunities and identify pathways o Conduct preliminary feasibility studies and site screening o Advanced microgrids, dynamic energy systems, and integrated resource plans Planning Phase 2: Project Preparation o Involve stakeholders in project preparation o Identify staff resources o Identify planning tools (technical, regulatory, and economic) o Recognize ISO/RTO requirements o Understand PUC Requirements o Consider PURPA and FERC Rulings o Interconnection o Revenue streams o Identify funding and financing sources o Consider project structures and ownership models o Other special considerations o NEPA, environmental reviews, and permitting o Costs, operations, and maintenance o Develop performance and reporting plans Implementation Phase 3: Project Execution o Feasibility studies o Conceptual design o NEPA, environmental reviews, and permitting o Construction and risks
29 B.1 PHASE 1: FRAMING This phase will cover Steps 1 through 4 which includes Framing the Vision, Reviewing and Committing Resources, Crystalizing the Vision, and Assessing Opportunities. The first four steps will set the groundwork for the Planning Phase. B.1.1 Step 1: Framing the Vision The purpose of Phase 1 - Step 1 is to begin developing the leadership team and vision statement or in the case of a basic microgrid, a project goal or requirements specifications. This will help to assess resources, to determine high level opportunities, and to set an initial timeline for analysis, planning, and deployment. Step 1 will establish priorities, build a framework for facilitating analysis, planning, and deployment, and lay the groundwork for committing resources.
B.1.1.1 Establishing a Leadership Team and Partners Establishing a leadership team (even a preliminary leadership team) and partners is vital to initiating the development of a microgrid. This leadership team will include your project champions. Identifying these champions early is critical to defining a path forward and overcoming potential barriers to the project. The leadership team is responsible for setting the vision statement and convening partners and stakeholders to help assess resources, determine opportunities, and set an initial timeline. The leadership team and partners will need relevant government and private sector expertise. For larger or more complex projects, the leadership team will need to be able to navigate stakeholder relationships, including the governor’s office (or relevant local government office if projects will be based within a county or city jurisdiction), the public utility commission, local utilities, the electricity markets, and agencies overseeing the public infrastructure facilities most likely to host or be served by the microgrid. The team will need to have the ability to understand the regulatory and market framework as well as the stakeholder sensitivities in their project area(s). The leadership team and partners will also need an understanding of both public and private finance, including project finance, public private partnerships, and monetization strategies. It is also important to have access to unbiased experts with microgrid project development experience. Their expertise will inform any feasibility studies and be vital to development of any Requests for Proposals (RFPs) later in the process.
Sample Leadership Team and Partners for a Basic Microgrid The following leadership team and partnership structure provides a generic example for a basic microgrid project.
Figure 10. Sample Project Team and Partners for a Basic Microgrid
30 Sample Leadership Team and Partners for an Advanced Microgrid
The following leadership team and partnership structure provides an example from the NJ TransitGrid project, a 100 MW + microgrid to provide resilient traction power for NJ Transit and Amtrak in the Northeast Corridor. The leadership team included NJ Transit, the NJ Governor’s Office of Recovery & Rebuilding, the NJ Board of Public Utilities, and the U.S. Department of Energy. In this case the leadership team was comprised of early champions for the project. The remaining participants in the graph represent the partners who brought additional expertise or support, or would have direct impact. For example, PSE&G is the local distribution utility that the microgrid would interconnect with. Amtrak shared infrastructure with NJ Transit and would be a potential microgrid customer. Environmental Defense Fund provided letters of support. Rutgers University, the NJ Department of Environmental Protection and the NJ Office of Homeland Security and Preparedness provided data and analysis. The U.S. Department of Energy (through its participation in the Hurricane Sandy Task Force) helped identify the project and provided technical assistance.
Figure 11. Sample Leadership Team and Partners for an Advanced Microgrid
B.1.1.2 Develop a Vision Statement The vision statement will most likely be developed by the leadership team because they will have the most insight into the needs, opportunities, and barriers. However, in some cases, the vision could be set by a governor, mayor, or site owner and then refined by the leadership team when more information is available. The vision statement should identify the end goal, communicate any additional priorities, and clearly describe the benefits that the microgrid must provide. Over time, the vision statement may need to be refined to better reflect input from stakeholders and/or the leadership team. Further refinement may also be necessary once analyses, such as feasibility studies, have been conducted.
The vision statement should be concise and clearly state the end goal. Below is a sample vision statement that was used by NJ Transit for the NJ TransitGrid project:
31 Sample vision statement
“NJ Transit is pursuing an advanced microgrid to provide resilient, reliable electricity to power traction loads, substations, infrastructure, and buildings along key evacuation routes between South Brunswick and New York City.”
B.1.1.3 Develop a Resource and Process Road-Map The leadership team will lead preliminary analysis to develop a resource and process road-map. This will include an inventory of critical resources, including staff and expertise, as well as an itemization of potential sources of capital (federal, state and local, private). To help define the goals and the needs the process road-map will include an analysis on the resiliency potential, market offerings, tools, and a microgrid strategy plan.
Inventory of energy infrastructure and critical infrastructure dependent on energy
To begin, the road map should include an inventory of energy infrastructure and critical infrastructure dependent on energy. The inventory will include locations and general load demand (if available, otherwise load demand can be obtained during Phase 4) by customer type. This information may be obtained directly from the agencies that oversee these sectors. Include, for example, the following customer types:
Transmission/distribution/substations/generation Hospitals/emergency response units/elderly care facilities Waste water and drinking water facilities DOT/transportation Telecommunications
Identify Resources and Potential Tools to Overcome Resource Gaps
The leadership team will need to identify resources and tools that will help implement the microgrid. This includes reviewing existing authorities and identifying gaps. For example, the team will need to identify experts and staff along with funding to begin preliminary work. In some cases, time and resources may need to be provided in-kind until funding becomes available. The leadership team will also need to determine what policies, regulations or mandates are relevant. This is a significant step as certain authorities may need to be modified depending on the microgrid’s capabilities. The leadership team may also need to review existing statutory authorities. For example, knowledge of bonding authorities and other capital-raising capabilities (e.g. via state treasury or eligible service benefit charges) will inform an analysis of available funding sources and gaps.
The leadership team may also consider options to overcome financing or funding gaps, such as public private partnerships and monetization strategies. Finally, the leadership team may consider conduits for public private partnership as a means to not only leverage outside capital but also access project development expertise through co-investment and risk sharing. It is important to note that public private partnerships may often require their own statutory analyses due to various limitations based on jurisdiction. For example, public private partnerships in one state may be allowed for microgrids as part of transportation infrastructure, but not for water or waste facilities. Meanwhile, some jurisdictions may not allow any type of public private partnership.
32 Draft the Microgrid Strategy Plan
The leadership team should begin drafting a microgrid strategy plan to organize all of the information obtained as a result of the process and resource map. The microgrid strategy plan can serve as a marketing and communications tool to obtain support from key stakeholders, such as the governor’s office and potential customer agencies, and to attract co-investors. The microgrid strategy plan should be a living document that will be refined over time as more information and analysis becomes available in subsequent phases. This document will also provide key inputs for future commitment letters and as a marketing tool for the microgrid project. This document should be revisited and updated on an as needed basis. However, this document may get supplanted or supplemented by future deliverables (e.g. feasibility studies) depending on the need. At a minimum, this document should contain the following sections:
The Vision The Goals and Needs o Inventory of energy infrastructure and critical infrastructure dependent on energy o Analysis on resiliency potential and market offering (this will be covered in the section on Assessing Opportunities) The Tools and Resources o Assess existing authorities, rules, and identify gaps to execution (this will be covered in the Planning phase) o Assess existing authorities, rules, and identify gaps for funding sources (this will be covered in more detail in Planning phase)
B.1.1.4 Set an Initial Timeline The leadership team should also produce a general timeline to accompany the vision statement and microgrid strategy plan. At a minimum, the timeline should capture Phases 2, 3, and 4 below. The timeline helps stakeholders manage their participation and their expectations. The timeline should be realistic and consider potential obstacles that may need to be overcome to realize a microgrid that provides value and meets the needs of its customers.
Table 5. Illustrative Timeline Example Using a GANT Chart Month 0 3 6 9 12 15 18 21 24 Phase 1 Initiate & Frame the Vision Phase 2 Review & Commit Resources Phase 3 Crystalize the Vision Phase 4 Assess Opportunities Phase 5 Project Planning & Prep Phase 6 Project Execution
B.1.2 Step 2: Reviewing and Committing Resources In Phase 1, Step 2 the leadership team will focus on refining the inventory of energy infrastructure and critical facilities to identify interdependencies, help determine system needs, and identify decision makers. This process will also help ascertain high level opportunities and commit resources to conduct deeper analyses in later phases.
33 B.1.2.1 Create Inventory and Interdependencies Analysis To initiate Step 2, the leadership team will use the resource and process map developed in Step 1 to coordinate analysis of the energy infrastructure and critical public facilities. The analysis should include an overlay of these systems to identify interdependencies, weaknesses, needs, and opportunities. In addition to public facilities, privately-owned infrastructure may also need to be considered. For example, if strengthening emergency communication response and improving regional evacuation capabilities are goals, then privately-owned assets, such as telecom towers and fueling stations along evacuation routes, may also need to be included. In some states, the Department of Homeland Security may already have some of this information.
B.1.2.2 Identify and Convene Decision Makers and Resources Using the inventory and interdependencies map, the leadership team will begin to identify additional stakeholders, decision makers and resources to either broaden support for the effort or hone in on specific target sites. If not already part of the leadership team, key decision makers will include local government offices and/or governor’s office, the public utility commission, the local utilities, and the agencies overseeing facilities that could host or be customers of a microgrid.
For example, the leadership team for the NJ TransitGrid project included the following members:
NJ Transit, Amtrak, NJ Governor’s Office, NJ Board of Utilities, NJ Department of Environmental Protection, NJ Office of Homeland Security and Preparedness, and the U.S. Department of Energy (through its participation in the Hurricane Sandy Task Force).
B.1.2.3 Establish a Partnership Agreement among Committed Parties To ensure commitment and a common understanding of the goals, it may be constructive for the leadership team and key stakeholders to memorialize their commitment in a memorandum of understanding (MOU) or some other kind of partnership agreement that can be publicly acknowledged and help set expectations. The MOU may describe the level of commitment necessary such as the number of staff, skills needed, high-level deliverables along with timelines, and potential funding. Funding commitments can be contingent on certain milestones or achievements and remain non- binding.
B.1.2.4 FRAMING Step 2: Resources This section contains the relevant templates for Phase1, Step 2:
Template: Request for Information (RFI) Template: Memorandum of Understanding (MOU)
B.1.2.4.1 Template: RFI and Requests for Expressions of Interest Example of a Microgrid RFI http://files.masscec.com/Community%20Microgrids%20Program%20- %20Request%20for%20Expressions%20of%20Interest.pdf
B.1.2.4.2 Template: Memorandum of Understanding Hoboken NJ Microgrid MOU https://www.state.nj.us/bpu/pdf/boardorders/2017/20170630/6-30-17-9F.pdf
34 B.1.3 Step 3: Crystalizing the Vision In Phase 1, Step 3 of the framing considerations, the leadership team will review the outputs of Step 2 to adjust the timeline and engage stakeholders. Based on feedback from stakeholders, the leadership team may revisit the timeline to set or adjust certain milestones for subsequent phases.
B.1.3.1 Adjust the Timeline Based on Phase 1, Step 2 outputs, the leadership team may want to review the initial timeline developed in Step 1 and make adjustments before engaging stakeholders. In this phase, there should be enough information to specify certain milestones for Step 4 (Assessing Opportunities) and Phase 2 (Planning). For example, due dates or completion dates could be set for data gathering exercises, requests for information, requests for performance, and feasibility studies.
B.1.3.2 Engage Stakeholders & Communities (Applies to Advanced Microgrids, May Apply to Intermediate Microgrids) Project success may hinge on support from relevant stakeholders and communities, so it is important to properly articulate the vision and establish suitable communication forums for stakeholder/community input. The leadership team should build off the list of decision makers and the resource list developed in Phase 1, Step 2. The leadership team also may want to consider organizations that could provide research and analysis, data, funding or financing, as well as convening capability.
Other groups to be included in the stakeholder and community process include:
Potential microgrid hosts and customers; The local distribution utilities; Relevant non-profits and academic institutions that can provide support and expertise; and Community organizations or businesses that will benefit, such as elderly care facilities and data centers.
For example, during the NJ TransitGrid project, Environmental Defense Fund (an environmental non- profit organization), provided a general letter of support for a large microgrid to support transit rail in the Northeast Corridor, and Rutgers University provided NJ Transit a storm frequency report including a cost-benefit analysis for the project.
B.1.3.3 FRAMING Step 3: Resources This section contains the relevant lessons learned and templates for Phase 1, Step 3:
Working Groups Collaborate on U.S. Virgin Islands Clean Energy Vision and Road Map Stakeholder and Community Bucket list Information Resources
B.1.3.3.1 Lessons Learned: Working Groups Collaborate on U.S. Virgin Islands Clean Energy Vision and Road Map Working Groups Collaborate on U.S. Virgin Islands Clean Energy Vision and Road Map: https://www.nrel.gov/docs/fy15osti/62742.pdf
35 B.1.3.3.2 Template: Stakeholder and Community Bucket list The follow list allows for grouping of stakeholders into their respective buckets:
Letters of Support Data Provider Research/Analysis Convener Regulators/Permitting Funder/Financial Support Potential Microgrid Host Potential Microgrid Customers Other
B.1.3.3.3 Information Resources Reforming Power Markets in Developing Countries: What Have We Learned? (World Bank 2006). This publication uses case studies to assess the suitability of available options for public-private collaboration in the comprehensive reform of energy markets.
The Community Energy Strategic Planning Guide (http://www1.eere.energy.gov/wip/solutioncenter/strategic_energy_planning_guide.html) from the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy offers tools and tips on creating a robust strategic energy plan.
The Dialogue and Deliberation Resource Center (http://ncdd.org/rc/beginners-guide) from the National Coalition on Dialogue and Deliberation collects information on how to organize ongoing conversations to facilitate a shared understanding of change.
The Energy Literacy Framework (http://www1.eere.energy.gov/education/energy_literacy.html) is an interdisciplinary approach to teaching and learning about energy. B.1.4 Step 4: Assessing Opportunities – Analysis Begins In Phase 1, Step 4, the leadership team will build off the energy infrastructure and critical infrastructure inventory developed in Step 2 and coordinate a deeper analysis of microgrid opportunities. Microgrid opportunities could include transportation, water and waste water, hospitals, emergency facilities, ports and port authorities, and specific residential communities. However, microgrids are not right for every application or in every sector, and there are many variables that must be considered. Capital costs, operating and maintenance costs, utility (electric and gas) rates, interconnection costs, environmental standards, energy load requirements corrected for local weather conditions, and regulatory requirements should all be considered when evaluating potential opportunities.
