Plotting the trajectory of power market disintermediation Michael T. - PowerPoint PPT Presentation

Plotting the trajectory of power market disintermediation Michael T. Burr ABA-ACORE workshop / July 17, 2011

Smart grids and microgr grids ds A smart grid is an energy system characterized by two-way communications and distributed sensors, automation, and supervisory control systems. A microgrid can be part of an optimized smart grid, and a microgrid itself also can be considered a tiny smart grid. Michael T. Burr July 17, 2013

defini niti tion* on*: Micr crogr ogrid id A local energy system capable of Distributed balancing captive supply and Generation demand resources to maintain stable service within a defined boundary. Microgrids are defin ined ed by their function tion, not their size. Microgrids combine various distributed energy Energ rgy resources (DER) to form a whole system that's Managem ement ent greater than its parts. System Most microgrids can be further described by one of three categories: Isolat lated d microgr ogrids ids, , including those on Demand • Electricity islan ands and at remote inlan and sites, not Response, Storage connected to a local utility. Efficiency Islan anda dable ble microgr grids ids that are fully • interconnected and capable of both consuming and supplying grid power, but can also maintain some level of service during a utility outage. Asynchron ronou ous microgr ogrids ids are connected to • utility power supplies, but they aren't inter connected or synchronized to the grid. Such non-synchronized microgrids are capable of consuming power from the grid, but they aren't capable of supplying it. *Source: Microgrid Institute www.microgridinstitute.org Michael T. Burr July 17, 2013

Microgri grid Techn chnologies ogies Microgri grids can use almost any and Resourc ources form of e energy nergy supply. • Gas or diesel cogeneration The key to making a microgrid • Fuel cells and microturbines work is the ability to balance ce • Photovoltaic (PV) modules demand nd agains nst availab able le supply y • Wind, biomass, small hydro in real time and thereby maintain • Efficiency, conservation, and service that’s adequately stable demand response capabilities and sufficient for the host’s • Electricity storage purposes. • Energy rgy mana nagem gement ent and Not all microgrids must provide auto tomat mation on syst stem ems service levels equivalent to modern utility service. In fact most will not. Michael T. Burr July 17, 2013

Micr crogr ogrid id Drive ivers rs in Industri dustrialize alized d Mar arket kets ▶ “Supply Surety” † ▶ Social Policy especially at mission-critical Environmental liability, jobs/economic development in various jurisdictions – and outage-sensitive facilities states, cities, and economic development zones Military and government • Renewable mandates • installations Environmental constraints • Institutional campuses • Sustainable/domestic fuel preferences • (universities, hospitals, Local self-reliance • prisons) C&I sites (data centers, • ▶ Transm smiss ssion congest stion corporate campuses, factories, processing plants) Siting challenges, load pockets, Communities that repeatedly least-cost regional planning • endure extended outages (NE, Florida, etc.) ▶ Economic competiti tiven veness ess vs. high-cost utility power. Where DG is near grid parity, microgrids can optimize † Government agencies and laboratories in the U.S. use the terms “surety” and capacity and add value. “assurance” in describing energy supply priorities. Related engineering and regulatory concepts involve resilience, reliability, and power quality. Michael T. Burr July 17, 2013

Distr tributed ibuted Energy gy Re Resour urce ces s Tr Traject ctory ory ~Timeframe: me: 1980s 1980s-Present 2000s 2000s-Present 2010 2010-Present Present-2020+ 2020+ 2015+ 2015+ Self-Gen Generati tion on Demand d Respon onse Distr tribu bute ted d Generati tion on Microgr ogrids ds Transacti tion onal Energy gy Technol ology gy Aeroderivative DR energy Rooftop PV, DR & DG technology, Advanced smart turbines, management microturbines, fuel energy management grid, distributed cogeneration/CHP, systems, cells, energy storage, software, distributed sensors and submetering, smart inverters, controls, Big Data diesel gensets, etc. sensors and controls distributed controls, smart grid integration analytics smart metering/ smart grid integration Policy PURPA, State IRP, EPAct 2005, FERC In progress (FERC PURPA, EPAct, ARRA None yet! etc. Order 2000 & 745, Order 1000 policy on IRP & efficiency/ non-transmission conservation policies alternatives (NTA), ARRA, state policies) Contr tracti ting Turnkey EPC, Energy service DG PPAs, leasing Microgrid service (Aggregation, power purchase contracting, agreements energy service aggregation, agreements (PPA) contracting) conservation service agreements, Marke ket t Settl tleme ment Bilateral trading, Regional market None (possibly None (possibly (Retail and wholesale regional wholesale settlement regional market regional market market settlement) market settlement settlement for DR settlement for DR for energy and functionality) and DG) capacity Pricing g & Tariffs Interruptible rates, Dynamic rates, Net-metering tariffs, In progress (derived None yet! standby rates, and conservation/ standby rates, DG from IPP, DR, and DG sometimes deferral efficiency incentives, interconnection fees, tariffs, plus FERC rates to discourage locational marginal and sometimes incentive tariffs for self-generation pricing (LMP) fixed-cost charges NTAs?) Michael T. Burr July 17, 2013

