From District Energy Magazine, Second Quarter, 2016
Whenever I fly out of a city at night, I often gaze out the airplane window at the expansive canvas of lights twinkling below. The electricity grid outlines the streets and thoroughfares, connecting homes with commercial centers, spotlighting high school football stadiums and illuminating the hustle and bustle of life below. The lights define the contours of the community all the way to the horizon. I often think about the awesome responsibility of keeping all those lights on. To me, the U.S. electricity grid is a marvel of innovation and reliability, vital to our economy and the many conveniences of our modern lifestyle.
Today, the electricity industry is facing disruptive change from many directions. Large, remote, inefficient coal plants are shutting down, faced with looming expenses to meet environmental compliance and unable to compete with renewables and low-priced natural gas. End-of-license nuclear plants are likewise closing, unable to justify mounting life extension costs when measured against declining investor confidence and public safety concerns. The majority of new generating capacity is distributed solar and wind. So the grid is both decentralizing and democratizing while consumers are cutting electricity consumption through efficiency, conservation and new control technologies.
The proliferation of rooftop solar and distributed generation is cutting into revenue and driving the shift from a traditional "one-way" business model to a more transactive grid that enables both selling and buying of electricity by consumers. The emergence of a "smarter grid" is about more than just more accurate meters; it involves allocation of costs on a real-time basis, demand responsiveness and a desire by customers for greater operational flexibility, reliability and resiliency.
Enter microgrids. For decades, IDEA member institutions have operated their own microgrids long before the term entered the popular lexicon. Anchored by district energy/CHP, research universities have historically produced their own power, heating and cooling in order to manage costs, support mission-critical operations and, more recently, to reduce their carbon footprint.
In most cases, the core of the district energy/CHP microgrid is electricity cogeneration coupled with the distribution of heating and cooling through a thermal network, often incorporating thermal storage and integration of local renewables. Generating power in parallel with the grid provides benefits to both parties. The institutional district energy operator is able to optimize the production of useful energy, both power and thermal, which in turn displaces emissions and saves money for more critical functions like teacher salaries or cancer research. The grid benefits from the interoperability of locational capacity on the local distribution network. And having localized generation that can "island" a critical load such as a research hospital or data center may be the best insurance during an extreme weather event.
One of the challenges to optimizing the deployment of district energy/CHP microgrids has been the prevailing regulatory framework, which essentially rewards traditional utility investment in rate base - building more wires - rather than exploring alternatives that may actually deliver wider and deeper advantages at lower cost to the local economy. Building a CHP district energy center may not be the right solution in every case, but where there is sufficient energy density, scale and connectable thermal loads, the regulatory model should support consideration of district energy/CHP.
IDEA has begun a dialogue with the Edison Electric Institute (EEI), along with the CHP Association, to explore this very path. The EEI represents the interests of investor-owned utility companies. If you consider our common roots, many IDEA member companies were originally Edison companies, based on the early investor-owned utility model that produced both power and heat. Thomas Edison recognized early on that he needed to sell the heat along with the power in order to make his plants profitable.
In early February, the three organizations signed a memorandum of understanding and then met to develop a shared set of principles that we can use to educate regulators and policy leaders. It is still too early to articulate our common ground, and there may be divergent views on specific issues, but having the dialogue is important. One of the principal objectives of the 2015 IDEA Strategic Plan was to work on a means to educate the utility industry on best practices in district energy/CHP microgrids.
EEI tells us that a majority of utility executives now clearly see future markets incorporating more district energy/CHP. They want to understand how to participate in this new business model. A recent survey of 500 utility executives in Utility Dive's The State of the Electric Utility 2016 report found that 91 percent expected utility-scale solar and distributed energy resources to increase significantly or moderately over the next five years. Factor in emissions regulations like the Clean Power Plan, the extension of renewable energy incentives and lower natural gas prices, and it's clear that the electricity industry is undergoing a profound paradigm shift.
