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A paper written for law class analyzing the policies and events affecting micro grid development.
Microgrid Policies Sean Curran WE 4311-02 2 Contents 1. Abstract .................................................................................................................................... 3 2. Introduction ............................................................................................................................. 4 3. History of Microgrids .............................................................................................................. 5 a. Energy Policy Act of 2005 ................................................................................................... 6 b. Energy Independence and Security Act of 2007 .................................................................. 7 c. Competition and Third Parties ............................................................................................. 7 4. Connecticut Resiliency Projects .............................................................................................. 9 a. Distributed Generation in Florida ...................................................................................... 11 5. Conclusion ............................................................................................................................. 11 Works Cited .................................................................................................................................. 13 3 1. Abstract Utilities today are faced with the challenge of providing clean energy that is reliable and resilient in the face of threats to avoid costly blackouts. Electricity customers often take it for granted that when they flip a switch their lights will come on, but are confused and maddened when when the power goes off. Technological advances allow for microgrids to reliably provide power to customers, but have led to an increasingly complex system. Microgrids offer a way to reduce climate change effects and increase grid resilience and reliability through the use of net metering. However, federal and state policies for microgrids are still largely left up to the states and regulations are typically vague at best. In addition to federal and state regulations, many cities and municipalities have additional local ordinances, such as siting setbacks and height restrictions that won’t be discussed. Many questions need to be answered in order for the smart grid of the 21st century to reach its full potential. Further clarification at the federal level would clear confusion and create a streamlined process for microgrid development. The following paper will analyze the impact policy has on microgrids in several states especially following natural disasters. The main questions addressed will be who pays for some of the positive externalities with microgrids and who owns and operates microgrids. One of the biggest questions that arose involved how each state and individual utilities treats microgrids and distributed energy resources (DERs). 4 2. Introduction The electric grid is one of the most complex systems in the United States. Electric power must be dispatched at the exact moment it is used. If a grid event occurs, causing generation and transmission facilities to trip offline, the load imbalance causes the frequency to drop. A grid event can be caused by anything from stress on a hot summer day to major storms. Major frequency drops are usually accompanied by load shedding until peaking plants like natural gas, hydroelectric, and battery storage provide the difference. Peaking power plants are sources that are more expensive and less efficient than baseload power, but can be used to fill gaps in power output (John). Peaking power plants are especially crucial as additional intermittent renewable energy sources are brought online, increasing uncertainty on the grid. Microgrids and distributed generation can play a similar role by providing excess power and frequency support to the grid. A microgrid is a group of local electrical loads and generators that are connected to the grid, but smart grid technologies give a microgrid the capability to operate autonomously in islanded mode (Lantero). The first microgrids in remote areas could not connect to the grid. Microgrids are especially important here because the cost of connecting to the grid outweighs the benefit of electricity provided. Many utilities would be unwilling to provide maintenance in such remote areas. The second type of microgrid is a community grid which operates normally but uses microgrid controllers and switches to detach from the grid during an event. In most countries microgrids provide a way of powering remote communities; however, microgrids in the United States are primarily used to increase grid reliability and resiliency in the face of a natural disaster (Bunker, Doig and Hawley). During Hurricane Sandy in 2012, areas with microgrids were the 5 only places with electricity following the super storm leading cities to explore microgrids for increased resiliency (Hurricane Sandy Rebuilding Strategy). Decreases in renewable energy prices and advancements in battery storage technology have been pivotal for microgrid expansion. In 2015, residential solar prices dropped 5 percent leading to increased use of solar in net metering and microgrids (Fares). Renewable energy not only helps the economics of microgrids, but also decreases associated fuel cost, reduces peak demand, and reduces the need for costly system upgrades (ABB). However, distributed generation makes state estimation, load balancing, and system planning more difficult. Despite the associated difficulties, some states promote distributed generation and microgrids as a way to decrease fossil fuel use and promote grid reliability. The confusion begins when discussing how microgrids fit into electricity markets and whether they fit under federal or state jurisdiction. Microgrids are essentially retail customers who may also participate in wholesale electric market. Therefore, the broad approach used by the Federal Energy Regulatory Commission (FERC) to determine jurisdiction has come under scrutiny and needs further discussion. 