Sep 24, 2020 | Samantha Reifer

Microgrids do not shift costs to ratepayers.

Since the mass deployment of solar began over a decade ago, utilities across the US have focused on the harms of the cost-shifting to slow the deployment of customer sited distributed energy resources (DERs). Unlike solar, DERs operated by a microgrid controller create a dynamic and flexible resource that can provide many services to the grid cost-effectively. In this post, I’d like to highlight a few key points about how microgrids do not burden, but actually alleviate, costs for ratepayers.

What is cost-shifting?
Cost-shifting is the concept that utilities have procured energy generation and delivery infrastructure to service their customers, usually over long contract periods. As some customers acquire distributed energy resources that offset their energy consumption and demand, because they consume less utility energy, they pay less to their utility. However, because utilities executed these large contracts with the expectation that these customers would be buying that energy, utilities must raise their rates to recuperate their costs, which raises rates for all customers but primarily impacts customers without DERs.

Microgrids are dynamic.
Microgrids are able to provide the grid with a range of services at competitive prices. While microgrids are best known for their backup power capabilities, often referred to as their services during “black sky” conditions, they additionally provide flexible local services to their distribution utility during normal day to day operations, also known as “blue sky” conditions. Respectively, these microgrid services are referenced as “blue sky” or “black sky” services.

“Blue sky” services to the grid include:
- System peak demand reduction: microgrids can be directed to generate and discharge at full capacity to reduce the system peak demand load. Like how microgrids were optimized during California’s recent rolling blackouts.
- Regulation services: when the microgrid exports or imports energy to control small mismatches between the grids load and generation. These are usually the natural differences between forecasted and actual load and generation.
- Reserve services: when the microgrid exports or imports energy to control large mismatches between the grid’s load and generation, usually when a large generator is unexpectedly out on the grid.

Utilities can drive a lot of currently unoptimized value at the grid edge (opportunities of a decentralized and transactive grid). As utilities invest in advanced control technology (that allow granular monitoring) and flexible customer relationships (that can be optimized to meet divergent needs), utilities can provide targeted service to their communities in a manner that best allocates costs and savings to those who drive them.

Unlike solar, microgrids do not simply reduce net load for the grid, but can provide flexible and valuable services to the distribution utilities in their day to day management. As shown by the aforementioned recent blackouts in California, these services are valuable and therefore deserve fair compensation.

Customer-sited Microgrids put private dollars (versus ratepayer dollars) to work.
Usually, if energy demand increases in a territory, a utility will invest in power plants, substation upgrades (if the load is concentrated in a specific circuit), and other infrastructure to service that new load. These investments lead to significant direct costs which utilities then recoup through their ratepayers. Because microgrids put generating and storage resources on the distribution grid that can offset or reduce that increase in demand, microgrids can delay or eliminate the need for utilities to build out that additional capacity.

The capital expenditure required to fund customer-sited microgrids is paid for by that customer or a third party financier. Therefore we are optimizing private sector dollars instead of ratepayer dollars to build out grid-servicing infrastructure. Allowing utilities and ratepayers to avoid that expensive upfront capital expense to instead opt for solely purchasing the services from the microgrid. In this scenario, microgrid customers are shouldering the infrastructure/direct costs.

If utilities can put forward reasonable and reliable structures for contracting grid services, they will provide a valuable revenue stream to microgrid projects that will make more projects economically viable by reducing risk to investors and therefore reducing the overall cost of the microgrid. While the contracting, roles, and responsibilities for this structure still need to be explored, I recommend Distribution Support Service Agreements, as a good place to start.

Resilience as a Public Benefit.
While resilience is commonly thought of as a private benefit (only the customer who has their lights on benefits from the microgrids backup power services) this is an antiquated and stiff perspective.

Microgrids that provide backup power to critical facilities allow for the operation of important community services during grid power outages. For example, the ability for a grocery store to remain open and fully functional during an outage is critical for ensuring the local community has access to food, clean water, emergency supplies, and charging stations for their phones. These are hard to quantify but critical community services. Other private yet critical/lifeline facilities include gas stations, assisted living facilities, and big box retailers.

When accounting for what ratepayers pay when they and their communities lose power, while the total impact can be hard to quantify, it’s hard to argue that their grocery store’s microgrid is a cost and not a benefit for that community.

Microgrids reduce the cost of achieving state decarbonization goals.
In addition to reducing utility costs (the core focus of cost shifting) and providing community resilience, increased development of customer-site microgrids also alleviates costs for states with ambitious clean energy goals.

For example, In order to decarbonize the grid in California by 2050, it will take between 150 and 200 GW of new generation, which is more than double the current generation capacity. With the recent blackouts, it’s clear that CA is already running short of capacity. To meet these needs would require billions of dollars of investment each year, which won’t happen without private investment. Every microgrid that incorporates renewable energy that is installed with either community or private funding is shifting cost away from the ratepayers and taxpayers.

Customer-sited microgrids optimize private sector dollars to provide benefits not only to the customer for which they are sited, but for utilities, states, and their communities. Especially when incentivized and structured correctly. Because microgrids are dynamic resources that utilities can optimize to provide important blue sky services, the cost-shifting really goes in the other direction, with microgrids shouldering the direct construction costs of energy infrastructure that utilities would otherwise pay then recuperate through ratepayers.

Let’s make it easier to incorporate clean technology and grid modernization technology into our electricity system by rebuking the cost-shifting argument in favor of the opportunities presented by a more distributed and transactive grid.