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Natural disasters could spark US microgrid surge

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Natural disasters could spark US microgrid surge

SNL Image

Calistoga, Calif., which in October 2017 suffered wildfire damage related to electrical equipment, had its power cut
in October 2018 to prevent another blaze. It is now exploring microgrids, part of a growing national trend.
Source: Associated Press

As peak wildfire season looms over the Western U.S., California utility customers are bracing for more preemptive power cuts to shield communities from a third consecutive year of utility-ignited infernos. In the Southeast and Caribbean, meanwhile, the first major storm of the 2019 Atlantic hurricane season, Hurricane Dorian, devastated the Bahamas and knocked out power for hundreds of thousands of people up the East Coast.

The increased frequency of such natural disasters has sparked renewed interest in small standalone power systems and could lead to a mass rollout of microgrids capable of powering households, critical facilities like hospitals, fire stations and wastewater treatment plants, and ultimately even entire towns, independent of the wider power grid.

Companies ranging from fuel cell specialist Bloom Energy Corp. to global energy giant Royal Dutch Shell PLC are betting that, as climate change drives up the frequency and duration of power outages, customers will increasingly turn to microgrids to keep their lights on. Analysts also foresee significant expansion ahead, including several gigawatts in the U.S. plus a growing, multibillion-dollar global market.

Wood Mackenzie Power and Renewables expects the United States to add roughly 650 MW of microgrid capacity in 2019, up from 545 MW in 2018, and around 4,500 MW through 2024, driven by microgrids using fossil fuels and solar-plus-storage facilities that qualify for federal tax incentives. That would more than double the country's installed microgrid capacity at the end of 2018.

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Citing anticipated strong growth in the U.S. and the Asia-Pacific region, Navigant Research forecasts total global spending on microgrid projects to roughly quadruple to more than $40 billion per year in the next decade.

State regulators are implementing key new initiatives, including new laws in California and the U.S. Caribbean commonwealth of Puerto Rico, passed in the wake of firestorms and hurricanes, respectively. Puerto Rico's officials envision "a whole system of microgrids working together," said Wood Mackenzie analyst Isaac Maze-Rothstein, an innovation that "would be a really big shift."

Most U.S. microgrids serve individual buildings, campuses or military bases for a single customer. Some systems provide backup power for critical loads, while others operate full-time, and can be built to interact with the main grid, tapping grid services as an additional revenue source, or to "island" from the grid in crises.

Additional initiatives are under way in Colorado, Georgia, Hawaii, Massachusetts, Maine, New York, North Carolina and Washington, D.C. Along with state and local laws, market demand for enhanced resiliency in the face of disasters is also driving purchasing decisions. The Southeast, for instance, led U.S. regions in 2018 without state incentives, according to Maze-Rothstein.

'We expect tailwinds'

Seeing opportunity in times of crisis, microgrid technology suppliers are positioning themselves for growth.

"The geographic areas with some of the greatest exposure to extreme weather-related disasters are also the territories where Bloom operates today," K. R. Sridhar, president, chairman and CEO of Bloom, said in an Aug. 12 earnings call. "We expect tailwinds for our business as a result."

Shell, which owns Chicago-based microgrid developer GI Energy Inc., in 2019 announced a new campus-based microgrid in Houston that includes solar, gas, lithium-ion batteries and electric vehicle charging. In 2018, the British-Dutch oil major also purchased a share of Indian microgrid company Husk Power Systems Pvt. Ltd.

In June, a battery subsidiary of French oil and gas major Total SA acquired Indiana-based microgrid startup Go Electric Inc.

Schneider Electric SE, which has designed and built more than 300 microgrid projects in North America alone, in April formed a microgrid and critical infrastructure joint venture with global investment firm Carlyle Group LP.

Caterpillar Inc., a long-time supplier of fossil fuel generator sets, has expanded into microgrid systems combining solar, battery storage and fossil fuels, while Rolls-Royce Power Systems AG, an affiliate of Rolls-Royce Holdings PLC in April announced a global microgrid partnership with Switzerland's ABB Ltd.