3. History of Microgrids In the summer of 2003, a fault in Ohio cascaded into what became the largest blackout in United States history to date with nearly 50 million people without power (Minkel). Human error and the fact that system operators were not able to see what was happening on the grid intensified the outage which lasted 2 days in certain instances. At the time, grid operators performed state estimation of the grid every 5-10 seconds. A 5-10 second time period is not short enough to fully comprehend what is happening on the grid (Gomez-Exposito, Abur and 6 Rousseaux). The northeast blackout of 2003 led to increased technological innovation and implementation for grid reliability and led to the Energy Policy Act of 2005. a. Energy Policy Act of 2005 The Energy Policy Act of 2005 led to a number of radical changes in the energy industry. The act authorized renewable energy tax credits for renewable energies leading to declining prices for both wind and solar energy. Following the Energy Policy Act of 2005, over 4,000 MW of wind energy was installed throughout the United States, which later incentivized the use of renewable energy for distributed generation. The act also directed the Secretary of Energy to implement distributed energy research programs and grants to promote grid reliability (Sec. 921). The Energy Policy Act of 2005 instructed the Secretary of Energy to increase research spending for distributed energy technologies, but the act had no effect on clarifying microgrid policy and implementation. The focus of the act was to increase renewable energy development and promote overall grid reliability standards. Section 1211 of the Energy Policy Act of 2005 amended the Federal Power Act to grant FERC jurisdiction over all users, owners, and operators for the purposes of approving mandatory reliability standards and enforcing their compliance. Prior to the act, compliance with FERC reliability standards were voluntary, not mandated (Federal Energy Regulatory Commision). Section 1211 was a direct response to events like the blackout in 2003 that impacted the livelihood of Americans by costing the U.S. economy several millions of dollars in lost revenue. The act also established IEEE 1547, the national standard for distributed resource interconnection. IEEE 1547 is a set of standards for connecting distributed generation resources to the grid (H.R.6 - Energy Policy Act of 2005). The standards require under-frequency protection at 59.3 Hz and over-frequency protection at 60.5 Hz (Standard for Interconnecting 7 Distributed Resources with Electric Power Systems). The ideal operation frequency in the United States is 60 Hz, but the actual frequency fluctuates rapidly as generators and loads change over time. The Energy Policy Act of 2005 empowered FERC, giving them the tools to protect consumers and assure fair competition in wholesale markets. b. Energy Independence and Security Act of 2007 Title 13 of the EISA of 2007 affirmed the United States' support for modernizing the nation's electricity grid and to maintaining a reliable grid that is capable of meeting future demand growth. The United States accomplished the grid upgrades through increased use of digital information and smart technology. Section 1301 expressed the United States’ interest in removing unnecessary barriers to the adoption of smart grid technologies. Section 1304 calls for increased research of smart grid technologies, which led to greater awareness of microgrid capabilities. However, microgrids were not entirely welcomed in all states. The lack of involvement in microgrid policy by FERC due to it being outside their focus of wholesale markets allows each state to treat microgrids differently. There are also differing opinions about the general definition of a microgrid with Connecticut being the only state to make this distinction. Net metering and DERs are the benchmark for microgrid policy since they share similar characteristics. One of the characteristics is a reliance on third party ownership to shift cost away from customers c. Competition and Third Parties Early electricity generation and distribution was on the local level with each neighborhood having a generating station. However, Samuel Insull successfully consolidated the electric generating stations into one electric utility monopoly with transmission and distribution to the load (Emergence of Electrical Utilities in America). Industry professionals viewed utilities 8 as vertically integrated natural monopolies that owned the entire generation, transmission, distribution and selling of electricity. Natural monopolies cure the problem of high startup costs within the power industry. However, retail generation and distribution markets have since been opened up to competition (Penn State University). The electric competition system follows an overall trend of citizens wanting more choices in their lives. Deregulation began with the Public Utilities Regulatory Policies Act of 1978 (PURPA), which laid the foundation for competitive wholesale markets (González). PURPA removed the barriers of access to transmission for Qualifying Facilities (QF's) allowing them to sell electricity in wholesale markets. The Energy Policy Act of 1992 called for utilities to allow open access to transmission for all producers. The Energy Policy Act of 1992 was followed by FERC Order 888 that officially established competition in the generation markets (Order No. 888). Microgrids further complicate the situation by purchasing and selling electricity back to the grid. Overall, FERC has used a broad line to exercise its jurisdictional powers over wholesale electricity markets. FERC declines to give deliberation on anything that does not expressly fall within its powers as stated in the Federal Power Act. However, with FERC's integration of demand response into wholesale electric markets in FERC v. Electric Power Supply Association, FERC appears to be adapting to changing technologies and market conditions. FERC attempted to streamline the interconnection process in FERC Order No. 2006 for small generators (under 20 MW) by requiring standardized procedures, but state policies largely dictate the viability of microgrid adoption. However, FERC's refusal to rule on distributed generation and net metering in wholesale markets creates a complex situation . 