MicroGrids’ Contribution to the Smart Grid

April 6, 2013

When power companies first set up their businesses in the 19th century they joined up a series of distributed energy generation stations operating within a microgrid that served a town and its environment. It was envisioned that the electric utility industry would involve small firms generating direct current (DC) power for individual businesses in the microgrid.

However less than 30 years later this DC-based microgrid model gave way to alternating current (AC) long-distance transmission and regulation shifted from local to regional and national control. Over the course of the early 20th century, isolated microgrids offered by competing utilities gave way to a monopoly system featuring centralized power plants owned by utilities.

For the next several decades, utility monopolies favored the economies of scale of large coal, then nuclear, and then natural gas power plants. This trend toward larger and larger generation facilities started to change in the 1980s, and more recently independent power producers have built generation facilities that rely on renewable energy including wind, solar, geothermal, and biomass resources, which so far have been designed to link into the central power plant radial model.

It is now becoming clear that the fundamental architecture of today’s electricity grid, based on the idea of a top-down radial transmission system with unidirectional energy flows from large centralized power plants, is not the most appropriate to meet the needs of the low carbon economy. Microgeneration and microgrids need to be incorporated into the electrical supply system, because they can generate from VRS, help balance out supply and demand, and make the system more flexible and reliable.

Electricity has been generated in commercial and industrial premises for at least 100 years in all developed countries of the world. In the automotive, chemical, food processing, mining, paper, pharmaceutical, and general processing industries, CHP systems have been installed to generate electricity and provide steam or hot water for the manufacture of their products.

Many of these systems feed electricity into the grid and at times supplement their electricity needs from the grid. In the commercial building sector, hospitals, university campuses, and other major building complexes carry out the same practice, but, in their case, use hot water for heating the buildings.

Many of these operations are now installing more energy-efficient systems, particularly using wind, solar, biomass, and ground source and airside heat pumps. This electrical generation can be fed into the grid and will help the utility companies to meet the mandates to reduce carbon dioxide (CO2) emissions. Even conventional-powered CHP units have a higher thermal efficiency than most utility coal-fired plants, so some CO2 reduction would be achieved when taking their power, and further efficiencies could be gained from reduction in transmission losses.

While we do not have any comprehensive statistics on the numbers or generating capacity of these systems in the world, official statistics from the US Energy Information Administration show that industrial and commercial CHP systems generated approximately 5% of the US total generation in 2009, and, if we add electrical generation from non-utility sources, it amounts to 11%. If over time only half of this was generated from renewable sources and delivered into the grid, it would reduce the capital cost of providing this from central generation plants.

Microgeneration is being installed in domestic premises, and many trials have now successfully demonstrated that solar power can produce an average of 30% more energy than the homes can use and the excess can be delivered back into the regional electricity grid. Some demonstrations have linked whole villages together through a microgrid and have made the energy balance and net energy usage of the village publicly available via an energy dashboard placed at a central point and online through a website. Intelligent energy meters designed to monitor each house individually integrate directly into the microgrid infrastructure to feed the data to the public viewing station.

Microgrids can be isolated from the utility’s distribution system during outages, and they also have the capacity to optimize and better manage renewable power generation sources such as wind and solar. The former is particularly valuable for critical mission operations such as military sites and server farms ensuring secure power. Another important benefit that microgrids offer is that during power outages on the main transmission grid they are able to feed electricity into it, but under present grid protocols in the US they are not allowed to.

Thermal storage options are currently readily available. There are a number of microgrid demonstration plants that are now assessing commercially operative solar photovoltaic (PV), fuel cells, advanced storage, and legacy natural gas-fired turbines, and they have proven that they can act as a demand-response source for the grid.

Perhaps the most forward looking work in the microgrid space, however, is a $6 million residential storage project that offers an alternative to AEP’s community energy storage concept. Working with SunPower (solar PV panels), Saft (Li-ion batteries), Silent Power (HEA inverter system), and GridPoint (power monitoring and dispatch software), this residential energy storage (RES) pilot project is designed to demonstrate how to leverage federal and state subsidies to bring down the cost of storage at the individual residential level. For example, the battery backup is included as part of the solar PV system and, therefore, is eligible for the 30% federal investment tax credit.