After creating an inventory of energy infrastructure and critical infrastructure dependent on energy, it is important to evaluate the technical and financial feasibility of a microgrid at a specific facility using the five-step deliverable process outlined below, which began in Phase 1 - Step 2 and conclude in Phase 3: Preliminary Analysis (Phase 1 - Steps 2 and 4) Site Screening Analysis (Phase 1 - Step 4) Feasibility Study (Phase 1 - Step 4 and Phase 3) Conceptual Design and Financial Analysis (Phase 3) Detailed Design and Engineering Analysis (Phase 3)
36 The purpose of this process is to determine needs, gaps, and interdependencies, and to identify potential synergistic opportunities. The microgrid deliverable process will need to consider the goals of the end-users which may conflict and therefore impact design. For example, engineering or resilience optimality does not always equate to economic optimality or environmental sustainability. This nuance is further explained in the next section.
B.1.4.1 Conduct Analysis on the Resiliency Potential and Market Offering Once the inventory is complete, the leadership team will lead analysis on the resiliency potential and market offering. This analysis can be conducted by experts on the leadership team, a lead agency, stakeholders, or outside consultants/experts. This list may later serve as a project pipeline.
Include high level cost estimates for resiliency upgrades Estimate cost of repair from previous storms (e.g. in the last 5-10 years) for comparison to resiliency upgrades Quantify economic loss due to previous storms (e.g. in the last 5-10 years) Determine what kinds of projects can be monetized and what may need to be funded through a subsidy/grants/foundations
The leadership team and the end-users will have to decide how to measure and weigh competing outcomes. It may be fruitful to consider at least three design approaches that optimize either engineering, economic, or environmental benefits to gauge potential trade-offs. At the end of Phase 4 (Assessing Opportunities), the leadership team will have the ability to assess and choose among possible design options to pursue for microgrid candidates, depending on which goal is optimized (i.e. resilience, economic benefits, etc.).
B.1.4.2 Detail Current Energy System In this phase, the leadership team may want to begin screening microgrid candidate sites. This screening will create a filter and help determine where further analysis should be undertaken. The minimum recommended site data collection includes:
24 months of electric and fuel bills for customers of the microgrid candidate sites (preferably the last two full years of bills) Hourly load data for at least one year Existing & planned heating and cooling requirements (both space and process) Number of electric feeds and meters to the facility Substation information and interconnection points to distribution or transmission system Right-of-ways
Building off information gathered from preliminary analysis in Step 2 and the site screening analysis, the leadership team will need technical experts to help establish a baseline that will include current load needs, existing resources, and interdependencies. The technical experts may also conduct a deeper data dive to determine future load needs and resources, and to help identify potential synergy opportunities. This information will inform preliminary feasibility studies and provide approximate cost and revenue estimates; studies and estimates will be refined later in Phase 3 during detailed design development.
37 As previously mentioned, at least three high-level microgrid design options should be considered:
1. Economic optimality – to minimize cost and/or maximize savings and revenue potential. 2. Environmental optimality – to minimize carbon emissions and/or water use. 3. Engineering optimality – to maximize resilience or the efficiency performance and useful life of the microgrid equipment.
B.1.4.3 Review Opportunities and Identify Pathways With a baseline of the current energy infrastructure and an understanding of current resources, future needs, and potential opportunities, the leadership team can refine project scopes to increase synergies and possibly explore options for public private partnerships. Using the three design options described above, the leadership team can begin to quantify trade-offs and conduct analyses to determine the likelihood of success. Such refinement can include exploring the design options with appropriate stakeholders to gain support, identifying potential roadblocks, and obtaining clarity on funding options (e.g. grants, municipal bonds, project revenue streams, etc.). This exploration may also include engaging private sector partners on projects where there is not enough public funding to support the initiative. In these cases, economic optimality will either become the driver or need to be balanced with engineering or environmental optimality to make the project financially viable. Revenue streams and financing will be discussed in more detail in Phase 3 (Project Preparation).
Obtaining support or capacity building could be initiated in this phase and the process may be refined over time. While a formal support/capacity building process connects all tasks in a given project by their sequence and duration, the basic framework may be applied to capture specific activities such as meetings and convenings that must take place along a given pathway to obtain stakeholder support and minimize potential roadblocks. For example, before a microgrid leveraging natural gas turbines is built near a residential community, it may be beneficial to identify options for heat recovery, conduct emissions and resiliency analysis, conduct preliminary reviews with local or state environmental offices, and obtain letters of support from environmental organizations. This will often be led by project champions, and it is important to complete these basic due diligence tasks before engaging the local community that would be impacted by the project. This process takes time and requires significant preparation to ensure proper communication and to minimize potential concerns. The sequence of activities will vary depending on the project, but time spent in this stage can help in minimizing delays at later stages of the project.
B.1.4.4 Conduct Preliminary Feasibility Studies and Site Screening At this stage, there should be enough information gathered and relationships established to initiate preliminary feasibility studies for potential microgrid sites, including estimated capital costs, cost-benefit analysis, resilience potential, and market offerings analysis. This analysis is intended to provide more detailed indications as to whether the project should progress, while further analysis should be undertaken by the eventual project team in Phase 3 (Planning). If funding for the feasibility studies is not available, then the leadership team may want to engage partners, such as local academic institutions, to conduct preliminary analysis on capital and operational costs, economic cost-benefit, resiliency potential, and potential market offerings. A sample microgrid site survey is available in the Resources section for this phase.
The estimated capital costs will include materials, labor, siting, permitting, studies, software, and infrastructure needed to build the microgrid as well as interconnection with the grid, as applicable. Operations and maintenance should also be factored in. Costs for capital equipment, operations, and maintenance will be explored in more detail in Phase 3 (Planning).
38 A cost-benefit analysis will consider avoided cost scenarios and may be helpful in preparing future engineering-economic calculations used to weigh different design options. For transparency purposes, assumptions should be derived from independent and publicly available sources. Ideally, air emissions, non-energy benefits, and cost assumptions associated with specific policies would be included. This analysis may cover electricity prices, associated fuel prices such as natural gas, environmental externalities, economic losses, and impact to public health. These are just suggestions, as quantifying some of these variables may be challenging depending on the data and resources available.
Resilience potential will include analysis on historical power outages, key threats and/or other trends that impact the electric system, and supply generation and delivery vulnerabilities and options. The cost- benefit analysis could include a scenario or sensitivity analysis regarding different types of threats; however, it may be difficult to accurately quantify. This analysis will inform engineering design approaches to mitigate outages or minimize unwanted outcomes. The analysis will also consider the minimum load that should be provided in the case of an emergency and/or other outage to critical loads. The analysis could also measure the ability to provide resilience to other customers or the overall grid through black start, capacity, and ancillary services. If there is potential for excess capacity, then an analysis on market offerings could identify financially beneficial revenue sources. The analysis for market offerings will support analysis for economic optimization. This analysis may consider energy sales into the wholesale markets, bilateral contracts, black start, and ancillary services. In conjunction with this analysis, it may be beneficial to confirm the additional marginal cost of adding more capacity to maximize economic benefits. Net present values (NPVs) could be calculated by taking into account cash flows over time and the anticipated capital costs. These NPVs can be used to inform the design options, and better weigh upside and downside scenarios.
B.1.4.5 Advanced Microgrids, Dynamic Energy Systems, and Integrated Resource Plans (Applies to Advanced Microgrids, May Apply to Intermediate Microgrids) If multiple dynamic microgrids are being considered within a region or state, then it may be beneficial to consider the potential synergies of networking those microgrids to increase resilience benefits and optimize operations. Such a system could benefit microgrid customers as well as the overall grid. For example, networked microgrids can provide more dynamic capabilities, interact with the distribution utility, and exchange controls with each other in a way that delivers a truly dynamic energy system. Meaning, the energy system can be reconfigured and adapt quickly or real-time to changing conditions. This type of system is still in the early stages of development and may require more research to demonstrate potential risks, benefits, and optimal implementation.
If a dynamic energy system is being pursued, then the leadership team may want to engage the state and relevant utilities to update their Integrated Resource Plan (IRP) for the electricity system. The IRP will need to consider the network of microgrids that will be integrated into the electric grid. The purpose of an IRP is to specify a portfolio of supply and demand resources that balances risks with anticipated costs and benefits, including environmental and social considerations, over the next 15–20 years. The IRP is typically developed by a utility (or utilities) with public input and guides near-term investment decisions to develop the portfolio. Some utilities update an IRP every two to three years to account for changing circumstances.
39 B.1.4.6 FRAMING Step 4: Resources This section contains the relevant lessons learned and templates for Phase 1- Step 4:
Lessons Learned: FEMA’s Hazard Mitigation Program Template: Sample Simple Microgrid Site Survey Template: Sample Preliminary Feasibility Study Outline (post siting analysis)
B.1.4.6.1 Lessons Learned: FEMA’s Hazard Mitigation Program There may be state and federal funds eligible for analysis of critical facilities and energy infrastructure. For example, the U.S. Department of Homeland Security provides funding, particularly after a federally declared disaster, through various programs such as FEMA’s Hazard Mitigation Program which may be used to conduct energy resilience analysis. States may also provide funding or program support for analysis through their respective emergency management and preparedness agencies.
B.1.4.6.2 Template: Sample Simple Microgrid Site Survey The following survey can be given to critical facility owners and operators considering a microgrid:
Please rate, rank, or check the boxes that apply to you: Please rank the following in order of importance for your electrical supply and system o a. Resilience (ability to keep operating through events) o b. Reliability (electricity quality and continuation) o c. Low carbon o d. Low cost Do you pay more than $.06/ kWh on average for electricity (including generation, transmission and distribution)? Are you concerned about energy costs? Is your facility located in a deregulated electricity market? Are you concerned about future electricity supply reliability? Are you concerned about increased electrification (on-site electric vehicle charging, additional services etc.) putting pressure on existing electrical infrastructure? Does your facility operate for more than 5000 hours/ year? Do you have thermal loads throughout the year (including steam, hot water, chilled water, hot air, etc.)? Does your facility have an existing central plant? Does your facility have back up power? Please rate the condition of your existing electrical infrastructure: o a. Fairly new (major systems are <10 years old) o b. Reasonably new (major systems are <20 years old) o c. Reasonably old (major systems are >20 years old) o d. Fairly old (major systems are >30 years old) Do you expect to need major electrical system upgrades in the next 5 years? Do you expect to replace, upgrade or retrofit central plant equipment within the next 3-5 years? Do you anticipate a facility expansion or new construction project within the next 3-5 years? Have you already implemented energy efficiency measures and still have high energy costs? Are you interested in reducing your facility's impact on the environment? Do you have access to on-site or nearby solar, wind, geothermal, water, or biomass resources (i.e. landfill gas, farm manure, food processing waste, etc.?
40 Are you interested in storage capabilities? Are you using intermittent resources? Do you want to participate in energy, demand response, or ancillary services, or capacity markets? Does your facility currently participate in any of the following markets? o Demand response programs o Peak demand shaving o Frequency/voltage regulation o Black start o Capacity markets o Other
B.1.4.6.3 Template: Sample Preliminary Feasibility Study Outline (post siting analysis)
1. System Definition a. Characterization of the load need and supporting infrastructure within the project boundary b. Identification of critical services to be provided and critical infrastructure involved c. Definition of design basis threat and key energy system design assumptions, based on historical events (e.g., capacity issues, intermittency, storms, flooding, etc.…) 2. Technical Options a. Single generator and microgrid, full time and emergency only b. Decentralized – several microgrids, full time and emergency only c. Centralized – several generators connected within one microgrid d. All the load, critical load only 3. Risk and cost analysis, high level, for each of the options above a. Cost factors (bounded estimate) i. Generation infrastructure ii. Network upgrades (internal and external) iii. Operations and maintenance (fuel, etc.) iv. Communications/controls cyber security infrastructure v. Permitting/regulatory (legal) b. Revenue/benefits factors (bounded estimate) i. Market (black start, ancillary services, energy sales, contingency reserves) ii. Bilateral contracts, - energy/capacity sale to project partners iii. Cost/benefit analysis based on revenue stream and O&M cost only c. A macro-economic benefit analysis d. Risks factors (qualitative) i. System performance risks (Can the system be expected to reliably provide power to sustain an acceptable level of service reliability for threat considered?) ii. Project implementation risks (regulatory, permitting, interconnection process, and other as needed) 4. A more detailed description of the option selected, including one-line diagrams, cost, benefits and risk analysis 5. Project Plan
41 B.2 PHASE 2: PLANNING The Planning Phase involves significant preparation work for the project that begins with broader stakeholder outreach to obtain policy, community, and operational input and to identify outside barriers to the microgrid. The Planning Phase also involves identifying key staff resources, regulatory considerations, tools, funding, potential revenue streams, potential project and ownership structures, and estimated capital, operations and maintenance costs. Plans for performance, measurement, and reporting should also be formulated. Proper investment and attention to the planning phase will increase the likelihood of project success. In some cases, this will be the longest phase in the development process. B.2.1 Involve Stakeholders in Project Preparation As part of planning and project preparation in Phase 2, the leadership team and working groups need to consult subject matter experts and other stakeholders when selecting and executing near-term actions. Many of these stakeholders may be affected by project implementation and will likely have participated in one of the earlier phases. The project preparation consultations with stakeholders should consider how to prioritize projects (e.g. critical need, likelihood of funding, synergies with other parallel projects, etc.). If multiple projects are considered, then transparency for how projects are selected will be important in maintaining support for current and future projects. In this phase, stakeholders will also be engaged to help identify solutions to specific barriers and enablers to implementing a microgrid. Barriers are policy, operational, and demand challenges that would prevent or inhibit progress, such as:
Capital and operating costs Unclear permitting requirements Interconnection requirements Franchise rights or certain utility rate structures Lack of consumer awareness Inadequate credit or project repayment history Misaligned electricity production incentives Access to land Lack of necessary skills in the workforce
Enablers, by contrast, facilitate progress along a pathway, and can include: Political commitment Access to rights-of-way Bonding capacity or access to lending authorities (e.g. state energy banks) Transparent planning and resource allocation decisions Support from community leaders Public interest Experience with public-private partnerships Well-trained construction and/or utility workforce Specialized university training courses and expertise Advanced utility metering or tariffs
42 B.2.2 Identify Project Team and Staff Resources The microgrid initiative could involve implementing one traditional microgrid or a network of advanced microgrids. Large state-led microgrid deployment efforts may require overhauling or clarifying certain policies, designing state or utility-led programs, establishing finance programs, assessing energy resources, conducting feasibility studies, updating the electricity grid, and developing a workforce. Meanwhile a single facility pursuing an onsite microgrid will want to know how to navigate state, local, and federal policies and programs, conduct feasibility studies, prepare their own workforce, and develop viable business models to justify the investment.
The team will vary depending on the initiatives and priorities. The larger the initiative the greater the staff resource needs and the more input required from stakeholders. Stakeholders may also provide resources, so prioritizing their input could prove beneficial beyond just mitigating barriers.
