How to Foster Micro Electric Utilities?
A July 2013 post on the Rocky Mountain Institute’s blog describes microgrids as “small, self-balancing networks that have the ability to fractally break apart from the larger grid for autonomous operation and then seamlessly re-combine to function as part of the whole on demand,” and notes that “Demand response and energy efficiency — and increasingly, storage and EVs — often figure prominently in [the] design and operation [of microgrids] to flexibly manage supply and demand requirements…”
Boulder, population 102,000, may be divided into small communities of population roughly 5,000 to 15,000 each, a total of say, 15. Each could be economically served by a microgrid.
Who will own and operate the microgrids? Many could — the existing utility; the municipality of the city; knowledgeable and experienced entrepreneurs; new businesses diversifying into electricity services; or out of region utilities. The barriers to entry are relatively low.
Let us assume forty entrepreneurs, utilities, and businesses offer to build and operate microgrids in the fifteen communities. How do we allocate a community as service territory to a particular provider?
The FCC conducted auctions to divide wireless spectrum, and corresponding Basic Trading Areas (BTA), among contesting telecom players in the mid 1990s. There were ~500 Rand McNally defined BTAs. Multiple providers served each market. How many similar markets can the electricity business support? Even 10,000 quasi-independent microgrids — one Micro Electric Utility (MEU) for about 30,000 people each — may be a conservative estimate. Unlike wireless telecom, electricity would be a local monopoly in its service area; overbuilding is impractical.
A citizen body can choose the supplier, a MEU, for each community. The terms of the franchise may be for five to ten years. Regulation of the MEUs may be by municipal authorities of the community. If the performance is below par, a provider may be replaced.
The process of allocating small geographies to micro-utilities could be by auction; an RFP-driven (Request For Proposal) process may not be appropriate. This is because cities seek multi-dimensional, creative solutions from the bidders — neither price nor conformance alone. In the current state of the industry, giving freer rein to suppliers may yield cities unexpected benefits, rather than all prospects respond to a well-defined RFP.
The public interest lies in having multiple MEUs in the same market — a cluster of microgrids — operating in parallel in neighboring communities. This will ensure low prices, the use of renewables, local control, and competitive benchmarking.
Microgrids for Utilities and Cities
A variety of forces — regulatory, technological, and social — favor microgrids. David Raskin in Public Utilities Fortnightly (May 2013) notes, “States have asserted their traditional role as the primary regulators of this industry” relative to federal role. Since states and municipalities have jurisdiction over electricity services, MEUs could spread rapidly, state by state.
Regarding technology, Raskin says, “the electric equivalent of wireless telephony — rooftop solar, a black swan that can deliver electricity without transmission — has now come into view” [emphasis added]. Rooftop solar is an element of microgrids, and “electricity without transmission” highlights electricity as a local business, and not always a transmission-based, wide area networking business at all.
How should the utilities respond to the forces buffeting them? Raskin suggests that “Minimizing the cost of electricity that’s delivered to load over the bulk power system will…emerge as a critical competitive issue for the industry.” Yet no amount of cost reduction or efficiencies within the existing system, can match what a new topology of a cluster of peer-to-peer microgrids could achieve. The hierarchical grid will yield to a federation of inter-connected microgrids.
The strategic challenges for utilities are to restructure themselves for the world of small yet coherent service territories, to explore business models that work, and to implement microgrids. Fighting municipalization may be a distraction. Of course, smaller economical service areas do not mean smaller businesses; a utility may own thousands of MEUs, worldwide.
The strategic challenge for cities is how to encourage and accommodate numerous new and existing service providers.
The telecom industry confronted comparable turmoil and emerged transformed, yet successful. The Electricity 2.0 journey promises to be as thrilling.
Lead image: Transmission lines via Shutterstock