Since the Sacramento Municipal Utility District (SMUD) is a municipal utility, the RES model does not bump up against some of the limitations facing investor-owned utilities, such as preferences for large capital costs that can be put into the rate base and conflicts between shareholders and ratepayers.

There are two schools of thought about how the Smart Grid will evolve. One promotes a “system of systems” view, in which the current centralized structure continues to be the dominant model, and the other focuses on an interconnected network of microgrids. Neither have the monopoly on benefits, but microgrids can serve as the ideal building blocks for tomorrow’s interactive, two-way, and self-sustaining grid infrastructure.

In the UK, the coalition government’s new strategy to promote microgeneration and decentralized energy published in June 2011, is aimed at making localized energy a real possibility for householders and communities across the UK. This publication is the result of successful collaboration with the industry, consumer groups, and others, and follows a public consultation, which closed in March 2011.

The Strategy includes actions to improve the Microgeneration Certification Scheme (MCS) process, making it work more effectively for small and medium enterprises, while continuing to protect consumers; for example by allowing greater flexibility in the treatment of microhydro installations. This has been taken forward through the Feed-in Tarrifs (FITs) comprehensive review launched in September 2012. In FITs Phase 2B Government Response document, they advised that a number of proposed changes required further consideration to ensure the final provisions are as effective as possible. On September 11, 2012, the British Department of Energy and Climate Change (DECC) released a consultation document, which considered each of these issues in detail and sets out their intentions. The response document explains these decisions. The intention is that the decisions made in light of this consultation will be implemented in the changes to the FITs Order and the Electricity Licensees Standard Conditions documents, which will be laid before Parliament in late 2012. Subject to Parliamentary scrutiny, the decisions announced in the Phase 2b Government response will take effect from December 1, 2012.

Changes which impact on the legislation process, will not take effect until the start of the 2013/14 FITs year (April 1, 2013). This is to ensure a smooth transition for these changes within the annual FITs cycle. Other actions include ensuring consumer protection is maintained across the microgeneration sector and developing the skills and knowledge needed as it expands.

The Strategy will help bring small-scale renewable technologies into homes, businesses, and communities across the country, moving microgeneration from a niche market to the high street and helping to reduce the UK’s carbon emissions. Microgrids function as miniature versions of the larger electrical grid with three significant distinctions:

  1. Microgrids don’t require buildouts of transmission facilities since generation is colocated with use of electricity.
  2. Microgrids integrate renewables on a much greater scale than the overall grid.
  3. Microgrids use onsite energy storage to be self-sufficient or “off-grid” for periods of time. If we identify mission-critical operations and incorporate them in microgrids, we can improve the reliability of the overall electricity supply and shield them from larger system disruptions. Islanding individual or networked microgrids can avoid greater instabilities to the outside grid, or even transmit power back to the grid to stabilize it.

What Can Virtual Power Plants Add to the Equation?
Virtual Power Plants (VPP) is a new terminology that refers to distributed generation plants that can be joined up through the Internet. Collectively they present a better commercial proposition to deliver electrical power to the Smart Grid and generate revenues from their often under used capacity. VPPs should be able to provide extraordinary value and services to transmission and distribution (T&D) grid infrastructure as well as to myriad of stakeholders engaged in the provision of electric power.

It will require new business platforms to manage this increasing diversity and complexity of distributed energy but we think that in the commercial and industrial buildings market the companies capable of doing this are already in place. Honeywell, Johnson Controls, Schneider Electric, and Siemens have been providing Energy Management Services for the real estate market for many years.

They are (given that their clients, normally the owners of the power systems, get some benefit) able to aggregate this capacity and supply within their domain or export to the grid. They are already in control of maximizing the buildings environmental efficiency and with this additional tool will gain further efficiencies and reduce CO2 emissions. Taken to its ultimate, VPP could apply to virtually the entire power market segregated into regional VPPs.