After identifying staff resources, the leadership team for intermediate and advanced microgrids will be able to establish a project team to complete the project. In the case of a basic microgrid, there is only a project team. The leadership team and project team for intermediate and advanced microgrids may overlap, and the team size may vary, however, the following roles and responsibilities capture the critical buckets that team members will fall into:
Project lead - The project lead ultimately bears responsibility for the success or failure of the project, and oversees plans, budget, and schedules; delegates responsibilities; and closes out the project. Champion(s) - The project champions initially propose the project or obtained approval for it. They will seek out additional resources as needed to ensure project success and can positively impact decision makers. The champion is not necessarily a chief executive or agency head but is typically in a senior supervisory role for the initiative. Strong project champions are instrumental; they are typically in the public sector, lead outreach sessions, and often drive project acceptance at many levels (internally and externally). Subject matter expert(s) - Subject matter experts understand the industry, policy, technology, finance, or service that is the focus of the project. Project execution staff - Project staff members are responsible for undertaking the actions set out in the project plan. These may include data collection, reporting, construction, and equipment management. B.2.3 Identify Planning Tools In this section, the leadership and project teams will collaborate to identify tools that can be leveraged to implement the vision. Tools can range from available design engineering tools, to economic and policy or regulatory tools. The types of tools will vary depending on the level of detail of planning effort and scale of the microgrid initiative. Some of these tools may have already been identified in Framing Phase.
Design and engineering tools assist in the feasibility and design analysis. For example, some state agencies may already have mapped critical facilities and energy infrastructure that could help identify electric vulnerabilities and microgrid opportunities. Some design and engineering tools will leverage data that provides visibility into the distribution or transmission system allowing them to draw better conclusions like areas with the highest load, areas vulnerable to electricity congestion, or ancillary service needs. Individual microgrid projects could explore leveraging DOE tools to perform microgrid
43 design optimization for both grid-connected and islanded operations. This includes Lawrence Berkley National Laboratory’s (LBNL) DER-CAM11 for decentralized energy systems, and Argonne National Laboratory’s (ANL) power system planning and operational tools such as CHEERs.12
To access policy and regulatory tools the team will need to review existing policies and authorities to identify resources or enable certain capabilities. For example, a state may have lending authority for certain public facilities to help fund microgrid projects.13 Some state or local governments may have mandates, such as renewable portfolio standards (RPS),14 that could trigger demand and RPS credits to offset capital costs. Rules related to permitting, rights-of-way, franchise rights, power purchase agreements,15 interconnection, and PURPA16 could also serve as tools to help make microgrids feasible. In some cases, rules may need to be modified to improve feasibility of microgrids from either an economic or execution standpoint.
Financial or economic tools will enable review and assessment of market access opportunities for revenue generation or savings. Although not exhaustive, this includes capacity markets, wholesale energy markets, ancillary services markets, demand response, bilateral contracts, self-supply, PURPA, Renewable Energy Certificates (RECs), state cap and trade, tariffs, net-metering, and tax-credits. LBNL’s DER-CAM can be used to evaluate some of these market opportunities along with some private market assessment tools. DOE has also created online tools that can help evaluate capital costs or the value of monetizing certain tax-credits, such as the National Renewable Energy Laboratory’s Cost of Renewable Energy Spreadsheet Tool (CREST).
After reviewing available planning tools, the team will be able to identify gaps to execution and may need to seek out means to fill those gaps. This may require obtaining more resources, tools, and expertise from state, local, federal, academic, or private sources. B.2.4 Recognize ISO/RTO Requirements (Applies to Advanced Microgrids, May Apply to Intermediate Microgrids) Much of the United States is covered by seven organized power markets. Each market is operated by a Regional Transmission Operator (RTO) or Independent System Operator (ISO) that operates the transmission system in its territory, operates markets for energy and ancillary services, and maintains system reliability. Each power market offers its own unique set of ancillary services, and precise definitions, requirements, and market mechanisms. ISO/RTOs procure electricity by matching supply with demand through a series of day-ahead and real-time market clearing processes. ISO/RTOs perform many of the same transmission functions as the vertically-integrated utilities that were supplanted by electricity restructuring.
11 https://building-microgrid.lbl.gov/projects/der-cam 12 https://www.anl.gov/es/water-use-optimization-toolsetconventional-hydropower-energy-and-environmental- systems 13 For example, as an extension of the NJ Energy Development Agency, the NJ Energy Resilience Bank was established and authorized to provide a combination of grants and loans to eligible hospitals, water, and waste water facilities: https://www.state.nj.us/bpu/commercial/erb/ 14 http://www.dsireusa.org/resources/detailed-summary-maps/ 15 http://www.ncsl.org/research/energy/state-policies-for-purchase-agreements.aspx 16 https://www.ferc.gov/industries/electric/gen-info/qual-fac/what-is.asp
44 However, there are some important differences between them. For example, ISO/RTOs do not sell electricity to retail customers and do not own any assets. Instead, these non-profit entities direct the operation of the transmission system and coordinate maintenance of grid facilities. In restructured markets, the distribution utility only delivers power to end-use customers. ISO/RTOs are neutral market- makers that monitor and oversee their markets. Rules are set to mitigate market power and manipulation by generators. Generally, microgrids in states not covered by ISO/RTOs will not have access to wholesale electricity, capacity, demand response, or ancillary services markets. Each ISO/RTO market sets its own rules which can vary even at the product level (e.g. wholesale electricity, capacity, demand response, and ancillary services). For example, demand for ancillary services is administratively determined by the market operator based on reliability requirements, whereas energy markets are determined by forecasted demand and supply offerings. Many generating units participating in the energy market may also choose to not participate in ancillary services markets or may not be eligible to participate for technical or financial reasons. Therefore, it is important to become versed in ISO/RTO requirements to determine the feasibility of participation as they may impact your microgrid’s design and economic viability. Figure 12 provides a map of the current ISO/RTO markets:
Figure 12. Map of Transmission Operators that Serve the United States
Source: U.S. Department of Energy
Although there may be some regulatory challenges, some microgrids have opportunities for participation in the regional electricity markets through a variety of participation models that could provide positive value through new revenue streams.
45 In PJM, there are two models for microgrid participation - as an interconnected generator or as a demand response resource. ISO/RTO market operators each have their own interconnection process and requirements. The process flow chart in Figure 13 outlines the PJM Interconnection process – the timeline can be long and costly. Some ISO/RTO markets have minimum size requirements. Microgrids must have sufficient generation or demand response available to participate in wholesale markets. They must plan to have a percentage of their capacity available for market participation while retaining sufficient resources to serve their own critical loads. For large microgrid projects that plan to participate in ISO/RTO markets, it is recommended to meet with ISO/RTO staff to clarify requirements, expectations, and next steps.
Figure 13. PJM Interconnection Process Flow
Source: PJM
B.2.5 Understand PUC Requirements and Right-of-Ways The Public Utility Commission (PUC)—also known as a utilities commission, utility regulatory commission, or public service commission—is the governing body typically for a state that regulates the rates and services of a utility that maintains electric infrastructure for a public service. In deregulated17 states that includes electric distribution utilities, whereas in regulated states, the PUC could regulate the electric utility from generation to transmission and distribution, many of which are vertically integrated utilities that have monopolies. It is best for the leadership and project team to meet with PUC staff after
17 In deregulated markets, the transmission system is often managed by an independent system operator (ISO) or regional transmission organization RTO.
46 reviewing PUC requirements online to clarify understanding of the rules and the project. For larger microgrid initiatives, it is beneficial to have someone from the PUC involved in the project as a partner in Phase 1 - Step 2. Microgrid owners need to become familiar with certain rules set by their PUC to determine whether they will be treated like a utility and to ensure they do not infringe on utility franchise-rights.
For example, an independent developer in some states is not able to provide energy generation services to a single customer on the customer’s own site due to state regulation, and in most states, it is impossible to aggregate retail load from multiple customers into a non-utility owned microgrid. [60] Some states and municipalities also restrict retail distribution of thermal energy. [60] Without specific microgrid support legislation, community choice aggregation legislation, tariffs, or virtual net metering, states with retail deregulation require that all load serving entities, including microgrids, must provide energy in an agreed contractual arrangement. [60] In those states, microgrid owners/operators can be subject to severe penalties for non-performance which introduces a significant level of risk into financial calculations. Thus, most sophisticated microgrid development has occurred on campuses, such as universities or private research facilities, where a single end-user is the microgrid host. [23] Even in those cases, however, regulatory issues can arise from interconnecting multiple facilities of a single user across roads or intervening properties (that cross one or more rights-of-way) which may violate state laws or regulations. [60]
The majority of grid-tied microgrids are built within the end customer’s right-of-ways to avoid regulatory oversight and infringing on a utility’s franchise-rights which are summarized below. As mentioned, franchise rights typically prevent crossing one or more rights-of-way, however, there may be a few exceptions which vary by state, utility, project and purpose. For example, a state or utility may allow the crossing of more than one right-of-way to connect a university campus microgrid with a local hospital to supply emergency power during a grid outage.
The following summarizes some important regulatory rules for large non-utility owned microgrids that should be considered before investing in a project:
Regulatory oversight: Any entity that sells energy or power and whose equipment crosses a public street is technically defined as an electric corporation and therefore falls under the traditional utility regulation and ratemaking authority of the state’s public utility commission. The prospect of being treated as a traditional utility, where billing, rates, and quality of services are all regulated, adds significant cost and risk, further reducing a project’s economic viability.
Utility franchise rights: Designed to govern the use of public space by third parties, utility franchise rights substantially limit the ability of third-party providers to realize larger projects that may be economically more attractive. Since selling power to third parties via new distribution lines infringes on these rights, non-utility entities may face significant legal battles that may be costly.
47 B.2.6 Consider Other FERC Regulations (Applies to Advanced Microgrids, May Apply to Intermediate Microgrids) The Federal Energy Regulatory Commission (FERC) regulates the transmission and wholesale sale of electricity and natural gas in interstate commerce.18 Federal regulatory rules should be considered for certain microgrid applications. For example, PURPA19 is the Public Utilities Regulatory Policy Act of 1978. PURPA requires electric utilities, when they need power, to purchase power from qualified facilities (QFs) at the utilities' avoided cost (which is set by the PUC), provide back-up power to QFs, interconnect with QFs, and operate with QFs under reasonable terms and conditions. PURPA generally exempts QFs, such as small renewable power generation and certain cogeneration, from regulation under the Federal Power Act (FPA). Some microgrids may qualify as QFs and may be able to obtain PURPA contracts as a source of revenue. However, FERC requirements such as the Rebuttable Presumption20 essentially exempts most utilities in RTO/ISO regions from the QF purchase obligations. While generally difficult to obtain a PURPA QF contract, remaining opportunities are more typically found in non-RTO/ISO regions. B.2.7 Interconnection, Network Upgrades, and Other Considerations The interconnection process for non-utility owned microgrids are generally negotiated on a project-by- project basis and differ in each state. For example, in PJM defines an interconnection process in which the utility conducts an interconnection study, determines the cost of interconnection and any network upgrades that may be needed through a self-directed internal process, then negotiates the cost directly with the microgrid developer. The cost of the interconnection study (if required by the utility) are typically paid by the microgrid owner.
In determining interconnection costs, a utility will identify any distribution or transmission system upgrades needed to facilitate energy delivery to or from the microgrid. In some cases a utility may require a new substation, feeder line, switches, transformers, or no upgrades at all. The needs and types of upgrades will vary by project, location, and the needs of the grid at that time. These upgrades may be owned by the microgrid owner if they are located within a microgrid owner’s right-of-way, the microgrid end-customer(s) is within the same right-of-way or property boundary, and utility easements are not encroached, because the microgrid may not infringe on utility franchise rights (in some states). Alternatively, these upgrades may become assets transferred to the utility, contingent on negotiation. For network upgrades for a microgrid needed on the utility’s right-of-ways to interconnect (e.g. new
18 FERC also regulates the transportation of oil by pipeline in interstate commerce. 19 PURPA § 210(e); 16 U.S.C. § 824a-3(e)(1) (2009) (requiring the FERC to “prescribe rules under which geothermal small power production facilities of not more than 80 megawatts capacity, qualifying cogeneration facilities, and qualifying small power production facilities are exempted in whole or part from the Federal Power Act, the Public Utility Holding Company Act, and state laws and regulations” with respect to rates or financial or organization regulation of electric utilities if the Commission determines that such an exemption would be necessary to encourage cogeneration and small power production); see also Sun Edison LLC, 129 FERC ¶ 61,146 at P. 20 (2009) (finding that because the end-use customer makes no net sale to the local load-serving utility with which it has a net metering agreement over the billing period, the instantaneous sale of electric energy by the end-use customer in such circumstances does not constitute a sale for resale and thus is not subject to FERC’s jurisdiction). 20 FERC Order No. 688 passed in 2006, implemented a rebuttable presumption that qualifying facilities larger than 20 MW have non-discriminatory access to at least one competitive market and therefore must demonstrate otherwise to obtain a utility contract at the avoided cost rate.
48 distribution wires, transformers, etc.), then the franchise utility will determine the cost of these upgrades. The distribution or transmission utility may provide some credit, over time, back to the microgrid owner for upfront payments of network upgrades within or outside of the microgrid host site’s right-of-ways.
Interconnection procedures and cost allocation methodologies typically follow FERC’s pro forma Small Generator Interconnection Agreement (SGIA) and Large Generator Interconnection Agreement (LGIA). Both the SGIA and LGIA specify that the interconnection customer may need to pay upfront for the cost of any upgrades to the transmission or distribution system. If those upgrades are located on the transmission system beyond the point of interconnection (a FERC-defined “Network Upgrade”), the microgrid owner is entitled to a credit for those costs against transmission system usage charges over time. [61], [62]
Negotiating interconnection costs and ownership of network upgrades outside the microgrid host site’s right-of-ways can be one of the most contentious issues for microgrid owners/developers and it is therefore best to collaborate with the utility early in the design process. [10] Utilities can use the interconnection process to help ensure grid reliability and protect non-participant customers. Microgrid developers, however, often lack a formal third-party process to validate interconnection costs, which could range from tens of thousands of dollars to tens of millions or more. A developer must negotiate directly with a utility before work begins, and the estimate may change at the time of interconnection.
If agreement cannot be made between the microgrid owners and the utility, then the microgrid owners may try to escalate the issue. Depending on the interconnection point and whether PURPA applies, the microgrid developer may attempt to appeal to the utility commission and in some cases to FERC. However, outside of PURPA, a microgrid developer may have little recourse to remedy disputes regarding interconnection costs. Navigating this complex and unclear legal framework is often time- consuming and expensive for a microgrid owner or developer.
As part of the interconnection process, the project team should also consider interconnection standards and design attributes to help mitigate cyber-attacks. If properly designed, advanced microgrids could dynamically isolate (via islanding) critical generation, storage and loads – as well as operate with communications firewalls – offering additional options for protecting assets. B.2.8 Revenue Streams When developing a microgrid, it is critical to consider the potential revenue streams that can be monetized. This will impact financing options, may affect the size of the system (e.g., a larger system will provide access capacity that may be monetizable), and should be factored into the decision of whether or not to own the microgrid. If microgrid ownership is not an option, then it may be helpful to consider options to capture some of these benefits, such as through a third-party contract. The more secure a revenue stream is, then the better the financing terms or options that will be available. With the appropriate controls, certain locations and generation resources could enable microgrids to monetize a variety of potential revenue streams. Depending on the design, these additional controls could increase microgrid costs and may require building a larger system to monetize access capacity. In some cases, this could provide economic benefits that exceed the additional costs, however that may not always be the case. A cost benefit analysis will need to be conducted to confirm whether increasing size and complexity of a microgrid to monetize market participation is economical and does not conflict
49 with other goals; engineering and environmental goals. The microgrid revenue streams can be grouped into the following categories: (i) ISO/RTO services (or bulk power markets where ISO/RTOs do not exist), (ii) contracting/retail, (iii) distribution utility services/contracts, and (iv) federal/state/local incentives or mandates. Although most critical facilities in the U.S. are publicly owned and do not pay federal taxes, innovative project structures or PPAs do allow third parties to utilize tax credits to potentially lower the cost of financing a microgrid project. [63]
Table 6 specifies potential microgrid revenue stream mechanisms, describes the system impact to the overall grid, and highlights challenges or issues related to a given revenue stream:
Table 6. Potential U.S. Microgrid Revenue Streams, System Impacts, and Challenges
Revenue Streams/ Type of Service and Challenges/Issues Markets21 System Impacts
Categories ● Resource adequacy ● Limited to some ISO/RTO markets and only at ● May increase or the bulk level. Capacity decrease DER ● May not recognize incremental benefit at the distribution level where value may be greater.
