Gov. Jerry Brown has signed Senate Bill (SB) 1339 (Stern, 2018) that orders the California Public Utilities Commission (CPUC) to examine the benefits of electrical microgrids and possibly develop a rate structure—otherwise known as a “tariff”—which can set the stage for a very promising future for greater microgrid integration into the state’s power grid.
Once developed, a microgrid tariff could increase renewable energy integration and provide opportunities for greater grid resiliency. However, creating a microgrid tariff is no easy task. Much could go wrong, and the CPUC needs to use extra care to hit the mark on two major elements to ensure success for SB 1339: interconnection and compensation.
Interconnection – Connecting microgrids to the main distribution grid
Among the largest barriers to microgrid interconnection in California is Public Utilities Code Section 218(b), which places a heavy regulatory burden on those who wish to share self-generated power across nonadjacent property lines.
In examining how this statute can be modified for microgrids, the California Legislature may want to take a page from Connecticut and allow microgrids to share power across public streets and boundaries for smaller installations, perhaps for those under 5 megawatts. Adoption of such a statute would allow microgrid owners and operators to explore more options without the unrealistic requirement that they be regulated like a utility if they serve properties not immediately adjacent to one another.
But as microgrids grow in popularity, changing a few rules may not be enough. A 2014 CPUC staff white paper contemplated the role of microgrids in California’s energy future. One recommendation suggested regulators begin to transform California’s electric utilities from the classic model of top-down, one-way distribution network operators into “distributed system operators” that provide a more complex model that accounts for and manages a host of dispersed generation sources, energy storage and other modern technologies. The white paper stated such an entity may be better equipped to “determine appropriate costs for both interconnection and delivery of electricity traveling over the distribution grid. This approach would allow the customer and other service providers to offer additional products and services in support of a microgrid.”
Whatever path the CPUC decides to take, reducing the costs and complexity of interconnecting microgrids should be the primary goal of any future tariff.
Compensation – How operators are paid for exported and imported energy
For many years, microgrids were primarily sources of backup power for critical installations, such as hospitals, research facilities and military bases. Important advances in photovoltaics, energy storage and networked technologies mean that modern microgrids can take a much more active role than before. For example, not only can microgrids provide load for critical services when there’s an outage, they can also sell clean power to the utility when excess energy is produced.
Microgrids also help reduce peak load and curb transition losses by locating generation near demand. Furthermore, microgrids can reduce greenhouse gas emissions as they are ideal for incorporating solar, wind, energy storage and clean cogeneration systems.
The most effective method for ensuring microgrids properly contribute to the grid is to establish fair and effective value streams for services they can provide. Without a solid value stream for both the utilities and microgrid owners and operators, there is little incentive for microgrid operators to invest in more innovative practices that could benefit everyone.
One option is allowing microgrids to participate in wholesale electric markets. This would ensure that microgrid power delivered to the main grid would represent the same value as other sources of electricity that participate on open energy markets. However, this approach doesn’t capture other benefits microgrids provide, such as grid stability and resiliency.
The CPUC therefore should consider creating a unique pricing structure for microgrid power exports, similar to net energy metering, that captures the benefits microgrids provide to the utility but also considers the costs microgrids might incur on the grid, such as requiring utilities to maintain standby power and provide power distribution. Also crucial for this tariff is the ability for microgrid owners and operators to participate in demand response and load shifting programs that could represent additional value streams for all parties.