"Our microgrid developments are being met with considerable interest on the global market," Rolls-Royce Power Systems CEO Andreas Schell said in an Aug. 6 news release, that cited initial renewable energy-fossil fuel hybrid projects in Germany and the U.S.

Sunrun Inc., a California-based supplier of home solar-plus-storage arrays, sees renewable energy microgrids in the mix as the state adapts its power system to a new era of elevated wildfire risk. But adoption may not significantly materialize until more blackouts hit, Sunrun Co-Founder and CEO Lynn Jurich said on an Aug. 7 earnings call.

"We're just entering the fire season, we're on early days in this, and so you're not going to see the demand uptick in a meaningful way until people have been through a couple [of] outages," she said.

SNL Image

San Diego Gas & Electric integrated this solar farm into a microgrid with batteries and diesel generators
that powered
the town of Borrego Springs through a 2015 outage.
Source: San Diego Gas & Electric Co.

'Shockingly behind'

That may happen soon, after the California Public Utilities Commission in May approved an expansion of intentional outages as part of regulated utilities' wildfire safety plans.

"The public safety power shutoffs have been a catalyst," said Malini Kannan, an engineer with the Clean Coalition, an advocacy group that is conducting a feasibility study on multiple renewable energy microgrids for the city of Calistoga, Calif. Calistoga is one of numerous wine-country communities scarred by the October 2017 fires across Northern California, linked to the dangerous mix of climate change and faulty power lines owned by Pacific Gas and Electric Co., or PG&E.

PG&E, the state's largest utility, and its parent company PG&E Corp. are under Chapter 11 bankruptcy protection brought on by massive wildfire liabilities. It has one of the world's most flammable service territories. In the past year, PG&E cut power in Calistoga once and warned of outages twice, most recently in June. Since October 2013, PG&E and Sempra Energy subsidiary San Diego Gas & Electric Co., an early adopter of strategic power cuts, have triggered more than 200 combined outages, some for days at a time, according to CPUC data.

California is "shockingly behind in building resiliency into its system," wrote Tim Edwards, president of Cal Fire Local 2881, a union representing members of the California Department of Forestry and Fire Protection, in a recent editorial for the nonprofit news site CalMatters. "For several years, experts have recognized the benefits of microgrids, but regulatory roadblocks and resistance from investor-owned utilities have stymied their deployment."

The PUC's Sept. 12 approval of a fresh $100 million "equity resiliency budget" for the installation of batteries at low-income households and critical facilities in high-fire threat areas could help jump-start the market. The funds can be used for backup power or fully independent microgrids.

Regulators also opened a new proceeding to spur the commercialization of microgrids, in line with a 2018 state law that requires regulators to work with the California ISO to make microgrids "a successful, cost-effective, safe, and reliable commercial product." To date, the California Energy Commission has spent roughly $85 million in research and demonstration funds on nearly two dozen microgrids, and is now restructuring its microgrid investment strategy to support the creation of commercial business plans.

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Ameren Corp's microgrid in Champaign, Ill., combines wind,
solar,
natural gas and battery storage.
Source: Ameren Corp.

Overcoming barriers

One of the main barriers to microgrids historically has been connecting to utility lines, said Peter Asmus, a research director at Navigant who charts the microgrid market.

For community microgrids, which involve multiple electric customers or whole towns, the hurdles are higher because existing laws block customers from transferring power over a public street, he said.

"Community microgrids have the most government support but they're the ones that take the longest," Asmus said. Often communities want only renewables, which add cost and make the system more complicated to manage, requiring larger battery systems than microgrids that include fossil-fuel generation.

Fossil fuels remain dominant in microgrids, accounting for about 80% of the 4,300 MW of U.S. microgrid capacity installed at the start of 2019, according to Wood Mackenzie, though the firm expects solar and batteries to make substantial inroads over the next five years.

The Clean Coalition, which advocates for renewables-based community microgrids, is calling for California to streamline its interconnection process to cut cost and time, to establish a new procurement method for microgrids, and to recognize a standard value for the resiliency microgrids provide.

"Once we get a couple of these built and deployed, I think you will see others jump on this opportunity," Kannan said. "Resilience is a driver in a way it hasn't been before."