● Resource adequacy ● Limited to bulk power auctions. Wholesale Energy ● Energy Arbitrage
● Maintain overall system ● Limited to ISO/RTO markets at the bulk level. reliability ● Not valued at the distribution level where ● Complements value may be greater. Ancillary Services
do not exist) intermittent renewables ● Includes: regulation and frequency response ● Transmission Upgrade ● Limited to some ISO/RTO markets and only at Deferral the bulk level. ● Reduce congestion and ● Not valued at the distribution level where Demand Response peak demand value may be greater. ● May increase or
ISO/RTO Services (or bulk power markets where ISO/RTOs decrease DER ● Energy Arbitrage ● Franchise rights can prevent bilateral contracts ● Depends on location of that require crossing a right of way to provide
load relative to end service to an end customer. customer, type of DER, ● Some state franchise rules prevent any Bilateral Contracts and services that can be provider other than the franchise utility from provided based on providing power to a customer if that customer technology capabilities was ever serviced by the franchise utility. and regulatory landscape. ● Energy Arbitrage ● Franchise rights prevent access to non-utility Contracting/ Retail ● N/A, access not allowed DER owners. Retail so no impact by non- utility DER owners
21 Definitions for each of the revenue streams/markets are in the appendix.
50 ● Distribution Upgrade ● Complicated to structure and ensure Deferral methodologies and pricing are appropriate. ● Increases DER deployment.
● Can incentivize DER in Tariffs locations where needed most or where impacts to
/Contracts the system are best minimized.
● Distribution Upgrade ● Some PUCs lack awareness or resources to Deferral monitor or enforce PURPA. ● Transmission Upgrade ● Utilities in RTO/ISO regions are exempt from Deferral PURPA QF contract obligations PURPA ● Increases DER ● Avoided cost rates have been argued are too Contract/Avoided Cost deployment and allows high or too low in some states, methodologies Methodology for more competition in need to be updated and standardized.
Distribution Utility Services the energy, capacity and ancillary services markets. ● May increase DER ● Emissions Credit ● RPS mandates drive SREC markets which are Programs contrived, have price ceilings, and are volatile SRECs ● Increases DER markets. deployment ● Not a self-sustaining market
● Increases DER ● Short term and limited availability State Tax Credits deployment Federal Investment Tax ● Increases DER ● Current rules create high transaction costs and Mandates Credits/MACRS deployment complexity to utilize tax credits ● Emissions Credit ● Limited in availability and deployed at the Programs state level but need broader market to be State Cap & Trade ● Increases DER sustainable
Federal/State/Local Incentives or deployment Source(s): The Bankable Microgrid: Strategies for Financing On-Site Power Generation, Jonathan Strahl, Emily Paris, and Laura Vogel, Navigant Consulting, 2015 NORTH AMERICAN MICROGRIDS 2014: The Evolution of Localized Energy Optimization, Wood Mackenzie Power & Renewables, 2015 Value Streams in Microgrids: A Literature Review, Lawrence Berkeley National Laboratory, 2015
The types of grid benefits and the general application performance for ancillary services per resource are noted in Table 7 below and described further in this section: [64] [65] [66] [67] Note, the table below is just an example. Actual markets vary in breadth of ancillary services accepted, required response times, as well as how they are defined and priced. These markets may also change over time. [20] [21] Therefore, microgrid owners will need to independently evaluate the trade-offs between investment costs to participation and potential revenue streams in their respective markets.
51 Table 7. Subset of Potential Grid Ancillary Service Value and Response Time Per Resource Ancillary Value of Required Resource Exhibits Resource Partially Service Ancillary Response Ancillary Service Exhibits Service Time Attribute Ancillary Service ($ per kWhr) (minutes) Attribute Frequency High 1 or less Regulation Spinning Reserve Medium 1-10
Non-Spinning Very Low 10 Reserve
Demand Combustion Turbine Battery Steam Turbine Wind Solar Hydro Nuclear Response (Gas, Oil) Storage (Coal, Gas)
Source: Power the Fight: Capturing Smart Microgrid Potential for DoD Installation Security, Catwell, R., et.al., 2012 Generating Security: Resilient, Renewable Power for U.S. Military Installations, Marr, A. and Rickerson, W., Center for National Policy, April 2014. Microgrid Study: Energy Security for DoD Installations, Van Broekhoven, S. B., et.al, Technical Report 1164, Lincoln Laboratory, Massachusetts Institute of Technology, Lexington, MA, June 2012. Staff Report to the Secretary on Electricity Markets and Reliability, U.S. Department of Energy, August 2017
B.2.9 Develop Funding and Financing Pathways Microgrids require significant up-front capital which can be a deterrent for some customers who cannot afford the initial large investment. [8] Data on specific sources of capital used to develop microgrids is not readily available, and there is limited microgrid performance data to inform potential investors. [13] Generally, the greater the revenue certainty for a microgrid then the better the financing terms and options that will be available. Based on limited public data, it appears that most microgrids are funded by existing owner balance sheets. However, finance options could include innovative project finance models or public private partnerships that capitalize on bilateral contracts, tax credits, energy, capacity, demand response, and ancillary services. Financing or funding may also come from municipal, state, or federal programs. Therefore, funding and financing sources will vary depending on the project, the location, ownership, and certainty of revenue streams/or loan repayment.
Each type of ownership structure provides pathways to funding and financing based on their respective authorities, expertise, and access to capital. For example, more sophisticated microgrid owners may explore options for how to monetize those revenue streams to raise upfront cash such as in the bond market or through securitization. Alternatively, or in addition, some microgrid projects may be eligible for grant funding or financing from a federal or state energy finance initiative. Examples of state energy initiatives funding microgrids include the New Jersey Energy Resilience Bank, the New York Prize Initiative, the Massachusetts’s Clean Energy Resiliency Initiative, the Connecticut Microgrid Program and the Connecticut Green Bank.
52 The key to a cost effective, financeable project is ensuring the ability to repay the loan and reducing project risk. That means demonstrating good credit that shows an ability to repay the loan or the ability to collect the revenue streams produced by the project to repay the loan. In addition, the project will be perceived as having lower execution risk if it implements proven commercially available technologies, such as those often deployed in microgrids.
In Phase 1 - Step 2, the leadership team identified the various existing authorities and gaps to funding and financing. In this phase, the leadership team and partners will focus on how to execute on those authorities and how to fill the gaps. For example, in the previous section, the leadership team identified potential revenue streams. The leadership team and partners could explore options for how to monetize those revenue streams to raise upfront cash such as in the bond market or through securitization. Alternatively, the leadership team may want to consider establishing a state energy bank or finance program to help fund a portfolio of microgrids. Examples of state energy banks include the New Jersey Energy Resilience Bank, the New York Green Bank, and the Connecticut Green Bank.
More demonstration of actual ownership structures and business models is required to measure investment returns for various sources of capital and determine the viability of these options. The following table provides a list of potential sources of capital by ownership type. [29], [8] [27] Note, that mixed ownership could have some combination of any of the capital sources listed in the table below.
Table 8 22 shows the various capital sources that may apply to microgrids.
22 Definitions for each of the capital sources are in the appendix.
53 Table 8. Potential U.S. Microgrid Sources of Capital by Type of Owner
End Users
Capital Source Commercial/Industrial Public Facility/Entity Community Public Utility/Muni Developer/IPP/3rd PartyPrivate Utility Private debt/equity X X X X X X Public debt/equity X X X Commercial Property Accessed Clean Energy (C-PACE) X Clean energy tax credits (where applicable) X X X Power Purchase Agreements/Service Agreements X X X X X X Performance Based Contracts X X X X X X Project Revenue (e.g. Ancillary Services, bilateral agreements) X X X X X X Public taxable/non-taxable bonds X X X State Energy Resilience Bank (e.g. NJ) X X Federal or State Grants (e.g. MA microgrid initiatve, NY Prize) X X Source(s): The Bankable Microgrid: Strategies for Financing On-Site Power Generation, Jonathan Strahl, Emily Paris, and Laura Vogel, Navigant Consulting, 2015 NORTH AMERICAN MICROGRIDS 2014: The Evolution of Localized Energy Optimization, Wood Mackenzie Power & Renewables, 2015 Value Streams in Microgrids: A Literature Review, Lawrence Berkeley National Laboratory, 2015
Figure 14 and Figure 15 show that PPAs are a primary source for financing microgrid projects. Although per unit, more microgrids are owner financed as a secondary source of funding, larger microgrids are funded through other means.
54 Figure 14. U.S. Grid-Tied, Non-Military Microgrids by Business Model Projects: 2015-2016
16%
32%
≈226 microgrids 1808 MW 22%
30%
Other Owner Financing Utility Rate Base PPA
Source: Navigant Research-Hitachi
Figure 15. U.S. Grid-Tied, Non-Military Microgrids by Business Model Capacity: 2015-2016
24%
45% ≈226 microgrids 1808 MW
16%
15%
Other Owner Financing Utility Rate Base PPA
Source: Navigant Research-Hitachi
55 B.2.10 Consider Project Structure and Ownership Models Ownership options, including third party and utility ownership, should be discussed as part of the pre- conceptual design process or as early as the feasibility study where possible. Input from the regulatory authority (typically the state Public Utility Regulatory Commission) and the utility is useful to make an informed determination and avoid the risk of violating any utility franchise rights. Additional analysis on ownership will need to be made to determine monetization of potential value streams and the ability to capture the value of the federal clean energy tax credits.
The eventual system owner and operator should be identified early in the design process to ensure viability and long-term sustainability. Long-term operation and maintenance issues associated with a new microgrid deployment can be complex and costly. Without early input from the eventual owner and operator, immediate cost decisions, such as configurations and equipment, may not be best suited for the long-term viability of the installed microgrid. Large institutional electric customers who own and operate distributed generation and electric distribution facilities (such as universities and military installations) tend to have a more informed perspective about the staffing, legal/regulatory, and financial implications of owning and operating a new microgrid installation. B.2.11 Regulatory Issues Regulatory barriers and market rules can be a major hurdle to microgrid development for both private sector developers and utilities. [68] For simplicity, this section groups microgrids into either utility- owned or non-utility-owned microgrids. Each have unique challenges.
Microgrid development has been for the most part limited to traditional project models where local intra-facility needs dictate project scope and scale, as opposed to consideration of benefits that go beyond the immediate load or cost-optimal capacity for continuous service. [12], [29] A primary obstacle to broader application is the lack of a mechanism for the market to compensate non-utility and utility microgrid owners for the added benefits provided by microgrids (e.g. better integration of renewables, grid resiliency, fuel diversity, etc.). [12], [13], [69], [70] From a business case perspective, resilient energy infrastructure and advanced microgrids could financially benefit from greater access to markets to monetize their capabilities and services that could be provided to transmission and distribution systems, as well as to independent system operators. [12], [29] Market incentives for investment in resilience, efficiency, lower emissions and diversification may require changes in some regulatory environments. For example, FERC Order 745, which gives demand response access to wholesale markets, can also apply to microgrids. However, microgrids are often either not recognized as capacity resources, or do not have the business structure, telemetry, size or other requirements necessary to participate in wholesale markets. [60]
Advanced microgrids that provide multiple energy management technologies can simultaneously provide multiple services. However, regulations are typically designed for resources that are generators or that provide load curtailment, and not for resources that can do both. [60] Moreover, microgrids are not considered in most transmission and resource planning processes because they are neither transmission nor pure generation. The traditional market compensation systems for transmission and generation are fundamentally different, even though both can serve to improve the adequacy and reliability of supply. [60]
Microgrid owners are required to navigate complex and often unclear legal and regulatory procedures which are time-consuming and costly to pursue in order to get necessary approvals for interconnection
56 and operation. This may limit competition and deployment. Financial uncertainty for non-utility owned microgrids is most often due to regulatory issues and integration issues and utilities often make it challenging to estimate interconnection costs and to capture future revenue streams.23 Meanwhile, utilities are unable to own generation behind the meter which restricts their ability to own customer- sited microgrids. In deregulated states, distribution utilities are restricted from owning generation. Both examples make it challenging to deploy utility-owned microgrids.
The regulatory environment is changing as the benefits of microgrids in deregulated environments with high penetrations of renewables are becoming more apparent. [23], [71] The current regulatory structure is evolving from central generation with long-distance transmission to distribution utilities, toward more local generation in distribution networks with third-party, non-utility and utility-owned microgrids. [23], [71] For example, in April 2014, the California Public Utilities Commission issued a report recommending that state utility commissions take a more active approach to defining the role of microgrid owners and operators in the distribution network. [72]
Other agencies, including the State of Maryland and the New York State Energy Research and Development Agency (NYSERDA), have published extensive documents outlining their perspectives on utility and third-party, non-utility microgrid ownership structures, as well as applicable financing models. [13], [69] However, at this time no regulatory framework for commercial multi-user, non-utility-owned microgrids has emerged. [12]
B.2.12 NEPA, Environmental Reviews, and Permitting Depending on project size and/or whether project funds exceed a certain amount, some states may have mandates or executive orders that require an environmental assessment or review such as an environmental impact statement (EIS). Projects that receive federal funds or require certain major federal actions or decisions may also be subject to the National Environmental Policy Act (NEPA) enacted in 1970. NEPA is a United States environmental law that promotes the enhancement of the environment and established the President's Council on Environmental Quality (CEQ). The project team will need to assign an environmental expert to lead the compliance who is familiar with the differences between the State and local environmental review requirements and federal NEPA requirements. These reviews may require environmental assessments which are planning and decision-making tools intended to minimize or avoid adverse environmental impacts. In some cases, the environmental assessments can take months or several years to complete depending on the size, complexity, and locality of the project. To ensure timely environmental and federal NEPA reviews, the environmental expert should be engaged early in the process and have regular check-ins with the project team to minimize potential construction delays. To the extent possible, the environmental expert may want to obtain permission to pursue categorical exclusions for certain projects. The U.S. Department of Energy has templates for categorical exclusions that may be proposed as options for certain federal or state funded projects. In addition to an environmental expert, the team may need a permitting expert to help manage any other federal, state, and local permitting requirements. Permitting requirements may vary depending on project type, project size, and ownership. Permitting can be a lengthy and costly process, so evaluate permitting requirements early and obtain utility support where necessary. As microgrid deployments increase and standards are developed, the approval processes for permitting microgrids should become easier and less costly.