9 Thanks to technological advancements like PMUs, battery storage, two way communication, and microgrid controllers, micro generation is finally a feasible alternative to the macrogrid. However, high capital costs must be overcome for the average citizen to partake in distributed generation. The next question involves who operates the microgrid? If the citizen owns the microgrid, then system maintenance and upgrades will fall to the citizen, further increasing risk of economic and mechanical failure. If neither customers nor utilities are willing to take on risk, then a third party is needed to operate the microgrid and take associated risks. Third party ownership is accomplished through the customer either signing a Power Purchase Agreement (PPA) or leasing the distributed generation facility with an outside entity. In a PPA the customer pays for the fixed rate electricity generated, but in a lessee/ lessor model the customer pays for the microgrid system (Solar Energy Industries Association). 4. Connecticut Resiliency Projects Following the destruction by Hurricanes Sandy and Irene, the state of Connecticut has looked for ways to prepare for future grid events and lessen the blow from such events. The Connecticut Department of Energy and Environmental Protection has looked towards microgrids as a way to provide electricity for critical infrastructure during grid events. Public Act 12-148 established a microgrid program with the purpose of supporting distributed energy resources for critical facilities (Connecticut Department of Energy and Environmental Protection). Section 7 of the bill defines critical infrastructure as any hospital, police or fire station, water or sewage treatment plant, commercial areas, or other municipal centers (PA 12-148). However, the microgrid grant applies only to interconnection infrastructure, microgrid design and engineering services (PA 12-148, S. 7). The microgrid grant does not apply to generation sources within the 10 microgrid. So far Connecticut is the only state to explicitly define the term microgrid and has since funded 11 microgrid projects through the microgrid pilot program. Connecticut Section 121 of Public Act 11-80 authorized Connecticut utilities to accept net metering for residential customers. Connecticut has worked to create a streamlined distributed generation interconnection process. All generators falling solely under State jurisdiction and less than 2MW will receive a decision within 15 days in accordance to FERC Order No. 2006. To date, Connecticut has over 30MW of residential solar connected to the grid. One of the first communities to receive a grant through the microgrid project was the town of Fairfield, Connecticut. Fairfield is a coastal town that has been voted several times as one of the best places to live in the United States. However, the coastal location has made it prone to several storms in recent years. In response to recent natural disasters, the town built a microgrid to keep the power on during future storms. Fairfield received a $1.1 million grant through the Connecticut microgrid pilot program and the remaining $130,000 was funded by the city. The 350 kW microgrid will power a police station, fire station, emergency operations center, shelter and cell tower (Fitzpatrick). The Fairfield Public Works Department teamed with Schneider Electric to develop the project. The Fairfield microgrid includes a 300 kW natural gas generator, a 60 kW combined heat and power generator, a 27 kW solar PV system at the shelter, a 20 kW solar PV system at the fire station, a demand side management system, and microgrid controllers provided by Schneider Electric (Schneider Electric). The shelter, police station, and fire station are all connected through underground distribution cables. The microgrid controller ensures that electrical loads 11 are maintained and coordinated properly. When the Fairfield microgrid is connected to the grid, it provides efficient and clean energy to the 60,000 citizens. a. Distributed Generation in Florida Like Connecticut, Florida is a coastal state that is prone to natural disasters. However, in Florida, selling electricity via a third party PPA warrants regulation as a public utility. The definition of a public utility in Florida is any person or entity who sells electricity (including microgrid operators) within the state (Solar Energy Industries Association). Since distributed generation is often too expensive for customers to pay for themselves, homeowners rely on third parties to bear the risk with distributed generation. Florida's ruling on distributed generation effectively rules out community microgrids larger than 10 kW. Labeling microgrids as a public utility makes the microgrid operator liable for unnecessary additional costs and regulations. Despite Florida's ruling on third party ownership of microgrids, Florida is an otherwise attractive location for microgrids. Florida legislature enforced standards requiring the state investor-owned utilities (IOU's) to allow net metering (Rule: 25-6.065). Any excess generation is credited to the customers next bill at the avoided cost for up to 12 months (Your guide to going solar in Florida). The policies in Florida are designed to promote single customer distributed generation, but systems larger than 10 kW face stiff policies regarding interconnection. Even though Florida faces natural disasters similar to Connecticut, the state has not looked towards microgrids as a viable solution. 