From District Energy Magazine, First Quarter, 2014
Earlier this fall, when yet another hurricane was pumping big waves up the east coast, I was out bodysurfing in Rhode Island with my son John. As we dog-paddled in the deeper water of the lineup, we chatted about how much work goes into having fun and the ratio of effort to reward, or the percentage of time paddling to actually riding waves. When people think of bodysurfing, they usually imagine coiling into the curl of a surging wave and riding it along until they reach the shallow sandy beach bottom. In truth, when you're an old dog like me, that moment reflects only about 5 percent of the total experience. You spend a lot more time ducking under onrushing waves and swimming to better locations while waiting for that next "right" wave. But when that moment comes and you're in the right spot, and you catch the full surge just before it breaks, the rush makes you want to do it again and again.
A big part of a successful bodysurfing session is judging which wave to commit to and which ones you let roll by. Bodysurfing is a lot like business. You have to work hard to put yourself in position to win. You have to use your judgment and experience to decide when to go for it. Some waves appear solid but peter out quickly. Effort and timing make all the difference between a successful ride and a mouthful of seawater.
Looking ahead in our industry, I see a number of waves forming offshore. Interest in ecodistricts and new community systems is gaining ground. Microgrids are generating a huge buzz. The wave of low-cost natural gas is a boon to those with operating assets but may chill development of new systems as avoided cost savings shrink. Integration of district energy/CHP as balancing capacity for intermittent renewables has blossomed in Europe and is making its way to our shores.
Canada has demonstrated real focus in launching new municipal district energy networks. IDEA recently released the Canadian version of the Community Energy Development Guide at a well-attended workshop at the QUEST (Quality Urban Energy Systems of Tomorrow) conference in Markham, Ont. (see the story on p. 40). While the Canadian utility model leans more toward public crown corporations and municipal ownership, leaders like Mayor Frank Scarpitti of Markham see local utility ownership as an economic multiplier to attract blue-chip employers like IBM. Our local U.S. leaders could learn from their experience in Canada.
Across the U.S., we are seeing a groundswell of interest in ecodistricts, community-led efforts that typically involve the integration of transport, energy infrastructure, housing and commerce. In fact, IDEA is forging a partnership as a founding member of the Portland-based nonprofit EcoDistricts. The aim is for IDEA and our members to support district energy initiatives in those planning activities around the country and to provide a platform to educate municipal planners and change agents on community-scale district energy deployment.
Another approaching wave involves microgrids, heralded by energy journals and bloggers as the next new thing. Depending on the media source, the coverage ranges from the extreme "utility death threat" to the more moderate "disruptive technology" or "community resilience strategy." For example, one recent article critiqued microgrids as being "only for the wealthy" and breaking the "utility compact," ultimately causing disaggregation and the demise of the poor, impoverished utilities. What hogwash! There is a market for microgrids where standard utility service is no longer adequate to support mission-critical needs or where opportunities for thermal aggregation and CHP present a greater value proposition. Protectionism masquerading as social justice is a specious argument.
Ever since Superstorm Sandy hammered the Northeast U.S. in October 2012, a flotilla of bloggers and prognosticators have been buzzing about microgrids. But before we get too far ahead of ourselves, a little perspective is in order. The number of actual microgrids operating in the U.S. is much smaller than the headlines would imply. And the best examples reside within IDEA campus energy settings.
While it's easy to get enthusiastic about distributed generation, I have some concerns about the impending valley of unmet expectations as new market participants underestimate the time scale and effort involved in bringing a project from concept to completion. The regulatory playing field varies from state to state and by conditions within the regional electric system operations. In some states, legislative pushback on renewable portfolio standards and net metering price structures are harbingers of a larger ALEC-based strategy to preserve the status quo. It is important as an industry that we work collaboratively to frame the regulatory arguments to recognize the value of local generation and properly reward efficiency through the capture and use of thermal energy.