23 NJ TransitGrid Lessons Learned
57 B.2.13 Costs, Operations and Maintenance The greatest costs involved in building a microgrid are the energy resources, including the controller, distributed generation resources, and storage. [12] This could represent over 40% of the build cost. [12] The more advanced microgrids will require more expensive controllers and additional infrastructure, and in some cases of large microgrids, upgrades to substations or feeder lines. Table 9 shows each of the major cost components and approximate cost ratios. Note, some microgrid projects may also incur transmission and distribution charges, which are not reflected below. Typically, the costs shown in Table 9 and Table 10 are borne by the microgrid owner. However, as mentioned earlier, some components may be considered network upgrades and/or raise ownership issues which may be difficult to reconcile with the utility if certain right-of-ways are crossed.
Table 9. Microgrid Cost Components as a Percentage Component Cost Ratio Description Energy resources 30‐45% Energy storage; controllable loads; DG (renewable generation, CHP) Switchgear protection 20% Switchgear utility interconnection (including low‐cost and transformers switches, interconnection study, protection schemes, and protection studies) Communications and 10‐20% Standards and protocols; control and protection controls technologies; real‐time signals; local supervisory control and data acquisition (SCADA) access; power electronics (smart inverters, DC bus) Site engineering and 30% A&E (system design and analysis); system integration, testing construction and validation Operations and 5‐15% Operation and maintenance; market (utility) acceptance markets Source: NEMA, Powering Microgrids for the 21st-Century Electrical System, 2016
Table 10 describes each of the major microgrid components (excluding generation) and a range of cost. This helps provide perspective on the expected additional marginal cost of a microgrid compared to standalone DER.
58 Table 10. Microgrid Cost Components as a Dollar Range for a 5 MW multi-DER installation Microgrid Description Low Range High Range Equipment Microgrid and stability controls Main transfer Disconnect/connect Required for $50,000 $100,000 switch islanding Master controller Microgrid stability controller $150,000 $500,000 Switchgear Generation switchgear and controls $100,000 $400,000 (basic) Distribution automation (two circuits: non-interruptible + critical load and non-critical load) Sectionalizing Sectionalize non-interruptible load $100,000 $200,000 switchgear from total load Remote switchgear Master station for remote load $70,000 $110,000 control shedding and distribution switchgear operation Automatic fault Relaying, protection and control $60,000 $125,000 protection equipment to enable switchgear to automatically detect and isolate fault Smart meters Includes data warehousing $50,000 $100,000 Total $580,000 $1,535,000 Source: NEMA, Powering Microgrids for the 21st-Century Electrical System, 2016
Note that the costs of the generation and microgrid specific equipment are decreasing with advances in the technologies themselves, the standardization of some of the components, especially controllers with basic functionality, and economies of scale.
In addition to the above costs, advanced microgrids will need to consider communications infrastructure and software. Costs can vary widely, ranging from $100,000 to $1 million depending on the architecture pursued, the needs of the project and the existing infrastructure. Software can also include cyber protection at an additional cost.
The greatest costs in operating a microgrid are typically fuel costs which vary depending on the source (renewables are typically a zero-marginal cost fuel). Maintenance is required on an annual basis with significant capital replacements often occurring every 10 years depending on the generation system deployed. With proper maintenance, the average useful life of a microgrid system could range from 30- 40 years or more. [28]
The principal O&M costs associated with a microgrid’s power generation and distribution services include: [13] The cost of labor to operate and monitor the system (including operator training costs) The cost of fuel consumed by the microgrid’s power generating equipment The cost of other materials consumed in operating the microgrid (e.g., materials such as lubricants, fuel filters, coolant fluid, and emissions control catalysts) The cost of labor and materials for scheduled and unscheduled maintenance
59 According to Navigant, there is limited information on the true total cost of operation for microgrids and on the associated payback periods. [73] Not all microgrid users are currently able to monetize the benefits of integrated energy systems through the sale of excess power to the grid or through participation in ancillary services or demand response markets. [8] Therefore, according to Wood Mackenzie Power & Renewables, an annual reduction of energy costs is the most frequently reported microgrid benefit, which has been achieved either through efficiency gains or through reduced peak power purchases from the utility. [12], [13], [8] In order to realize these benefits, a project must incur upfront capital costs for planning and implementation.
The decision criteria, time horizon, and cost of capital are more easily managed for government and essential services, and universities than for the commercial sector. This is the reason that the well- developed microgrids to date have been in settings such as university campuses, research laboratories, and military facilities. [8]
Low natural gas prices are motivators for CHP and fuel cell deployment in microgrids. [8] In grid- connected microgrids that operate in regions with high electricity prices, such as along the East Coast, current gas prices often favor co-generation over purchases from the grid, creating potential arbitrage opportunities. [8], [28] The NJ TransitGrid project is one example of a microgrid project evaluating potential energy arbitrage opportunities.
According to a recent NEMA report, reduction in the cost of energy produced by DERs due to improvements in those technologies is having a direct, quantifiable benefit for the overall cost of microgrids using those technologies. [12] The cost of the kWh produced from renewable energy resources such as wind turbines and photovoltaic panels has dropped significantly in the last 10 years with noteworthy improvements in operating features, reliability and efficiency. [12] Fuel cells, flywheel, and other DERs provide new opportunities for generating and storing power, as well as balancing variable and intermittent power sources. [12] Furthermore, the cost of more conventional types of DER, such as internal combustion engines and gas turbines has declined due to technology improvements and increased production. [12]
Depending on the environment and the needs of the customer, microgrid applications may not always be cost effective or suitable. Without regulatory change, some non-utility-owned microgrids cannot fully monetize their system’s benefits due to complex regulatory barriers and market rules that may prevent competition and access to the markets. Even when microgrid deployment may be cost effective, developing and proving the business case is difficult, requiring analysis and significant up-front investment and sophisticated tools to assess feasibility. B.2.14 Develop Project Performance and Reporting Plans With clarity on which microgrid project(s) will be pursued and the resources available for staff, funding, and finance, the team can begin outlining performance and reporting plans. Reporting plans may also include regular check-ins during the project to help prioritize tasks, assign the appropriate resources, make connections where needed, and address issues or barriers as soon as they are known. The team will also need to establish metrics to set expectations with contractors and vendors.
Performance plans are often organized around milestones, or key tasks within the appropriate sequence. Performance plans should include schedules, anticipated approval and review needs, and other management considerations.
60 Milestones will vary depending on the project(s), but may include:
Creating an inventory of energy infrastructure and critical infrastructure Survey potential microgrid candidates Conduct preliminary feasibility studies and pre-conceptual design Issue RFP (s) Conduct preliminary engineering design Obtain funding or financing Equipment delivery and acceptance from procurement schedules Passing key risks into new project stages, such as obtaining all permits and beginning construction Design/Build phase Construction Complete
Reporting plans should provide a useful yet simplified way to gather key information for the project team to determine progress. Report information, timing, and approval process should be consistent and properly disseminated. The specific information required varies based on the project size, however it should generally include:
Project name, any identifying number, and date of submission and period covered by report Status summary Performance and milestone updates Progress toward reaching metrics Issues that have arisen or have a reasonable likelihood of arising and mitigation strategies Budget status and expenditures B.2.15 PLANNING: Resources This section contains the relevant lessons learned for Phase 5:
Lessons Learned: Regulatory challenges to resilience Lessons Learned: Hoboken and NJ Transit - Non-utility microgrids face difficult technical and regulatory challenges Lessons Learned: Hoboken and NJ Transit - Interconnection issues need to be addressed through the regulatory framework. Lessons Learned: Summary of policy and regulatory considerations that affect microgrid economics Tools: DERCAM, CREST, SAM
B.2.15.1 Lessons Learned: Regulatory Challenges to Resilience In studies performed by Argonne National Laboratory for the DHS Regional Resilience Assessment Program (RRAP) and other Federal programs, microgrids have been found to be a potential resiliency option. Location is important; a Grid Modernization Lab Consortium (GMLC) project has been awarded to Lawrence Berkeley National Lab (LBNL) for the “Siting Project” to identify the most promising locations for resiliency as well as CO2 reduction and economic returns in California.24 This project could be expanded to consider sites outside California for both resiliency and support for the grid itself as part
24 GMLC Project Title: Topic 1.3.5 ‐ DER Siting and Optimization tool to enable large scale deployment of DER in California
61 of grid modernization. Despite continued interest in the potential application of microgrids to support critical infrastructure and communities, policy and regulatory barriers are still a major factor in promoting the spread of microgrids. For example, in deregulated markets, utilities are restricted from owning generation behind the meter. Non-utility owned community microgrids are difficult to develop due to franchise rights that prevent crossing one or more rights-of-way among other hurdles.
B.2.15.2 Lessons Learned: Hoboken and NJ Transit - Non-utility microgrids face difficult technical and regulatory challenges Utilities often have little incentive or regulatory obligation to accommodate customer-driven microgrids, especially when the boundaries encompass multiple, unrelated customers. For example, under NJ law, electricity customers can establish electrical connections and share electricity from a customer-sited generator provided that they are separated by no more than one public right of way. In other states, such transactions across utility assets are disallowed. In both City of Hoboken and NJ TransitGrid projects, taking full advantage of utility infrastructure was considered unfeasible for technical or regulatory reasons. Cooperation between the utility and regulatory authority are necessary to achieve the desired resiliency and economic potential of the projects.
B.2.15.3 Lessons Learned: Hoboken and NJ Transit - Interconnection issues need to be addressed through the regulatory framework The Hoboken and NJ Transit microgrid projects demonstrated the need for policy and regulatory resolutions to address interconnection of non-utility owned microgrids. Currently, policies and regulations governing interconnection of non-utility microgrids to utility systems are not fully developed. Existing interconnection procedures apply only to individual generation, e.g. CHP or PV. The interconnection process can be technically complex and time consuming which, in some cases, reduces the value proposition for microgrid owners. Depending on the location, it may be very difficult for non-emergency generators to secure construction and operation permits (zoning, air, water and noise permits). Regulatory issues related to the interaction of microgrids and utilities need to be fully explored, especially with regards to the exchange of power between the utility/microgrid and the microgrid/ISO.
62 B.2.15.4 Lessons Learned: Summary of policy and regulatory considerations that may affect microgrid economics Regulation System Impact Challenge/Issue Actors Standby ● Ensures ● Need to standardize and improve State Charges compensation for methodologies for calculating charges and PUCs, resource adequacy ensuring they are applied when Utility ● Increases Microgrid appropriate. costs Fixed ● Ensures ● Need to standardize and improve State Costs/Service compensation for methodologies for calculating charges and PUCs, Fees reliability ensuring they are applied when Utility ● Increases Microgrid appropriate. costs Interconnection ● Ensures reliability ● There is information asymmetry between Utility, Costs measures are state PUCs and utility so oversight to State implemented confirm true costs is challenging. PUCs ● Increases ● DER providers are at a significant (only for uncertainty and disadvantage in negotiating appeal) Microgrid costs interconnection costs with the utility, who sets the costs. The PUC that DER providers would have to approach for an appeal. Load Assurance ● Ensure accountability ● Utilities have a mandate to serve end- State for reliability users and ensure reliability, Non-utility PUCs, ● May increase owned DER raises issues of accountability Utility Microgrids costs and liability that may increase project risk. RPS ● May increase ● RPS mandates must be legislatively State, demand for Microgrids approved per state and goals must be State updated to maintain deployment growth. PUCs ● RPS mandates drive SREC markets which are contrived markets with ad hoc price ceilings that lead to volatile markets. ● Does not provide a self-sustaining market. Permitting ● Depends, may be no ● Permitting can be a lengthy and costly State, impact or may restrict process. Federal islanding or two-way ● Process may require coordinating flow power between multiple state and federal ● May decrease agencies. Microgrid deployment ● Expertise and resources to oversee and manage permitting may be limited. Franchise Rights ● Base case - ensures ● Franchise rights prevent revenue access State utility is incentivized to to non-utility microgrid owners PUCs serve rate payers ● Franchise rights impact ownership ● May decrease structures for microgrids and affect Microgrid deployment financeability
63 B.2.15.5 Tools: DERCAM, CREST, SAM The Distributed Energy Resources Customer Adoption Model (DER-CAM) is a comprehensive decision support tool for microgrid projects. It is one of the most widely used models in the U.S. for determining the optimal distributed energy resource (DER) investments in the context of either buildings or multi- energy microgrids. This model has been in development at Berkeley Lab since 2000.
DER-CAM answers several important questions for decisions related to microgrids:
What is the optimal portfolio of DER that meet the specific needs of this microgrid? What is the ideal installed capacity of these technologies to minimize costs? How should the installed capacity be operated so as to minimize the total customer energy bill? Where in the microgrid should distributed energy resources be installed and how should they be operated to ensure voltage stability? What is the optimal DER solution that minimizes costs while ensuring resiliency targets?
DER-CAM was used to develop feasibility studies for the majority of the 83 feasibility studies for the NY Prize Microgrid Program, the largest in the United States. https://building -microgrid.lbl.gov/projects/der-cam
CREST model from National Renewable Energy Lab (NREL) is an economic cash flow model designed to allow policymakers, regulators, and the renewable energy community to assess project economics, design cost-based incentives (e.g., feed-in tariffs), and evaluate the impact of various state and federal support structures. CREST is a suite of four analytic tools, for solar (photovoltaic and solar thermal), wind, geothermal, and anaerobic digestion technologies. The tool can be accessed via the following link: https://financere.nrel.gov/finance/content/crest-cost-energy-models
NREL’s Systems Advisor Model (SAM) is a performance and financial model designed to facilitate decision making for people involved in the renewable energy industry: https://sam.nrel.gov/
B.2.15.6 Case Study: Integrated End-to-End Microgrid Platform The Stone Edge Farm Microgrid (SEM) was planned, designed and optimized using a market based distributed control technologies and DER-CAM, which is a recognized as a sophisticated microgrid economic decision support solution.
The SEM is a mile-long power line that connects a network of electrical services and integrates various forms of distributed energy generation (solar, microturbine, hydrogen fuel cells) and storage (batteries and hydrogen) with real time monitoring and control. The farm is a 16-acre property that uses 10 different kinds of inverters, a fuel-cell “hive,” and seven battery systems, with the option to add more in the future.
SEM can operate normally, connected to and importing electricity from the utility grid, or disconnected from the grid, in island mode. It can also run as an island parallel to and open to the grid without contributing energy.
64 In islanded “Microgrid mode,” SEM can intentionally export energy onto the utility grid to support the city and local community. The SEM project won a Governor’s Environmental and Economic Leadership Award from the state of California and held up during the devastating fires in Northern California.
This platform enables templating of microgrid designs and reduces deployment and decision time by 90% over legacy microgrid planning, optimization, and system integration processes. DER-CAM analytics automate optimization at both the planning and operation (controller) layers.
