Will microgrids be utility killers or saviors?
Digital disruption of utilities
In mature economies, microgrids have reemerged as a disruptive force that enable commercial and industrial companies, as well as residential customers, to self-generate power.
What is a microgrid?
EY defines a microgrid as a form of distributed generation. Unlike traditional grid systems, microgrids are decentralized and located close to the area they serve. They tend to derive their power from renewable energy sources or cogeneration and operate with capacities of 10 megawatts or less. Microgrids can serve as a supplement to a larger, connected grid system or as a stand-alone power source.
In mature economies, microgrids can serve as a supplemental source of energy that reduces their reliance on the traditional grid system. Alternatively, they can act as a stand-alone power generator that eliminates the need of the traditional grid entirely.
As the technology to more effectively operate microgrids improves, and the cost of solar energy and storage technology falls, microgrids are creating real opportunities for companies to reevaluate their energy plans.
Microgrids: what’s in store in 2020?
Cost savings and operational value potential for commercial entities
(in % of status quo electricity cost)
Cost savings and operational value potential for industrial entities
(in % of status quo electricity cost)
Microgrids v/s utilities
As the pace of emerging technology for microgrids accelerates, we expect the savings potential for commercial and industrial companies to grow. For utilities, however, the combination of affordable microgrids and long-term increases in energy costs rocks the very foundation upon which they’ve built their business. How utilities react will ultimately depend on whether utilities see microgrids as a threat or an opportunity.
The threats of microgrids to utilities are significant:
Cannibalization of the existing business
Initial discussions have now shifted from grid defection to load defection, having lower barriers for electricity customers to realize but is just as damaging for utilities.
Change in the role of the grid
Under a scenario where there is widespread use of microgrids, traditional utility grids will shift from providing load to providing capacity to back up microgrids. To date, many utilities have regulatory structures that do not align to this role.
New entrants from outside the utilities sector
Technology and telecommunications are already looking for a means of entry into the utilities market and their customer base.
The way ahead
What would a path forward look like? There are a number of actions for utilities to consider.
Lead by collaborating
Companies that invest in microgrid infrastructure may, at times, have excess energy that they want to sell back to the grid. By managing this service for companies, as well as other services like regulatory compliance and reporting, utilities can gain access and control of additional capacity, as well as demand response for the grid. This would also lower system costs.
Accelerate the development of new products and services
Microgrids come with many benefits for corporations — if they can afford to build them. Utilities have an opportunity to finance, own and manage microgrids for their customers. This also enables utilities to develop a service-based business model that locks their customers into long-term agreements.
Work with regulators to keep pace with change
Exploring new opportunities will inevitably mean working with regulators to ease regulatory constraints. Smart energy markets and demand response services in particular will require changes to current regulations.
Shift focus to emerging markets
In decades of building, operating and managing energy assets, utilities in mature markets have built up a wealth of skills and knowledge that are the envy of many emerging markets. Utilities could adapt these skills and use them to expand into emerging markets, where microgrids would be the first step in a longer journey to developing a larger utility infrastructure.
It’s time to choose.
Do you want to be the utility that microgrids save, or the one that they kill?
Join us for a conversation @EY_PowerUtility #digitaldisruption