Will a Single Utility, PG&E, Boost the 2020 Microgrid Market by $1 Billion?

Feb. 24, 2020
By some estimates, PG&E may be creating a $1 billion opportunity for microgrids, meaning one utility in one year could boost the worldwide market by 10%. But the path there is still not clear — and unlikely to be easy.

By some estimates, Pacific Gas & Electric (PG&E) is creating a $1 billion opportunity for microgrids, meaning one utility in one year could boost the worldwide market by 10%.

Not surprisingly, the California utility by its own account received a “robust” number of bids by companies that want to provide the microgrids. PG&E issued a solicitation in December for 20 microgrids, totalling more than 500 MW, to be built in 2020. The utility also has plans to build another 28 at a later date.

The volume of the responses contributed to the utility’s decision to postpone submitting project agreements to state regulators and the bankruptcy court, originally set for today, and now scheduled for the second quarter, which gives the utility with more time as it tries to work with stakeholders, according to PG&E spokesman Paul Doherty.

The PG&E offering is decribed as a $1 billion offering, a number that assumes a project cost of $2,000/MW. Should this calculation prove right, PG&E, alone, could boost the $9.8 billion worldwide microgrid market by about 10% in one year. Graphic courtesy of Navigant Research, a Guidehouse company

Despite the magnitude of the opportunity, some microgrid developers decided to sit out the bidding, concerned about its tight deadlines and the overall effectiveness of the utility’s strategy. PG&E wants the 20 microgrids built this year to help avert power outages when its forced to again de-energize lines that might spark wildfires, a situation that left nearly 1 million customers without power last fall.

Among those sitting out the bidding are New Jersey-based Scale Microgrid, whose chief operating officer and co-founder, Tim Hade, described the utility’s plan as a sledgehammer where a needle and thread is required.

Sitting out the bidding

Hade, of course, is not against microgrids being built in California. In fact, he’s gone from spending about 50% of his working hours in the state to now almost all. He’s not alone, with other microgrid companies also describing the state as a vortex of microgrid activity, with businesses, institutions, cities and even homeowners not waiting for a utilty solution, but installing microgrids on their own, as they brace for what’s expected to be a decade of public safety power shutoffs (PSPS).

“Most of the companies in our space right now are kind of at capacity in terms of what we’re able to do,” he said. 

But Scale Microgrid didn’t forego bidding only because it’s busy. In an interview with Microgrid Knowledge, Hade cited several issues he has with the utility’s solicitation.

For one, Hade believes a solution to California’s problem must be “bottom up, not top down.” He’d prefer to see the state focus on microgrids sited on customer premises or in industry jargon, ‘behind the meter.’ PG&E instead plans to build the microgrids at its substations, on the utility side of the meter.

Problem with substation microgrids

Hade described several advantages of customer-sited microgrids, among them their ability to make community buildings into refuge centers during outages.

The Blue Lake Rancheria microgrid in Humboldt County served as a model during last fall’s power shutoffs, which at one point left nearly 1 million customers in the dark. The tribal property, which includes a casino and hotel, provided shelter, charging, fuel, supplies and a place to publish the local newspaper. The microgrid even saved lives, according to a county official, by opening its doors to those dependent on medical equipment run on electricity.

For it’s part, PG&E says it is not against such customer-sited microgrids and in fact included a $69.7 million component in its resilience plan to help communities with the technical aspects of developing community microgrids.

PG&E needs sweeping approach

PG&E’s Doherty defended the utility’s support for community solutions by noting that more than 7,800 utility customers (mostly residential) have installed 118 MW of battery energy storage systems, using a utility-funded incentive program. In addition, PG&E processed about 4,330 solar-plus-storage interconnection requests in 2019, he said. Solar and storage can offer the beginnings of a microgrid.

However, the utility contends that it needs a more sweeping approach to address the outage threat than what customer-sited installations provide, one “that can support the largest numbers of customers remaining energized,” Doherty said. With its substation microgrid plan, the utility hopes to reduce wild-fire related shutoffs by one third.

That’s where Hade raises another issue he has with PG&E’s strategy, one that is more complex. First, it’s important to consider the logic behind building the microgrids at substations. By doing so the utility can send power to customers when it de-energizes transmission lines. With no power coming in from the transmission lines, the substations instead will rely on microgrid output. Power from the microgrids will be fed into distribution lines, which will deliver electricity to customers. Had such microgrids been in place during power shutoffs in October, the utility says it would have been able to keep 138,000 customer meters energized.

But Hade points out that like transmission lines, distribution lines can spark wildfires. Behind the meter microgrids, in contrast, are generally built onsite, or at least very close to those they supply, diminishing the fire risk.