Many questions remain on how to modernize the grid and integrate smaller islands of highly reliable energy supply. But the biggest hurdles are not technological. What we lack is a reasonable regulatory framework to allow local generation to actively participate in the electrical markets and be fairly compensated for the full range of benefits produced. The Microgrid Resource Coalition (MRC) was recently formed to take up this challenge and coalesce industry participants around the societal value of microgrids at the Federal Energy Regulatory Commission (FERC). Chaired by Tom Nyquist of Princeton University, the MRC plans to focus on the merits of microgrids with the intent to create a more functional regulatory paradigm. The MRC will be featured at the IDEA Campus Energy Conference to help introduce the objectives and plan of action.
District energy systems are, in many cases, the best examples of working microgrids, as exemplified by the sturdy performance of Princeton University during severe storms. But it is important to remind people that resiliency involves not just power, but heating, cooling and process needs. An appropriate role for policy leaders and government agencies is to devise regulatory market conditions that allow for fair access and diminish risk for investors. Longer-term durable market signals will be critical for accelerated buildout.
Connecticut, under the leadership of Gov. Dannell Malloy, has taken an active role in promulgating microgrids in response to recent grid disruptions and economic losses from storms. Unfortunately, a singular focus on electricity can lead us to diesel generators with extension cords rather than robust, integrated energy solutions. IDEA urges policy champions to place appropriate emphasis on district energy, CHP and utilization of thermal energy to drive development of highly reliable, efficient energy assets that deliver a full range of environmental benefits and emission reductions.
The changing electricity paradigm is likely to enhance competition and cause a shift in market models. Around the U.S., wind and solar farms are ubiquitous, and we're seeing a nascent movement toward municipalization. In Germany, as a result of policies like Energiewiende, much of the newly activated generating assets are owned by local cooperatives or the municipality, so in effect, the rate payers are paying themselves. It's hard to imagine municipalization taking place in a significant way in the U.S., but clearly the century-old, monopolistic, rate-base-driven utility model is changing. It's time for electric utilities to adapt and participate in a technology-driven market shift. Much like other industries, your local utility must decide whether they will embrace new technologies and customer preferences and survive like Netflix, or stick to a limited, protectionist, asset-based recovery model like Blockbuster. Netflix evolved from a DVD mailing service into a streaming service for binge-block viewing of popular programming. And we all know how it turned out for Blockbuster...
The wave of lower-cost natural gas has accelerated the shutdown of aging coal plants and dropped wholesale electricity prices in most regions. Forecasts of reshoring lost manufacturing back to the U.S. and reduced price volatility are good for the economy, but low-cost gas can be a double-edged sword for district energy/CHP. Lower fuel costs certainly help operating assets but the droop in spark spread challenges new CHP to compete on marginal pricing. If the market today for natural gas imports in Japan is $17/MMBtu versus $5 domestically, it won't be long before new LNG export terminals accelerate natural gas exports. This will improve the U.S. trade balance, long hurt by imported oil, but may levelize natural gas prices nominally higher.
The fourth wave is a growing interest in implementing new community energy systems. Through our work with the DOE Clean Energy Application Centers and now the Technical Assistance Partnerships, we are seeing locally germinated activities in communities that want greater control over their energy infrastructure. In places like Grand Marais, Minn., Westminster, Colo. and Pittsburgh, Penn., mayors and planners want lower-carbon energy options and the ability to effectively balance regional intermittent renewable generation. Across Denmark and Sweden, electric boilers convert excess wind power into useful thermal energy, especially when low grid demand would otherwise cause spillover or even negative pricing for renewable sources. What could be better than actually getting paid to use power that would otherwise be dumped or wasted due to lack of storage capacity? District energy/CHP is a key asset to a really smart energy grid and those communities with district energy infrastructure will be swimming ahead of the tide.
It is an interesting time in the district energy industry. At times it feels like we are in the right spot, ready to take off and ride a surging wave. Other times, with the rising tide and rumble of increased activity, it feels like a lot of effort to just tread water. There are a lot of new swimmers in our ocean and it's clear we need to keep paddling, working and watching for the right spots. Remember, it's not just the ride to shore, but the full experience that counts.
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