Market Trajectory: Increasing granularity in supply and demand assets and price signals Convergence in wholesale and retail Order 1000, markets; Order 745, Emergence of capacity transactional markets, nodal distributed Order 2000, pricing, energy RTO/ISOs, demand networks locational trading pricing Michael T. Burr July 17, 2013

DG Technology Trajectory Manufacturing scale economics vs. network scale economics Batt ttery ery storage orage, , EV smar EV art t char arging ing Gas-fired engines, packaged cogen Aeroengines, diesel gensets, and backup Fuel el cell lls, s, Roofto oftop PV generators microtu croturbi rbines nes, , V2G Small-scale wind chargers, PV modules, and battery storage for remote sites, office- scale UPS Michael T. Burr July 17, 2013

DG Technology Trajectory: Black Swans emerging Exponential advances in nanotechnology bring cheap photovoltaics and “[T] hreats … from battery storage. disruptive forces, particularly distributed resources, have serious long-term implications for the traditional electric utility business model and investor opportunities .” ~Peter Kind, Energy Infrastructure Advocates, in January 2013 EEI EEI Report ort Michael T. Burr July 17, 2013

Microgrid Financing: A work in progress Commercial Debt Site Host and Private Equity Government Funding Early-stage Microgrid portfolio Debt service met financing through with combined projects in development revenue streams: industrialized companies and markets are mostly - Energy sales contractors, such as: financed by host - Renewable credits - Pareto Energy - DR aggregation institutions with - General Microgrids - FERC NTA tariffs government - Microgrid Solar support. Hybrid project - Horizon Energy financing will include Projects in - Anbaric Power tranches of host, developing - SAIC government, and PE countries are being investment. financed with Sponsors pursue multilateral aid. REIT and MLP structures. Michael T. Burr July 17, 2013

Microgrid Regulation: A work in progress Net- • Pressure rising to reduce net- metered energy payments and metering restrain growth of DER • Interconnection policies and fees tariffs increasingly onerous and costly • Volumetric pricing and rate-base Demand regulation discourages conservation and load shifting response • DR tariffs and ISO/RTO policies policy shifting to prohibit DR sales that are enabled by DG Michael T. Burr July 17, 2013

Microgrid Regulation: A work in progress (continued …) • Franchised utilities challenge behind-the-meter Retail energy transactions • Microgrids seeking to serve multiple customers or franchise / even multiple premises face lawsuits and potential regulation as public utilities service • Energy development zones and community energy projects are nascent and their regulatory frameworks territory laws are still evolving • FERC Order 1000 opens the door to transmission FERC 1000 incentive rates for microgrids and other non- transmission alternatives (NTA) NTA rules • No regulatory pathways currently exist for development, planning, and financing of NTAs Michael T. Burr July 17, 2013

Industry Trajectory: 2020+ Distributed intelligence + distributed resources = disintermediation in energy markets ▶ Networked smart grid technology ▶ Cheap gas, PV, energy storage, fuel cells ▶ Advanced energy management systems Plus growing demand for: ▶ Reliability, resilience, energy assurance / supply surety ▶ Sustainability, green energy, local self-reliance ▶ Least-cost alternatives to long-distance electric transmission Michael T. Burr July 17, 2013