Regardless of your starting position on the topic, the trend toward more efficient and resilient distributed generation is widely acknowledged. And most parties agree there is strong potential for more deployment of district energy/CHP in the urban marketplace where the key to increasing market share is regulatory evolution. Utilities should be allowed to partner with industry and institutions in developing more CHP capacity rather than simply building out more wires. IDEA envisions more access to electricity markets, better valuation of locational generation and ancillary services, greater clarity on issues like standby service or departing load fees, parity and nondiscriminatory treatment on interconnection, and reasonable and fair access to the grid. Utilities want to be able to invest and earn a return on assets "behind the meter." The challenge will be avoiding imbalanced markets where utilities leverage capital advantages, are allowed to shift risks onto rate base and end up distorting a competitive, open market.
IDEA is engaged on another front, having signed an MOU with Green Business Certification Inc., the business arm of the U.S. Green Building Council, to collaborate on greater awareness for more resilient and sustainable electricity grids. In Tim Griffin's column there is more detail on our joint support of PEER (Performance Excellence in Electricity Renewal) and IDEA's objective to improve treatment of district energy/CHP in the LEED rating system. Just as EEI foresees a shift in the electricity industry, USGBC foresees a shift from evaluation of single buildings to holistic assessments of clusters, campuses and communities to optimize energy systems for greater resiliency and reduced carbon emissions. The MOU signing took place at IDEA's 29th Annual Campus Energy Conference, coincident with recognition of the leadership of Juan Ontiveros and his team at UT Austin, winner of the Bob Galvin Award for excellence in implementing PEER at their world-class campus energy system. Many IDEA member campuses attending the conference expressed interest in evaluating their campus energy systems via the PEER program.
With the future calling for greater penetration and understanding of the design, operation and ownership of microgrids, it is important that IDEA support this transition with focused advocacy and education of regulators and policy makers. Ideally, we want to increase the appreciation for how a district energy/CHP microgrid like Princeton University's operates in parallel with the grid. Multibuilding microgrids with real-time generation, optimization and islanding capabilities have been an important driver in many of the Northeast states post-Superstorm Sandy.
Most IDEA member institutions with district energy originally invested in CHP to reduce costs and increase efficiency and reliability. Today, more and more cities, campuses and communities are seeking guidance on deployment of microgrids to harden utility infrastructure and prepare for climate adaptation. It will be important that experienced industry leaders like Princeton, UT Austin, Harvard, Cornell, NYU and others take the initiative to advise regulators on the benefits of district energy/CHP microgrids.
We must advocate for the full range of benefits so that microgrids are not perceived as simply standby emergency generators useful only when a hurricane topples nearby power lines. Microgrids produce and optimize power sources locally, and integrating CHP with thermal energy leverages efficiencies and economies of scale to enhance asset value and add revenue streams. With the recent Supreme Court rulings on FERC v. EPSA and on demand response, it will be important that our industry provide a voice while the "utility compact" is being "rewritten." To that end, IDEA and the Microgrid Resources Coalition (MRC) are exploring a stronger alliance with the intent of strengthening the underlying resources for MRC advocacy through membership growth and IDEA program expansion.
We plan to bring all of these threads together in June at IDEA2016: "Embracing Change," our 107th Annual Conference and Trade Show in St. Paul, Minn. The conference program will explore the utility paradigm shift and global best practices in the integration and optimization of thermal and power for sustainable communities. The Twin Cities region is home to dozens of district energy systems, from District Energy St. Paul to NRG Thermal's growing energy infrastructure in downtown Minneapolis. To the south in Rochester, home of the world-famous Mayo Clinic, multiple district energy systems are exploring an overall community energy master plan for enhanced reliability and lower carbon footprint. I hope you will join us in St. Paul this June as the IDEA community comes together again while "embracing change."#Q2 #PresidentQuarterlyMessage #News #2016