Interfacing Smart Grid and Microgrid With EMS and HAN
Microgrids can play a vital role in combining with Smart Grid to produce a more reliable safe and efficient electrical utility infrastructure. This has, in the last two years, resulted in a change of emphasis from one believing the solution is just modernizing the existing central orientated infrastructure, to a decentralized model that joins together with microgrids and other energy sources through interfacing through energy management systems in Smart Buildings in the industrial, commercial and domestic spheres with electrical generating capacity to form a comprehensive solution. This solution provides a relatively quick return on investment (ROI) and is commercially viable. The technology to do this is now in place. The supply side consists of a number of major international companies that can deliver on all of these solutions and has identified this as a viable and fast growing market that they are heading to exploit.

Depending on the country, the business will consist of thousands of much smaller contracts than a central Smart Grid approach with the building/site owner getting a return on the guaranteed reduction in energy costs. The supply side is now working hard on promoting this approach and in many countries the regulations are being changed to make sure that they do not operate as a barrier to this decentralized model.

We have below reviewed the status of Home Area Networks (HAN) and Energy Management Systems (EMS), and discussed how these can come together with possibly microgrids on the same sites and/or joining the sites together to form a VPP complex.

Home Area Networks (HAN)
Vineyard Power on Martha’s Vineyard, the island off of Massachusetts’ Cape Cod, is involved in a pilot program with GE, utilizing GE’s Nucleus energy management system and the company’s Brillion smart appliances. So far, the pricing signals are simulated and based on regional wholesale electric rates.

The Nucleus energy management system passes this information along to the GE smart appliances, and they can delay a cycle, depending on the cost of energy at the time. Homeowners maintain the option of overriding a delay. So in this case, the Internet is replacing AMI (Advanced Meter Infrastructure) meters, through a home area network that is connected to the Internet.

Providing such IP-based services over the Net would require some level of energy management within the home, such as what’s being done with GE’s Nucleus systems on Martha’s Vineyard. That means more of an emphasis on whole-house energy management systems with possible tie-ins to other systems such as security, lighting control, HVAC, motorized shading, and home control and automation, whereas smart meters could communicate pricing and other signals directly to smart appliances.

Home energy management systems could also offer homeowners more options, such as more sophisticated levels of pre-programmed preferences than are more likely to be possible via basic smart meter-to-smart appliance connections. For example, whether to turn on an appliance might be dependent upon not only a signal being received from the utility but on the amount of energy that has already been consumed in a home that day, week, or month.

It would appear that electrical utilities are not particularly interested in using this alternative, they want to be assured that they can count on the proper responses to control and balance demand which they can achieve through the smart meter solution. Now that many utilities have gone down the smart meter route its hardly surprising that they are not keen to embrace the IP-based energy management system which appears practical, and in many cases more cost efficient, solution. However they are now seriously investigating how they could receive energy consumption data from HAN so that they could get better data on which to operate demand response programs. One way or another they are going to be obliged to interface with EMS and HAN in domestic buildings.

It’s almost 15 years since the first home automation systems were introduced into the European market and so far they have failed to become a regular business. Their raison d’être was to reduce energy consumption and add a touch of excitement to our lifestyle. This has not been sufficient to create enough demand to get the business off the ground. There has been in the last two years a significant renewed interest in HAN, now that it can provide further operational and cost benefits through interfacing with smart grid. We are now seeing a plethora of new companies setting up and no shortage of interest from the investment community to supply funds?

In Europe, the general consensus of opinion is that despite the synergy provided through the interface with Smart Grid it will take time to overcome the inertia. However, while the pundits debate about its future, Memoori has identified a strong emerging trend, particularly in the US, to press on and develop this market, and not just by entrepreneurs setting up new companies.

GE Appliances & Lighting plans to be the first major appliance company to provide a whole home solution for energy management by going beyond the kitchen to provide insight into energy usage in the family room, the basement, the home office, and all other rooms of the house. From the GeoSpring hybrid hot water heater, Nucleus energy manager and programmable thermostats, to GE Profile Appliances enabled with Brillion technology and GE smart meters, GE is developing solutions to help consumers better manage and control their energy use and costs.

