Utilities and Microgrids: It’s Complicated

Oct. 19, 2015
Utilities and microgrids. It’s a complicated relationship. They started as rivals. But more and more, they’re sitting around the same table. Schneider Electric’s Mark Feasel describes an emerging business model that benefits both.

Not long ago when Schneider Electric’s Mark Feasel would make an appointment to talk to a utility about microgrids, he’d usually get shuffled off to the ‘smart guy’.

The smart guy is interesting, but he has no budget and therefore no real influence. Being sent to him signaled the utility’s lack of enthusiasm.

But something has changed. For one thing, Feasel has noticed the smart guy is no longer the only one talking about microgrids. At energy conferences, for example, C-suite utility leaders now take the podium.

“When I saw this, a light went off,” said Feasel, who is ‎vice president of electric utility segment & smart grid at Schneider.“When the CEO is giving the presentation on micogrids versus the smart guy in the corner…they are serious about it.”

Indeed, the relationship between utilities and microgrids seems to be growing warmer. Several  utilites have begin exploring, developing or marketing microgrids, among them American Electric Power, Commonwealth Edison, Dominion, Duke Energy, Green Mountain Power, National Grid, Oncor, and Southern California Edison.

Utilities and microgrids: A symbiosis?

For utilities, microgrids are both a threat and opportunity. As a form of distributed energy, microgrids can draw away utility customers. Some analysts fear this could lead to a business death spiral for the utility. Feasel doesn’t see such dire consequences ahead for U.S. utilities. But he said the warning has served as a “wake up”  for utilities as they struggle with disruption.

In truth, not many utility customers know enough about microgrids to want them — yet.

Those installing microgrids, so far, have been early adopters: innovators, well-capitalized companies, savvy communities, data centers and the like. They represent about 10 percent of the market. But most everyone else is at best “passive but curious,” he said.

The passive-but-curious are being handed an Internet of Things (a microgrid being one of those things) and wondering what they are supposed to do with it.  This will change. But for now, a large chasm exists between the early adopters and the passive-but-curious, he said.

Closing that chasm —  helping the mainstream customer access microgrids — offers a major business opportunity for utilities.

“To cross the chasm what needs to be delivered is the benefit of the microgrid, and not necessarily the microgrid,” he said.

Specifically, Feasel foresees the microgrid-as-service concept taking hold.  Microgrid-as-a-service appeals to the customer who wants the benefits of a microgrid — reliability, fuel hedging, lower cost, sustainability — but doesn’t want to run a microgrid. The customer contracts for the service, while someone else owns and runs the microgrid.

“To reach that market you have to deliver the benefit at the same time they are paying for it. You can’t say, ‘Pay everything upfront and then you will see the benefits eventually,’” he said. “So you need a third party that will design, finance, build, own operate and maintain it.”

Microgrid-as-a-service

Microgrid-as-a-serve is a team production. The utility brings its strong balance sheet and relationship to the customer. It acts as owner of the microgrid. Others, like Schneider, bring technical expertise.

This approach creates a new opportunity for utilities to own low-risk assets, which their business model relies on to generate shareholder value.  Utilities are finding it more and more difficult to secure such assets. Energy efficiency, the growth of distributed energy, and other factors are diminishing need for new power plants and transmission.

Non-utility companies, of course, may also take on an ownership role in a microgrid-as-a-service project. But the utilities are prime candidates, “a very interested partner” because they see microgrids as a form of disruptive energy, one that can work against their business model — unless they figure out a way to make it work for them.

So what’s ahead for utilities and microgrids?

The microgrid market is growing fast, but it is still in the early adopter phase, according to Feasel. He sees microgrids following the same path as the solar industry over the last decade. The industry will make the leap from the “geeks and niche markets” to the more mainstream customer once favorable financing and business models are established. He sees the industry hitting its stride around 2020.

Between now and then watch for the availability of more off-the-shelf microgrids, as standards and open source technology emerges. Look for utilities to ramp up microgrid operations, some through their regulated businesses others through their competitive arms. Watch teams of independent vendors form to work with them.  And see the shift in the consumer, from passive but curious, to I want what a microgrid offers.

Read more about business opportunities created by the coming together of utilities and microgrids. Sign up for the free Microgrid Knowledge newsletter.

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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