5. Conclusion Overall, the policies surrounding microgrids are very broad due to the complex matters involving state grants and policies, who operates the microgrid, and interconnection guidelines. However, with increased demand by customers to have a reliable and resilient grid, microgrids 12 could be the key to the future for the energy industry. Recently, natural disasters have shed light on the need for upgraded grid infrastructure. Microgrids have the potential to promote an innovative solution to macrogrid reliability issues facing utilities. However, many utilities see microgrids as a threat to their business model and dismiss microgrids as a solution. A complete revision of IEEE 1547 standards could alleviate some concerns utilities have with microgrid adoption. Greater adoption of and research into microgrids is the only way to know the true positive and negative impacts of microgrids. However, microgrid research will take time and money which is something most states and utilities have been unwilling to provide. Overall, some states have favorable policies regarding net metering and single customer distributed resources, but the lack of a financing option proves to be the biggest hindrance for multiple customer microgrids. The problem with financing support for microgrids is the inherent difficulty establishing a value for the common person. However, wider adoption is likely in the future as states realize the potential of microgrids to provide power to critical facilities in the face of natural disasters. A distinction must be made with regard to the nature of microgrids since they are not a typical utility as defined by Florida legislature. Legislation aimed at protecting utilities could be replaced with legislation that instead protects the customers. Microgrids offer an innovative solution for a number of complex problems with the electric grid. Microgrids offer improved reliability and resiliency to utilities and customers while allowing customers to benefit from excess power generation. To date, not much legislation differentiates microgrids from single customer distributed generation sources. However, further adoption of financing options for microgrids could promote emergency preparedness. 13 Works Cited No. Public Act No. 12-148. Senate Bill No. 23. 15 June 2012. Standardization of Small Generator Interconnection Agreements and Procedures. No. Order No. 2006. FERC. 12 May 2005. ABB. "Renewable Energy for Microgrids." White Paper. 2016. Web. Bunker, Kaitlyn, et al. Renewable Microgrids: Profiles From Islands and Remote Communities Across The Globe. Boulder: Rocky Mountain Institute, 2015. Web. Connecticut Department of Energy and Environmental Protection. Microgrid Program. August 2016. 4 May 2017. "Emergence of Electrical Utilities in America." n.d. American History. 1 March 2017. Fares, Robert. "The Price of Solar Is Declining to Unprecedented Lows." 27 August 2016. Scientific American. 2017. Federal Energy Regulatory Commision. FERC & EPAct2005: Meeting Milestones. Washington DC: FERC, 2006. FERC v. Electric Power Supply Association. No. 14-840. The Supreme Court. 25 January 2016. Fitzpatrick, Mary. Microgrids. Research Report. Hartford: Connecticut Office of Legislative Research, 2016. Gomez-Exposito, Antonio, et al. On the Use of PMUs in Power System State Estimation. Conference Paper. Stockholm: 17th Power Systems Computation Conference, 2011. González, Giovanni S. Saarman. "Evolving Jurisdiction Under the Federal Power Act: Promoting Clean Energy Policy." Law Review. 2016. H.R.6 - Energy Policy Act of 2005. No. 109-58. 109th Congress. August 2005. HR 6 - Energy Independence and Security Act of 2007. No. 110-140, Section 1301. 110th Congress. 19 December 2007. 14 HR 6 - Energy Independence and Security Act of 2007. No. No. 110-140, Section 1304. 110th Congress. 19 December 2007. HR 776 - Energy Policy Act of 1992. No. 102-486. 102nd Congress. 1992. "Hurricane Sandy Rebuilding Strategy." 2013. Interconnection and Metering of Customer-Owned Renewable Generation. No. Rule: 25-6.065. Public Service Commission. 7 April 2008. John, Jeff St. "Dueling Charts of the Day: Peaker Plants vs. Green Plants." 17 January 2014. Green Tech Media. 2017. Lantero, Allison. "How microgrids work." 17 January 2014. Department of Energy. 2017. Minkel, JR. "The 2003 Northeast Blackout- Five Years Later." August 2008. Scientific American. 2017. 3 March 2017. Order No. 888. Federal Energy Regulatory Commission. 24 April 1996. Penn State University. Deregulation or Regulation? University Park, n.d. Web. Schneider Electric. "Fairfield: A Connecticut Town on the Vanguard of Microgrid Development." Case Study. 2014. Solar Energy Industries Association. Solar Power Purchase Agreements. 20 December 2012. 23 April 2017. Standard for Interconnecting Distributed Resources with Electric Power Systems. No. IEEE 1547. IEEE Standards Association. 2014. "Your guide to going solar in Florida." 2016. Solar Power Rocks. 1 May 2017. ogrid research will take time and money which is something most states and utilities have been unwilling to provide. Overall, some states have favorable policies regarding net metering and single customer distributed resources, but the lack of a financing option proves to be the biggest hindrance for multiple customer microgrids. The problem with financing support for microgrids is the inherent difficulty establishing a value for the common person. However, wider adoption is likely in the future as states realize the potential of microgrids to provide power to critical facilities in the face of natural disasters. A distinction must be made with regard to the nature of microgrids since they are not a typical utility as defined by Florida legislature. Legislation aimed at protecting utilities could be replaced with legislation that instead protects the customers. Microgrids offer an innovative solution for a number of complex problems with the electric grid. Microgrids offer improved reliability and resiliency to utilities and customers while allowing customers to benefit from excess power generation. To date, not much legislation differentiates microgrids from single customer distributed generation sources. However, further adoption of financing options for microgrids could promote emergency preparedness. 13 Works Cited No. Public Act No. 12-148. Senate Bi