An important, but less bold, move was recently made by Honeywell when they announced a supply agreement with EnergyHub, a leading home energy solutions provider. Honeywell will integrate EnergyHub’s technology into its energy management product portfolio, providing consumers with a robust set of tools to simplify their management of energy and control costs in the home. Given that Honeywell is one of the world’s leading suppliers of domestic environmental controls, Energy Hub is making sure by this move that it has in place strong channels of distribution.

iControl and uControl have entered into a definitive merger agreement. The merger combines the two US market leaders in broadband home management, and promises to deliver a best-in-class solution that includes interactive home security, energy management, and home health care solutions to broadband service providers, home security companies, and utilities. The combined company has launched commercially with several service providers and will announce additional deployments in the near future. They sensibly have decided that the time has come to share research and marketing costs.

Energy efficiency company Opower raised $50 million in a third round financing, jointly led by Accel Partners and Kleiner Perkins Caulfield & Byers, and more recently have formed an alliance with Honeywell. Opower is a rather special company for it is active across Smart Grid and energy management and also is a software-as-a-service provider. Last year Grid2Home, founded in 2009, a developer of smart energy software, announced it had completed a $4 m round of seed funding, led by Granite Ventures.

So through M&A, alliance and invested capital the home energy hardware and software business is rapidly developing. Whilst the recent frenzy could be considered “an overkill”, the long term strongly suggests that this fledgling business will become a significant support segment to the Smart Grid industry. To overcome the inertia, lessons from the past need to be learnt but the interfacing with Smart Grid and resultant synergy make for a compelling argument that it will succeed.

There are those that believe HAN could provide, through the Internet, all the data that the utilities need from residential buildings and thus provide an alternative solution to smart meters and AMI. This seems like a good time push this opportunity as 2013 is forecast to see demand for smart meters plateau, sales will rise in subsequent years and not peak until 2018, but it is unlikely now for it to be the major recipient of stimulus funding.

Smart meters are synonymous with Smart Grid to the extent that it is regarded as the cornerstone of its development. However there is a growing view out there that demand response and pricing signals to homes and businesses can be better achieved via the Internet solution.

Energy Management Systems
Digital Energy Management Systems, better known in the US as Building Automation Systems (BAS) were first introduced in the mid “˜80s for controlling environmental energy equipment in the commercial and industrial building sector. The brand names of some are still used because they introduced digital systems well before the majors, but sadly they could not grow fast enough to retain their independence. It was not a lack of technology that caused their demise but weak channels of distribution and lack of funds to deliver international exposure.

In the last two/three years it has been proven that a smarter, stronger more robust onsite power system can be enabled through interfacing with the energy management system. It is an obvious place to start because one unit of energy saved at the point of usage can save three units at the point of central generation.

In the US alone, electricity consumption is some 4 trillion kWh a year, with commercial buildings alone accounting for 37% of the total, representing an annual expenditure of $135 billion in 2010 if only 5% of consumption could be conserved it would produce an annual saving of $6.75 billion.

EMS is already installed to control and improve energy efficiency of the environmental services and when interfacing with onsite electrical generation or virtual power plants it can provide further energy savings at very little additional cost. The cost of interfacing through a software program is negligible, compared with the saving on the energy bill. Then, when interfacing with the utility network, they are connected to devices beyond the meter and gather consumption and usage patterns that enable the utilities to balance the network and introduce dynamic pricing so reducing the total electrical energy costs. This is a win-win proposition.

Intelligently connecting devices on a fully automated network is about to become a reality and by making energy characteristics visible farther down the supply chain, utilities will gain the ability to regulate their generation assets more productively.

Interactivity allows two-way communications between the load and the utility, which in turn, allows communications about the conditions at both ends of the supply chain. With this knowledge, discretionary loads can be modified to combat issues of line congestion and power quality during period of heavy use.

Such systems could operate with smaller margin for error, thus becoming more efficient and diminishing the need for capital investments, reducing emissions, and increasing customer satisfaction by averting potential outages with earlier recognition of grid fault. This is certainly one of the most attractive areas for the world’s major five or six building controls suppliers to win profitable business now. Some will enter the business at the service level financing the equipment and managing the facilities for an annual fee paid from the reduced energy bill whilst others will just design and install the system.

The total world expenditure on providing digital systems for controlling the environment in commercial and industrial buildings is running at around $13.5 billion per annum at installed prices.

About the Author

James McHale

James McHale is the director of Memoori, an independent market research and investment consultancy that provides assistance in strategic marketing and acquisition decisions.