65 B.3 PHASE 3: IMPLEMENTATION Implementing a microgrid requires significant time, effort, and investment. There are many cost variables that must be considered when evaluating a microgrid investment which requires significant upfront capital. These variables include capital costs, operating and maintenance costs, utility (electric and gas) rates, interconnection costs, environmental standards, energy load requirements corrected for local weather conditions, and regulatory requirements. Therefore, it is important to evaluate the technical and financial feasibility of a microgrid at your specific facility using a five-step deliverable process originally outlined in the introduction to Microgrid Development Phases in this report: Preliminary Analysis (Phase 1- Steps 2 and 4) Site Screening Analysis (Phase 1 – Step 4) Feasibility Study (Phase 1- Step 4, and Phase 3) Conceptual Design and Financial Analysis (Phase 3) Detailed Design and Engineering Analysis (Phase 3)
In Phase 3, the project team is entering the project execution phase to develop deliverables or tasks that will be tied to the actual microgrid construction project. B.3.1 Feasibility Studies The primary purpose of the feasibility study is to determine requirements and estimate the size of the system (e.g. site requirements, load requirements, DER requirements, objectives, drivers, etc.) and provide a cost/benefit analysis (e.g. scenario modeling, business models, costs, environmental and societal benefits, and value streams) that considers multiple options within a specified degree of accuracy. In contrast, the preliminary feasibility studies conducted earlier provide basic information on whether a microgrid is needed or even feasible based on the site and customer load. The feasibility study should consider and assess several microgrid design options that reveal the trade-offs between economic, environmental, and engineering optimality. These attributes can be evaluated according to:
Technical feasibility Impact on local network conditions (capacity to ride through faults local area resilience) Regulatory compliance Community acceptance Cost
Cost estimates will include the following areas:
Equipment costs – combination of procurement and installation (including construction) costs associated with the microgrid equipment Design costs – costs for architecture and engineering o perform a detailed design as well as a portion of the engineering analysis necessary to design a microgrid Engineering costs – costs to do detailed engineering analysis of the performance and controls for the microgrid Operations and maintenance costs – costs to run and maintain the system, such as the cost of fuel or software and personnel to monitor the system
Depending on the level of detail, time, and resources, this phase could also include some optimization analysis. However, more detail will be provided in the conceptual design phase.
66 B.3.2 Conceptual Design Phase The purpose of this analysis is to conduct deeper analysis to confirm if microgrids are a viable option, both financially and technically at your facility. This will include analysis on controls/communication, and system and regulatory requirements (e.g. DER capabilities, communications, protocols/interface, control architecture as well as power system studies). The conceptual design will provide more detail on the microgrid components, as well as tactical and installation applications. Conceptual designs are typically performed by design and build engineering firms. This work includes site descriptions, microgrid project objectives, design basis and rationale, as well as performance criteria (e.g. electrical and thermal needs, generation assets, critical load needs, and power disruption equipment). For example, this will include critical loads, services and power outage considerations, and step-by-step instructions on the microgrid evaluation and analysis. The performance-based design should also leverage energy surety metrics. This phase will include exercises in evaluating, analyzing, and developing microgrid options, and estimating associated benefits and costs. B.3.3 NEPA, Environmental Reviews, Permitting Before construction can begin, the project team will need to ensure that all NEPA, as well as State and local environmental reviews, assessments, and permits are complete where required. This includes obtaining any relevant categorical exclusions. Assuming NEPA, or some kind of EIS applies, then project construction cannot begin until proper reviews are complete for each project. This can be done by a state or local environmental office for publicly owned facilities pursuing microgrids with some support from private contractors as needed. Privately owned microgrids may need to obtain their own staff to facilitate the environmental review process in coordination with the relevant state or local environmental review office. In almost all cases, permitting will be required, particularly if there is an interconnection to the grid or substation. A dedicated expert could help expedite the permitting process. Each state and locality will have their own permitting and environmental review processes. It is important that these processes are considered early in the timeline, so that the project sponsor doesn’t accidentally bias the NEPA decision making process, opening the project to future litigation for procedural mistakes. B.3.4 Construction and Risk This is the final phase in the development of the microgrid project. Although operations and maintenance will be required post-construction, construction is the final step in getting the microgrid(s) online. This is also the phase of the project that involves the greatest amount of risk to execution.
However, there are strategies to help the project team minimize risk through proper planning (e.g. contingency plan), risk mitigation, or the transfer of risk to other parties willing to assume those risks at reasonable cost. Although not exhaustive, the primary risks associated with construction include:
Technology risk. Occurs when the microgrid does not meet performance specifications despite proper design, manufacturing, and installation. Root causes can be addressed as follows:
Complete feasibility studies, site analysis, detailed and conceptual design, as well as engineering design to select the most appropriate technologies to the project location (s) and needs Rely on proven or commercially available technologies Hire proper workforce or obtain training in the proper use and maintenance of the technology Identify alternative technologies
67 The project team should ensure that the technologies used in the microgrid have adequate warranties from vendors that can honor them to minimize technology risk.
Legal/Regulatory risk. Legal risk stems primarily from misinterpretation of laws and regulations, as well as changes in laws and regulations, or the application of laws and regulations, that would negatively impact the project. Many legal risks could be mitigated through the collaboration with stakeholders in Phase 1 - Steps 3, 4, and Phase 2. The project team will need to ensure they have access to competent legal, regulatory, and contracting experts to include contract provisions, such as indemnity and warranties, to minimize legal/regulatory risk.
Performance risk. Competent vendors and appropriate project specifications can help minimize performance risks, but they cannot eliminate all performance risk. To increase the probability of success, the project team may want to ensure transparency in the vendor selection process. Proper warranties, construction bonding requirements, and provisions for liquidated damages can be negotiated with contractors or vendors. Other performance risks have operational barriers or interdependencies, such as interconnection and dispatch requirements. Often, these performance risks can be addressed through proper relationship management and facilitated meetings. Otherwise, issues may need to be escalated through appropriate channels and adequate time will need to be budgeted to accommodate anticipated performance risks. It is rare for there to be no delays in equipment delivery, the aligning of interdependent projects, obtaining vendors or contractors, building an adequate workforce, etc. Therefore, it is prudent to budget additional time and funding to help buffer performance risks.
Payment risk. Payment risk is addressed through a combination of appropriate capital structures, and due diligence. Appropriate capital structures can help ensure that equity and debt holders are being compensated fairly and there is transparency to show what each party is due. Due diligence involves appropriate review of customers and suppliers for creditworthiness, credit enhancements, revenue projections, debt obligations, firm obligations to pay for performance, credit insurance, etc. B.3.5 Operations and Maintenance Proper operations and maintenance are key to maximizing the value of a microgrid over the long run. Depending on the project structure, operations and maintenance could be done internally by the owner, developer, or it can be outsourced to a third party. If done by a third party, the operations and maintenance may be included as part of a PPA or a separate service agreement. In some cases, the third party could also be the local utility. The project team will need to evaluate all options and pursue the one that best meets their needs and goals. B.3.6 IMPLEMENTATION: Resources This section contains the relevant lessons learned for Phase 3: Lessons Learned: Quick Win Characteristics Software and Modeling Tools B.3.6.1 Lessons Learned: Successful Project Characteristics Successful projects generally have some or all of the following features: Low financial cost Deliverable in less than a year, such as feasibility studies or conceptual design. Established ability to act according to law and institutional authority High likelihood of energy cost savings or community investment
68 Prominent locations, such as a large public building, airport, school, or church Prominent partners, such as well-respected politicians, businesspeople, and community leaders
69 C. APPENDIX C.1 Tools: Software and Modeling Table 11 contains a list of software and modeling tools that can be used to help design and plan a microgrid. This is a sample list, it is not exhaustive, and not all of these tools are need for certain microgrids. At a minimum, DER-CAM can be used for feasibility studies for most microgrids.
Table 11. Available Microgrid Development and Analysis Tools
Software Tool Organization Description And Links DER-CAM Lawrence A technology optimization and economic decision tool for Berkeley National microgrid design and operation. Laboratory https://building-microgrid.lbl.gov/projects/der-cam (LBNL) REopt Lite National Planning tool to evaluate duration, dispatch and economic Renewable viability of grid-connected PV and battery storage at a site. Energy Lab https://reopt.nrel.gov/tool (NREL) HOMER Homer Energy Techno-economic tool for microgrid design and operation. LLC, (NREL) https://www.homerenergy.com/ CHEERs Argonne National A network-based optimization model that builds system Lab representations at the nodal level. Created for hydro but applicable to other DER. https://www.anl.gov/es/water-use-optimization- toolsetconventional-hydropower-energy-and-environmental- systems CYMDIST CYME Planning and simulation of distribution networks, including load International flow, short-circuit, and network optimization analysis. T&D Inc. http://www.cyme.com/software/cymdist/ AURORAxmp EPIS A modeling tool that provides the ability to model technical and economic impacts of policies and parameter sensitivities. http://epis.com/aurora/ DesignBase Power Analytics Broad platform for electrical system design, simulation, and optimization. https://www.poweranalytics.com/paladin-software/paladin- designbase/ EMTP-RV POWERSYS Power system transient simulation, load flow, harmonics. Solutions https://powersys-solutions.com/product/?software=EMTP-RV EUROSTAG Tractebel Power system dynamics simulation; full range of transient, mid- Engineering GDF and long-term stability; steady-state load flow computation. Suez http://www.eurostag.be/ GridLAB-D Pacific Northwest Distribution system simulation and analysis. National https://www.gridlabd.org/ Laboratory (PNNL)
70 OpenDSS Electric Power Distribution system simulation and analysis. Research https://www.epri.com/#/pages/sa/opendss?lang=en Institute (EPRI) PowerFactory DIgSILENT GmbH Power system analysis tool for load flow and harmonics in transmission, distribution, and industrial networks. https://www.digsilent.de/en/powerfactory.html PSCAD/ Manitoba HVDC Power system transient simulation, load flow simulation. EMTDC Research Center https://hvdc.ca/pscad/ PSS/E Siemens Power Load flow, dynamic analysis, and harmonic analysis of utility and Technologies industrial networks. International https://www.siemens.com/global/en/home/products/energy/se (Siemens PTI) rvices/transmission-distribution-smart-grid/consulting-and- planning/pss-software/pss-e.html
MDT Sandia National A decision support software for microgrid Lab designershttp://energy.sandia.gov/download-sandias-microgrid- design-toolkit-mdt/ EMCAS Argonne National An agent-based electricity market model Lab https://ceeesa.es.anl.gov/projects/emcas.html Source: IEEE (Adapted by DOE)
71 C.2 More on the U.S. Microgrid Landscape The purpose of this section is to provide additional background for Phase 1, by showing diverse and varying views of the microgrid landscape that will inform the decision making process with approving bodies. This section provides a high-level overview of the microgrid landscape, including a summary of the locations in the United States, a description of the resources used for generating capacity and more specific details on generating resources for remote microgrids and grid connected microgrids. This section also covers varying levels of complexity and microgrid market segments.
According to Navigant, there were over 220 operational microgrids in the United States representing approximately 1,800 megawatts (MW) in 2016. [11] Navigant estimates there are approximately 600 microgrids not yet operational but in various stages of planning in the United States, and the number could be even higher. [11], [8] According to a 2016 Wood Mackenzie Power & Renewables report, there were approximately 160 operational microgrids representing almost 1650 MW of capacity. However, in 2016, Navigant’s database appeared to have twice as many remote microgrids, most of which were located in Alaska. Consequently, the differences between the number of remote microgrids reported by Navigant and Wood Mackenzie Power & Renewables were based on 1) differences in how each defined a microgrid at the time; and 2) Navigant had access to more microgrids in Alaska in 2016. Figures 16 and 17 illustrate Navigant and Wood Mackenzie Power & Renewables’ data from 2016.
Figure 16. Navigant and Wood Mackenzie Power & Renewables25 Microgrid Tracker Projects by Number
Source: Microgrid Cost Study Phase I Report, NREL and Navigant, 2017
25 GTM Research was renamed Wood Mackenzie Power & Renewables in 2018
72 Figure 17. Navigant and Wood Mackenzie Power & Renewables26 Microgrid Tracker Projects by Capacity
Source: Microgrid Cost Study Phase I Report, NREL and Navigant, 2017 C.2.1 Location Of the operational microgrids tracked by Navigant in the United States, 31% are in remote off-grid locations, with the majority in Alaska. [24] Most of the operational or planned microgrids in the country have a capacity of less than two MW. [11]
Over two thirds of operational microgrids are in the southwest and northeast, with slightly more in the southeast. [24] At around 10%, the Midwest comes in third in terms of number of microgrids and the remaining regions represent approximately 3% to 6% each. [24] There is not enough publicly available data to estimate the average age of these microgrids. However, these microgrids are based on commercially available technologies for both remote and grid-connected systems and most provide basic islanding capabilities for grid-connected systems. [24] C.2.2 Resources for Generating Capacity Microgrids in the United States rely on a full spectrum of resources as part of their generating capacity. [11], [10], [8] However, on a per-unit basis, the majority of microgrids include solar, followed by natural gas, diesel generators, and a range of batteries. [24] Storage systems included a wide range of options such as hot and cold thermal storage, electric centrifugal chillers, pumped water storage, community storage, and electric vehicle batteries. [11], [24] Figure 18 depicts energy sources for current and planned microgrids deployed in the United States. [6] Although microgrids can use a mix of resources, those will require more sophisticated controls such as those used in intermediate or advanced microgrids. The majority of microgrids in operation today are basic microgrids and therefore tracked based on their primary generation source.
26 GTM Research was renamed Wood Mackenzie Power & Renewables in 2018
73 Figure 18. Operational and Planned Microgrids by Energy Source, 2016
Source: Wood Mackenzie Power & Renewables, U.S. microgrid forecast: H1 2019
C.2.3 Microgrids in Remote Locations Remote microgrids are a subset of the overall U.S. microgrid landscape, however they have a significant presence and many of them serve communities that have no access to the main grid. According to Navigant Research, there are approximately 70 remote microgrids in the U.S., the majority of which are in remote regions in Alaska. Information on the microgrid characteristics and operations is provided in an EPRI report describing 13 U.S.-based remote microgrids. [24] Remote microgrids have evolved from diesel generators to integrating generation from renewable energy sources (primarily solar). The technology deployed in remote microgrids is purposely selected to provide off-grid generation within a specified boundary. [10], [14]
The graph in Figure 19 illustrates, on a per-unit basis, the resource mix and storage included in remote microgrids. [24] Notably, most of the legacy remote systems depend on diesel generation as opposed to solar which is more common in the grid-connected microgrid systems illustrated in the following sections. [11], [24] Diesel, solar and natural gas make up nearly half of the resources used to power remote microgrids. [24]
74 Figure 19. Planned and Existing Distributed Generation by Technology for Remote Microgrids
Source: Microgrid Cost Study Phase I Report, NREL and Navigant, 2017
C.2.4 Maturity Level Remote and islanded microgrids in the United States and around the world use relatively mature technologies. [11], [10], [14] However, further investment in controller technology and modeling is needed for more advanced microgrids. [12] The goal of sophisticated controller technology will help integrate distributed generation resources and allow owners /operators of advanced microgrids to better monetize their assets and the resources within the microgrid by participating in wholesale markets where market rules allow them to participate. Other system services (sometimes called “products”) can be offered to the grid. Retail markets and transactive services are other possibilities. [2], [12] The potential markets for remote and islanded microgrids are growing, as more remote communities without power, expensive power, or with only intermittent power seek solutions to harness alternative generation sources, such as renewable energy or natural gas, and reduce reliance on more costly diesel fuels. [11] In the United States, some growth in the market for remote microgrids is expected but it will not be a significant market segment. [74] In contrast, the market for grid-connected and advanced microgrids which meet the needs for reliability and resilience, although nascent, represents the greatest potential for growth. [12] Figure 20 illustrates the potential evolution of the utility value chain and the emerging opportunities for microgrids.