Navigating California’s complexity

California’s regulatory structure adds to the complexity of the situation. Even if PG&E opted for a customer-sited approach, it’s not clear regulators would allow the utility to recover costs, since the microgrids would not constitute a system improvement, as they do now because they are being installed at substations. Further, some private microgrid developers have made clear that they would challenge any attempt by the utility to engage in asset ownership of customer microgrids.

“I don’t purport to have the answers on the big picture here,” Hade said. “What upsets me about this is I know how hard it’s going to be to figure out a way to do the right way. Everyone in the state should be focused on figuring that out. But instead now we’re spending all this time arguing over what objectively is a very bad idea.”

The Clean Coalition, a non-profit that designs microgrids, offers a middle ground solution. Craig Lewis, executive director, described a plan to build clean energy microgrids not at the substations but nearby, where there is more space for renewable energy installations.

“You don’t get significant resilience from doing a substation microgrid. You get significant resilience from having the renewables and storage distributed throughout the substation grid area, not at the substation,” Lewis said in an interview.

Under Clean Coalition’s design it doesn’t matter if the microgrids are behind the meter or in front of the meter. “But the assets do need to be distributed and that’s the defining feature of my program,” Lewis said.

Fossils or no fossils?

The debate over how to get as many microgrids installed as possible — before the next wildfire season — is occurring before the California Public Utilities Commission (CPUC), where regulators are trying to create rules to foster microgrid development, as mandate under California law (R.19-09-009). 

The proceeding has generated tremendous interest — about 50 parties have weighed in. Among them are green-leaning groups who raise another issue — they oppose use of fossil fuels in the utility microgrids. 

For a deep look at the California microgrid market join us at Microgrid 2020 June 2-3 in Philadelphia, Pa

In its solicitation, PG&E made clear that it is not confining its search to fossil fuel-based microgrids and is open to any resources. But space limitations at the substations make it difficult to install enough solar and energy storage, alone, to meet the needs, according to developers who have reviewed the request.

PG&E’s Doherty said that the utility is considering “a number of different technologies, or combination of technologies, to meet the operational requirements of each substation.” But he added that “many developers indicated that they will look to utilize natural gas-fired generation for all or part of their project due to a variety of factors.”

Renewable natural gas to the forefront

New renewable natural gas facility in Phoenix. Courtesy of Ameresco

To address the environmental concerns related to natural gas, the utility is investigating biomethane, also known as renewable natural gas (RNG), as an alternative. In January, PG&E issued a solicitation to procure RNG for the projects. 

Collected from landfills, wastewater treatment and agricultural waste treatment, RNG is a low-carbon alternative that can be injected into pipelines along with natural gas. Until relatively recently, its use has been largely confined to the transportation sector.

Others question whether the utility can meet its deadlines to install the microgrids before the 2020 wildfire season. While it’s possible to physically build a microgrid in a matter of months, California’s notoriously cumbersome regulatory processes, along with possible legal challenges, could delay the projects. In addition, the utility needs time to make improvements to the substations to accommodate the microgrids.

“PG&E’s proposal is a good goal, but it is unlikely that necessary upgrades to 20 substations could be accomplished in 2020; 2021 is more realistic,” said the Coalition of California Utility Employees in recent comments filed with the CPUC.

Supporting PG&E approach to microgrids

Others see PG&E’s substation microgrid strategy as the quickest way to gain the most energy resilience.

Enchanted Rock described the microgrids as “a smart investment in grid reliability and flexibility,” regardless of the technology used

In its comments to the commission, that Texas-based developer also pointed out that the substation microgrids will benefit home and businesses that have solar panels. If PG&E can energize the local grid, then the solar panels can keep generating power. With a microgrid or smart inverter, solar installations that are connected to the grid (as are most) stop producing electricity when the grid goes down.

The California Clean DG Coalition, an ad hoc group of distributed generation companies, among them Capstone, Caterpillar, Solar Turbines and Tecogen, argued that prematurely phasing out natural gas technologies in microgrids, would create “substantial risk to reliability and resiliency.”

Yes to microgrids…but where, when and what kind?

While disagreement exists on how to get PG&E to $1 billion in microgrids (or more) this year, the parties do agree on some things, noted the California Clean DG Coalition, among them that microgrids can help ensure reliable service on an ongoing basis, as well as during power shutoffs.

The key question, then, is probably not, ‘Will PG&E give microgrids a big boost?’ but ‘What will the projects look like when it does?’ And will microgrids be installed in time, before PG&E finds itself again forced to shut off power — the opposite of its legal mandate as an electric utility.

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About the Author

Elisa Wood | Editor-in-Chief

Elisa Wood is the editor and founder of EnergyChangemakers.com. She is co-founder and former editor of Microgrid Knowledge.

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