75 Figure 20. Transformation of the Utility Value Chain
NEMA, Powering Microgrids for the 21st Century Electrical System 2016
76 C.3 Definitions Ancillary Services: FERC defines the ancillary services as those services necessary to support the transmission of electric power from seller to purchaser given the obligations of control areas and transmitting utilities within those control areas to maintain reliable operations of the interconnected transmission system. [75] The specific ancillary services vary from market to market, however, the most common are regulation and frequency response service, spinning reserves, non-spinning reserves, and voltage support service.
Behind the Meter Generation: In this model the generation resource runs a large majority of the time to supply the needs of the host (loads behind the meter) thereby offsetting electricity required to be purchased from the local utility and third-party supplier, as applicable, and avoiding the associated full retail cost of that electricity.
Bilateral Agreement: A Bilateral Agreement is an agreement between a willing buyer and a willing seller to exchange electricity, rights to generating capacity, or a related product under mutually agreeable terms for a specified period.
Capacity Markets: Capacity markets ensure long-term grid reliability by procuring the appropriate amount of power supply and demand reduction resources needed to meet energy demand.27 Capacity represents a commitment of resources to deliver when needed, particularly in case of a grid emergency. Capacity markets create prices that attract energy-related investments and power supply resources needed to meet consumer needs for electricity years into the future. Capacity markets, also sometimes called Forward Capacity Markets, provide long‐term wholesale markets with a pipeline for resource adequacy, locally and system wide. This market currently exists in only a few ISO/RTO regions.
Clean Energy Tax Credits: There are two types of tax credits available to some renewable energy technologies and some combined heat and power (CHP) technologies owned by businesses or tax equity investors: production tax credits (PTCs) which are allocated on a per kWh of generation basis for the first ten years of project operation; and investment tax credits (ITCs) which are allocated on the basis of qualifying project costs, and are claimed after the equipment is placed in service.
Commercial property assessed clean energy (C-PACE): A finance mechanism for energy efficiency upgrades or renewable energy installations for private property where repayment is made via a tax assessment placed on the property receiving the upgrades. The loan then remains with the property regardless of ownership changes. This does not apply to publicly owned microgrids that do not pay property tax.
Demand Response: Changes in electric usage by demand-side resources from their normal consumption patterns in response to changes in the price of electricity over time, or to incentive payments designed to induce lower electricity use at times of high wholesale market prices or when system reliability is jeopardized.
Distributed energy resources (DER): DER are energy supplies and power sources that tend to be smaller than the typical utility-scale sources and are usually positioned closer to demand centers, frequently co-
27 PJM’s Capacity Market is called the Reliability Pricing Model.
77 located customer sites. DER technologies can include renewables, natural gas or diesel generators, combined heat and power, storage, and microgrids.
Distributed Energy Resource Management System (DERMS): Provides DER Analytics and software for DER control, load and power flow analysis, heat/power demand and supply forecasting
Federal or State Grants/Loans: Various federal and state grant and loan programs may be available to certain microgrid projects depending on ownership, location, and purpose. For example, USDA’s Rural Utilities Service (RUS) administers programs loans that provide infrastructure or infrastructure improvements to rural communities. The New Jersey Board of Public Utilities and the New York State Energy Research and Development Authority provided grants for microgrid feasibility studies to public entities and municipalities. Some state energy offices have revolving loan funds capitalized by the American Recovery and Reinvestment Act that will recycle and can be used as either direct loans or as credit enhancements such as loan loss reserves.
Federal Tax Credits: The federal investment tax credit (ITC) allows individuals and businesses to deduct 30 percent of the cost of installing a solar energy system from federal taxes owed. Geothermal heat pumps and small wind are also eligible for ITC. The ITC applies to both residential and commercial systems, and there is no cap on its value.
• The production tax credits (PTCs) which apply to wind, are allocated on a per kWh of generation basis for the first ten years of project operation. • While CHP is also eligible for the ITC, it can only receive 10% (as opposed to 30%) on the qualifying costs of the first 15 MW of a project of 50 MW or less (with some other limitations). Equipment must be placed in service before January 1, 2017 to qualify for the credit. • Geothermal, biomass, landfill gas, incremental hydroelectric, and ocean energy projects have until December 2016 to start construction and still be eligible to receive PTCs or elect ITCs. Large geothermal, which is currently set to receive a 10% credit in perpetuity. • Storage integrated with a renewable energy project may qualify for tax credits if at least 75% of the energy stored is from renewable energy (i.e. up to 25% can be “dual use”). • Gradual step-downs of credit values were recently passed and apply to both ITC and PTC.
Firm Power: This is capacity intended to be available at all times, even under adverse conditions.
Grid-connected microgrid: A microgrid can operate in both grid-connected and islanded-mode. A grid connected microgrid can provide power to facilities within the microgrid during non-emergencies while exchanging power with the distribution grid as well as offering ancillary services.
Interconnected Wholesale Generator: Under this participation model, the microgrid would be interconnected directly to the wholesale system and be able to – or required to – participate as a wholesale generator at the capacity (MW) committed. The resource can be designated as either a capacity resource or an energy resource. A capacity resource can earn revenues from the Capacity Market in addition to the Energy Market, however, it will also have more stringent requirements on participation and availability.
78 Macrogrid: The overall, larger grid that interconnects distribution to transmission to large scale generation plants.
MACRs: Microgrid systems using renewable energy and CHP owned by businesses, or tax equity investor, are also eligible to be depreciated at an accelerated rate using Modified Accelerated Cost Recovery Schedule (MACRS). The principal section of the Code detailing eligibility and rules governing the application of accelerated depreciation is Section 168. The 5-year depreciation schedule for which many renewable energy technologies (MACRS) qualify allows for investors to claim larger deductions within the first six years after the project is placed in service. Unlike other tax credits which reduce tax liability (the amount of money owed at the end of each tax year), deductions apply to taxable income. Taken together, accelerated depreciation and the PTC or 30% ITC can amount to over 50% of a project’s capital costs.
Performance Based Contracts: A financing mechanism based on anticipated efficiency gains that allows the customer the ability to avoid upfront capital costs. Repayment is made over the term of the contract and intended to be offset by the savings provided by the project.
Property assessed clean energy: A finance mechanism for energy efficiency upgrades or renewable energy installations for private property where repayment is made via a tax assessment placed on the property receiving the upgrades. The loan then remains with the property regardless of ownership changes.
Private equity: In finance, private equity is an asset class consisting of equity securities and debt in operating companies that are not publicly traded on a stock exchange. A private equity investment will generally be made by a private equity firm, a venture capital firm or an angel investor. Each of these categories of investor has its own set of goals, preferences and investment strategies; however, all provide working capital to a target company to nurture expansion, new-product development, or restructuring of the company’s operations, management, or ownership.
Private debt: Private debt is debt from a loan by a private entity, such as a bank. This could also include debt issued as bonds by a private entity and sold into the private sector. Some microgrid projects may need bridge financing to provide startup capital before long term debt can be secured in the bond markets.
Power Purchase Agreement: A power purchase agreement (PPA) is a contract between two parties, one which generates electricity (the seller) and one which is looking to purchase electricity (the buyer).
Public Debt/Equity: A state or local government entity may be able to borrow money from another state agency or entity, such as a state’s transportation trust fund, state Treasury, or pension system. Funds could be provided in the form of debt or as equity in a project. Equity could be lucrative in cases where there is potential for higher future revenue streams from the microgrid providing upside potential for the equity holders. Some states have also raised funds specifically to invest as equity into specific projects, however, these types of investments have often been provided to start-up companies as venture capital to develop new technologies and manufacturing.
79 Public taxable/non-taxable bonds: A public bond is a debt security, under which the issuer owes the holders a debt and (depending on the terms of the bond) is obliged to pay them interest or to repay the principal at a later date. Bonds are often transferrable and can be sold into secondary markets.
PURPA: PURPA is the Public Utilities Regulatory Policy Act of 1978. PURPA, which was passed as part of the National Energy Act, was intended to encourage the conservation and efficient use of energy resources and to encourage the development of alternative power supplies capable of displacing the inefficient use of oil and natural gas by electric utilities. PURPA requires electric utilities, when they need power, to purchase power from qualified facilities (QFs) at the utilities' avoided cost, provide back-up power to QFs, interconnect with QFs, and operate with QFs under reasonable terms and conditions. PURPA generally exempts QFs, such as small renewable power generation and certain cogeneration, from regulation under the FPA. Some microgrids may qualify as QFs and be able to obtain PURPA contracts as a source of revenue.
Retail Market: A retail electricity market exists when end-use customers can choose their supplier from competing electricity retailers. Currently most microgrids are precluded from selling energy into the retail markets due to franchise right rules and other considerations.
Safety: Safety refers to achieving an acceptably low risk to life and health in the design, construction, operation, and decommissioning of a system. That level of risk is determined by the magnitude of potential consequences, the probability of those consequences occurring, and the costs of risk mitigation.
Security: Security refers specifically to the ability of a system or its components to withstand attacks (including both physical and cyber incidents) on its integrity and operations. It overlaps, in part, with the concepts of reliability and resilience.
Service Agreements: A service agreement is a contract between two parties, one which provides services (such as management of a microgrid to provide energy) and one which is looking to purchase services (such as outsourcing of operations and maintenance of a microgrid and the energy or other benefits it produces).
SRECs: Solar Renewable Energy Certificates (SRECs) or Solar Renewable Energy Credits are a form of Renewable Energy Certificate or "Green tag" existing in the United States of America and sold separately from the electricity. In SREC state markets, the Renewable Portfolio Standard (RPS) requires electricity suppliers to secure a portion of their electricity from solar generators. The value of an SREC can change over time and is determined by market demand (the RPS which often sets the demand) and supply.
State Energy Resiliency Bank: State Energy Resilience Banks (ERBs) or Green Banks are public or quasi- public financial institutions that use innovative financing structures and market development tools in partnership with the private sector to build project pipelines and accelerate deployment of resilient and/or clean energy technologies. ERBs and Green banks often use public funds to leverage private investment through co-investment and risk sharing. The New Jersey Energy Resilience Bank, the NY Green Bank, and the Connecticut Green Bank are a few examples.
State Cap & Trade: State Cap & Trade or Emission trading is a government-mandated, market-based approach to controlling pollution by providing economic incentives for achieving reductions in the emissions of pollutants. This is an emerging area with California as an early adopter.
80 State Tax Credits: Some states offer tax credits for installing renewable energy systems such as solar or geothermal on a home. These state tax credits allow portions of the system cost to be deducted from the owner’s state tax bill, similar to the federal ITC (which will be explained later). These amounts vary significantly by state. The SREC program provides a means for Solar Renewable Energy Certificates (SRECs) to be created for every megawatt-hour of solar electricity created.
Tariffs: A tariff is the pricing structure an energy provider such as a microgrid could collect for energy or other services provided to the grid. This is an emerging area and methodologies to value distributed generation and microgrids to the macro-grid and society are being explored.
Transactive energy or services: A software-defined, low-voltage distribution grid that enables market participation by distributed energy resources (DER) bidding generation of megawatts or kilowatts or ancillary services, such as frequency regulation, spinning reserves, and operating reserves.
Wholesale Markets: Wholesale markets provide for the purchase and sale of energy products – primarily electricity, but also steam and natural gas – in the wholesale market by energy producers and energy retailers. Other participants in the wholesale energy market include financial intermediaries, energy traders and large consumers. Wholesale energy markets developed following the deregulation and restructuring of utilities and electricity markets in the 1990s.
81 C.4 Resources
Community Microgrid Case Study and Analysis Report, Navigant Consulting, 2015
Midwest CHP Hospital Guidebook, U.S. Department of Energy
Community Energy: PLANNING, DEVELOPMENT AND DELIVERY, International District Energy Association
U.S. Microgrid Tracker Q2 2016, Wood Mackenzie Power & Renewables
Microgrids 2017: Market Drivers, Analysis, and Forecast, Wood Mackenzie Power & Renewables
Program on Technology Innovation: Microgrid Implementations: Literature Review, EPRI, 2016
The Bankable Microgrid: Strategies for Financing On-Site Power Generation, Navigant Consulting, 2015
A Short Guide to Consensus Building, An Alternative to Robert's Rules of Order for Groups, Organizations and Ad Hoc Assemblies that Want to Operate By Consensus, MIT-Harvard Public Disputes Program, The Program on Negotiation at Harvard Law School, Accessed 2018
A Framework for Project Development in the Renewable Energy Sector, National Renewable Energy Laboratory, 2013
The Five-Step Process Framework for Project Development, Office of Indian Energy, U.S. Department of Energy, Accessed 2018
CHP Project Development Steps, United States Environmental Protection Agency, Accessed 2018
A Guide to Community Shared Solar: Utility, Private, and Nonprofit Project Development, 2012
The Solarize Guidebook: A community guide to collective purchasing of residential PV systems, 2012
EERE Islands Playbook, U.S. Department of Energy
82 C.5 Example of a Microgrid RFI MASSCEC RFI - Request for Information Regarding Partners for Clean Energy Community Microgrid Technical and Commercial Feasibility Assessment Grants
(RFI MACEC-FY16-001MG) February 1, 2016
1. SUMMARY
The Massachusetts Clean Energy Center (“MassCEC”) seeks to obtain information from parties who may be interested in providing assistance to future Community Microgrid Technical and Commercial Feasibility Assessment Grant Applicants (“Applicants”) and/or joining a project team pursuing feasibility assessment funding through this Request for Information (“RFI”). Applicants will serve as the feasibility study project lead and will apply for funding on behalf of a project team. Applicants for funding will be required to either a) have the capacity to carry out a feasibility study or b) include as part of their project team a proposed consultant to carry out this work. The information submitted in response to this RFI may be publicly available on the MassCEC website to help feasibility assessment grant Applicants facilitate project team formation.
2. PROGRAM OVERVIEW
MassCEC seeks to catalyze the development of community microgrids throughout Massachusetts to lower customer energy costs, reduce greenhouse gas emissions and provide increased resiliency. For the purposes of this RFI, community microgrids are defined as multi-user microgrids supported by the local community, relevant utility(ies), and relevant building or site owners. MassCEC is providing funding for community microgrid feasibility assessments in order to advance microgrid projects through the early development stages and attract third party investment to these opportunities. MassCEC seeks to support feasibility assessments for prospective community microgrid projects which: • Are community, multi-user microgrids (as opposed to single owner or campus-style microgrids); • Are located in Massachusetts; • Have the active and engaged support of the local utility (either investor-owned or municipal light plants); • Demonstrate a strong potential to reduce GHG emissions through the integration of energy efficiency, Combined Heat and Power (“CHP”), renewable energy systems, electric and/or thermal storage technologies, demand management, and other relevant technologies; • Encompass a public or private critical facility including but not limited to schools, hospitals, shelters, libraries, grocery stores, service (gas) stations, fire/police stations or waste water treatment plants; • Attract third party investment; • Highlight Massachusetts-based clean energy/microgrid technology; • Support the distribution system by addressing capacity concerns, providing black start capability, facilitating renewables integration, or providing other services that are meaningful to the local utility.
Feasibility assessment grants will be provided through a competitive solicitation open to municipalities and their public works departments, electric distribution companies, municipal light plants, emergency services departments, owners of critical infrastructure such as hospitals and financial institutions, self- organized groups of commercial building owners, developers or any other entity that either owns property within a proposed microgrid or can demonstrate that they represent stakeholders with the
83 capability of developing a multi-user microgrid addressing the criteria listed above. A sample Feasibility Assessment Scope of Work outline is attached in Appendix A.
3. WHO SHOULD RESPOND?
MassCEC is seeking information from parties that can assist in the development of community microgrid feasibility studies for various Massachusetts communities. Respondents may include microgrid project developers, technology vendors, manufacturers, engineering or design firms, property owners/developers, software developers, financial institutions or lending partners, research institutions, nonprofits and others. Both potential lead Applicants and potential supporting team members are encouraged to respond.
4. REQUESTED INFORMATION
Please limit RFI responses to no more than five pages. Please note that some information supplied may be posted publicly on the MassCEC website. Other portions of the information submitted may be used to inform program design. Staff reserves the right to edit responses for length and clarity, or not post a particular response. 1. Respondent’s company name a. Primary point of contact b. Contact information i. Email address ii. Telephone number iii. Address
c. Service territory (if applicable) d. Company website 2. Describe your type of business/product, e.g. utility, project developer/systems integration, generation, control/EMS/SCADA, storage and management, switching/protection, modeling/simulation, financer, project facilitator, etc. Please provide information in a paragraph or less. If you have more than one product/service that is applicable, please indicate. 3. Describe: a. your potential role on a feasibility study project (lead Applicant, support role, etc.) and; b. your preferred level of engagement (cost share support, in-kind support, etc.) in supporting a feasibility study for a community microgrid in Massachusetts. (MassCEC will provide up to $75,000 in support of a feasibility study; applicant teams will be required to provide a 25% cost share.) 4. Describe other specific entities or types of entities you might choose to integrate in a potential feasibility study applicant team. 5. Describe any current experience with microgrids and/or microgrid feasibility studies, including: a. Location(s) b. Single-user versus multi-user c. Mix of fossil-fueled and renewable power generation sources d. Experience integrating storage e. Utility engagement 6. If applicable, describe any policy levers that you believe might help accelerate the adoption of community/multi-user microgrids in Massachusetts.
84 7. Do you have any suggestions for other resources to help potential applicants? 8. What other comments or questions do you have?
5. RFI PROCESS
MassCEC has planned two phases for the RFI process. The first phase includes the release of this RFI and the accumulation of responses from as many potential feasibility study partners as possible. Upon receiving and reviewing the responses, MassCEC may initiate the second phase in which an internal team of MassCEC members will review the responses and post relevant information to the MassCEC website on a page dedicated to providing resources for potential feasibility study Applicant Teams. A tentative schedule is provided below:
Activity Date Release RFI January 29, 2016 Responses due February 22, 2016 RFI responses posted to MassCEC webpage On a rolling basis; All responses posted by February 29, 2016 Multi-user microgrid Feasibility Study Program February 29, 2016 Offering released
85 D. REFERENCES
[1] Hurricane Sandy Rebuilding Task Force, "HURRICANE SANDY Rebuilding Strategy," U.S. Department of Housing, 2013.
[2] Sandia National Lab, "The Advanced Microgrid, Integration and Interoperability," Sandia National Lab, 2014.
[3] R. DeBlasio and T. Basso, "IEEE Smart Grid Series of Standards IEEE 2030 (Interoperability) and IEEE 1547 (Interconnection) Status," National Renewable Energy Laboratory, 2011.
[4] Wood Mackenzie Power & Renewables, "U.S. Microgrid Tracker Q3 2016," 2016.
[5] NJ Transit, "nj-transitgrid-overview," [Online]. Available: http://njtransitresilienceprogram.com/nj- transitgrid-overview/.
[6] Wood Mackenzie Power & Renewables, "US Microgrid 2016: Analysis and Forecast," 2016.
[7] U.S. Department of Energy, "Microgrid Activities," [Online]. Available: http://energy.gov/oe/services/technology-development/smart-grid/role-microgrids-helping- advance-nation-s-energy-syst-0.
[8] Wood Mackenzie Power & Renewables, "NORTH AMERICAN MICROGRIDS 2014: The Evolution of Localized Energy Optimization," 2014.
[9] Sandia National Labs, Interviewee, Discussions with Sandia National Labs. [Interview]. February 2016.
[10] EPRI, "Microgrids: A Primer," EPRI, 2013.
[11] Navigant, Interviewee, Interview with Navigant regarding Navigant's Microgrid Deployment Tracker 4Q15. [Interview]. 2015.
[12] NEMA, Powering Microgrids for the 21st-Century Electrical System, 2016.
[13] NYSERDA, "Microgrids for Critical Facility, Resiliency in New York State," 2014.
[14] Sandia National Labs, "Army Microgrid Lessons Learned," 2016.
[15] Lawerence Berkeley National Laboratory , "Microgrid Evolution Roadmap Engineering, Economics, and Experience," 2015.
[16] M. Kelly, "Two years after Hurricane Sandy, recognition of Princeton's microgrid still surges," Princeton University , October 2014. [Online]. Available: http://www.princeton.edu/main/news/archive/S41/40/10C78/index.xml?section=featured. [Accessed September 2016].
86 [17] NY-Prize, "NY-Prize," [Online]. Available: https://www.nyserda.ny.gov/All-Programs/Programs/NY- Prize.
[18] NJ Board of Public Utilities, "NJ Energy Resilience Bank," [Online]. Available: http://www.state.nj.us/bpu/commercial/erb/.
[19] Massachusetts Clean Energy Center, [Online]. Available: http://www.masscec.com/technology- programs/community-microgrids.
[20] E. Hsieh and R. Anderson, "Grid flexibility: The quiet revolution," Electricity Journal, vol. 30, no. 2, 2017.
[21] Todd Levin, Argonne National Lab, "Factors that Influence Prices for Frequency Regulation: A Modeling Analysis of PJM," Argonne National Lab, Chicago, 2017.
[22] M. Montoya, R. Sherick, P. Haralson, R. Neal and R. Yinger, "Islands in the Storm, Integrating Microrids into the Larger Grid," IEEE power & energy magazine, 2013.
[23] J. Reilly, Interviewee, Interview with Jim Reilly, Reilly Associates. [Interview]. March 2016.
[24] EPRI, "Literature Review – Microgrid Implementations in North America," 2016.
[25] Navigant Consulting, "Community Microgrid Case Study and Analysis Report," August 2015.
[26] U.S. Energy Information Administration, "Today in Energy," EIA, 9 October 2018. [Online]. Available: https://www.eia.gov/todayinenergy/detail.php?id=36675. [Accessed 9 October 2018].
[27] J. Strahl, E. Paris and L. Vogel, "The Bankable Microgrid: Strategies for Financing On-Site Power Generation," Navigant Consulting, 2015.
[28] Sandia National Labs, "NJ TransitGrid Feasibility Study," 2014.
[29] Lawrence Berkeley National Laboratory, "Value Streams in Microgrids: A Literature Review," 2015.
[30] Berkeley Lab, Grid Integration Group, "Microgrids at Berkeley Lab," [Online]. Available: https://building-microgrid.lbl.gov/ . [Accessed March 2016].
[31] U.S. Department of Energy, "https://energy.gov/eere/amo/combined-heat-and-power-basics," 2017. [Online]. [Accessed 2017].
[32] Energy Information Agency, [Online]. Available: https://www.eia.gov/tools/faqs/faq.cfm?id=105&t=3.
[33] U.S. Department of Energy, Office of Energy Policy and Systems Analysis, "QUADRENNIAL ENERGY REVIEW: ENERGY TRANSMISSION, STORAGE, AND DISTRIBUTION INFRASTRUCTURE," 2015.
[34] Rivermoor Systems, "NORTHAMPTON RESILIENCY STRATEGY ANALYSIS," 2014.
87 [35] Argonne National Laboratory, " DHS Regional Resilience Assessment Program (RRAP)," 2014.
[36] Executive Office of the President, "Economic Benefits of Increasing Electric Grid Resilience to Weather Outages," 2013.
[37] Quadrennial Energy Review Analysis: Department of Energy, Office of Energy Policy and Systems Analysis. , "Estimating the Effects of Sea-level Rise on Infrastructure Exposure to Storm Surge," 2015.
[38] National Hurricane Center, " Tropical Cyclone Report: Hurricane Sandy," National Oceanic And Atmospheric Administration, 2013.
[39] President Obama's Hurricane Sandy Rebuilding Task Force, "Hurricane Sandy Rebuilding Strategy," 2013.
[40] Hurricane Research Division. National Oceanic and Atmospheric Administration, "The thirty costliest mainland United States tropical cyclones 1900-2013".," National Oceanic and Atmospheric Administration., 2014.
[41] United States National Oceanic and Atmospheric Administration's National Weather Service, "Hurricane/Post-Tropical Cyclone Sandy, October 22–29, 2012 (Service Assessment).," United States National Oceanic and Atmospheric Administration's National Weather Service, May 2013..
[42] U.S. DEPARTMENT OF ENERGY, OFFICE OF ELECTRICITY DELIVERY AND ENERGY RELIABILITY (OE), "Hurricane Katrina Situation Report #11," 2005.
[43] U.S. Department of Energy, Office of Electricity Delivery and Energy Reliability, "Comparing the Impacts of Northeast Hurricanes on Energy Infrastructure," 2013.
[44] U.S. Department of Energy and Natural Resources Canada, "Final Report on the Implementation of the Task Force Recommendations," 2006.
[45] Office of Inspector General, Department of Health and Human Services, "HOSPITAL EMERGENCY PREPAREDNESS AND RESPONSE DURING SUPERSTORM SANDY," 2014.
[46] C. Ornstein, "Why Do Hospital Generators Keep Failing?," ProPublica, 2012. [Online]. Available: https://www.propublica.org/article/why-do-hospitals-generators-keep-failing. [Accessed March 2016].
[47] R. Thornton, "District Energy/Microgrids: Resilient, Efficient Infrastructure," International District Energy Association, Boston, 2012.
[48] F. J. Eckert, "Bergen County Utilities Authority Combined Heat and Power Cogeneration FacilitiesCogeneration Facilities," IDEA Centennial Conference: "Local Energy, Global Solution", 2009.
88 [49] J. Pyper, "Microgrids become reality as Superstorm Sandy's anniversary nears," [Online]. Available: http://www.eenews.net/stories/1059987045. [Accessed July 2016].
[50] USGS Earthquake Hazards Program, 2018. [Online]. Available: https://earthquake.usgs.gov/earthquakes/eqinthenews/2011/usc0001xgp/.
[51] National Police Agency of Japan, "Police Countermeasures and Damage Situation associated with 2011Tohoku district - off the Pacific Ocean Earthquake," 2018. [Online]. Available: https://www.npa.go.jp/news/other/earthquake2011/pdf/higaijokyo_e.pdf. [Accessed 2018].
[52] B. A. Zhang, "Top 5 Most Expensive Natural Disasters in History," 2011. [Online]. Available: https://www.accuweather.com/en/weather-news/top-5-most-expensive-natural- d/47459?partner=. [Accessed 2018].
[53] K. Hirose, T. Shimakage, J. T. Reilly and H. Irie, "The Sendai Microgrid Operational Experience in the Aftermath of the Tohoku Earthquake: A Case Study," NTT Facilities, Inc, 2013.
[54] MIT-Harvard Public Disputes Program, "Short Guide to Consensus Building: An Alternative to Robert's Rules of Order for Groups, Organizations and Ad Hoc Assemblies that Want to Operate By Consensus," 2002. [Online]. Available: http://web.mit.edu/publicdisputes/practice/shortguide.pdf. [Accessed 2018].
[55] National Renewable Energy Laboratory, "A Framework for Project Development in the Renewable Energy Sector," 2013. [Online]. Available: https://www.nrel.gov/docs/fy13osti/57963.pdf. [Accessed 2018].
[56] U.S. Department of Energy, Office of Indian Energy, "The Five-Step Process Framework for Project Development," 2015. [Online]. Available: https://www.energy.gov/sites/prod/files/2015/08/f25/5- Step%20Project%20Development%20Overview.pdf. [Accessed 2018].
[57] United States Environmental Protection Agency, Combined Heat and Power (CHP) Partnership, "CHP Project Development Steps," [Online]. Available: https://www.epa.gov/chp/chp-project- development-steps. [Accessed 2018].
[58] U.S. Department of Energy, SunShot Initiative, "A Guide to Community Shared Solar: Utility, Private, and Nonprofit Project Development," U.S. Department of Energy, , Washington D.C., 2012.
[59] U.S. Department of Energy, SunShot, "The Solarize Guidebook: A community guide to collective purchasing of residential PV systems," U.S. Department of Energy , Washington, D.C., 2012.
[60] Microgrid Resources Coalition , "Statement of Goals," [Online]. Available: http://www.microgridresources.com/About-MRC/Statement-of-Goals.aspx. [Accessed February 2016].
[61] Federal Energy Regulatory Commission, "SMALL GENERATOR INTERCONNECTION AGREEMENT (SGIA)," Federal Energy Regulatory Commission, Washington D.C., 2016.
89 [62] Federal Energy Regulatory Commission, "Standard Interconnection Agreements & Procedures for Large Generators," Federal Energy Regulatory Commission, Washington D.C., 2018.
[63] M. Regante, "Tax Issues in Financing Renewable Energy Projects," Milbank, Tweed, Hadley & McCloy LLP, 2012.
[64] R. e. Catwell, "Power the Fight: Capturing Smart Microgrid Potential for DoD Installation Security," Business Executives for National Security, 2012.
[65] A. Marr and W. Rickerson, "Generating Security: Resilient, Renewable Power for U.S. Military Installations," Center for National Policy, 2014.
[66] S. B. Van Broekhoven and et.al, "Microgrid Study: Energy Security for DoD Installations, Technical Report 1164," Lincoln Laboratory, Massachusetts Institute of Technology,, 2012.
[67] U.S. Department of Energy, "Staff Report to the Secretary on Electricity Markets and Reliability," U.S. Department of Energy, Washington D.C., 2017.
[68] O. Saadeh, "Microgrids Flourishing in Spite of Regulatory Barriers," Wood Mackenzie Power & Renewables, 2015.
[69] Maryland's Resiliency Through Microgrids Task Force, "RESILIENCY THROUGH MICROGRIDS TASK FORCE REPORT," 2014.
[70] California Public Utility Commission, "PPDMicrogridPaper414.pdf," California Public Utility Commission, 2014. [Online]. Available: http://www.cpuc.ca.gov/PPDMicrogridPaper414.pdf. [Accessed 2016].
[71] D. Erickson, Interviewee, Lead analyst on Distribution Resources Planning proceeding at the California Public Utility Commission. [Interview]. March 2016.
[72] California Public Utilities Commission, Policy & Planning Division, "Microgrids: A Regulatory Perspective," 2014.
[73] E. Hayden, "INTRODUCTION TO MICROGRIDS," Securicon, 2013.
[74] Wood Mackenzie Power & Renewables, "U.S. microgrid forecast: H1 2019," Wood Mackenzie Power & Renewables, Boston, 2019.
[75] Federal Energy Regulatory Commission, "Pro Forma Open Access Transmission Tariff," 2003.
90