How long will electric utilities remain relevant?


By Terry Mohn

Fast forward to the year 2020: In this year’s headlines we see a continued erosion of dominant electric utilities’ stock prices. The US Supreme Court ruled that electric utilities can no longer compete unfairly with consumers’ ability to generate power. In this proceeding, the leftist group “Power to Compete” had fought a 7-year battle arguing building electric generation is an individual right that supersedes societal needs currently met by utilities. In a related case, the court also struck down “eminent domain” as they concluded it is unconstitutional; therefore, utilities can no longer build transmission lines without land owners’ consent. Earlier in the year, in its annual shareholder’s meeting, Y-Haul announced profits surged for the fourth straight year due to its acquisition of portable car battery maker B456. Finally, GGL Energy Services Company announced its completed acquisition of Steady Energy, the largest international microgrid engineering company. Adding to their fleet of generator and storage product companies, GGL is now positioned to build miniature utilities for communities and businesses to offer more reliable renewable energy sources for their homes and facilities than their local utility can provide.

Whether the above scenario is 15 or 50 years into the future, the traditional utility has more to worry about than smart meter security issues or cost justification of a smart grid. The energy market in the United States is going through an evolution. For example, California Governor Arnold Schwarzenegger issued Executive Order S-14-08 on November 17, 2008 which requires 33% of the electricity sold in California come from renewable energy resources by 2020. In the last few years, emphasis has focused on large scale renewable energy resources as a potential solution. New large wind farms throughout the state and solar farms in the desert areas have been contracted by major utilities to address their increased energy requirements and regulatory obligations. A further anticipated proliferation of these large scale wind and solar power generation farms has the potential to substantially improve the achievement of both state and upcoming national climate legislation.

However, these renewable power types create variable power output determined by prevailing meteorological conditions. Many wind advocates argue large scale storage is the answer. But initial analysis has shown that large scale, bulk storage of electrical energy is problematic and expensive. Another approach may be the application of novel, distributed end-to-end control mechanisms to address the volatility issues in a cost effective manner.

A secondary, yet equally important, concern is that construction of large scale long distance transmission power lines to move power from remote bulk renewable resources into the urban areas that comprise the load centres has also proven to be problematic. Transmission is expensive to build, environmentally sensitive and politically unpalatable to the local communities and regulatory bodies. Utilities are looking for distributed generation and storage solutions to meet some of the larger policy requirements.

Addressing the sociological and environmental movement towards clean energy has brought new power quality concerns to the current electric power system. Regional policies that mandate high levels of renewable energy standards (RES), such as California and the Northeast, are struggling to find technical solutions to manage power system control. Power quality distribution problems occur when areas with rich renewable potential are significantly distant from their major load centres. Often, they are hundreds of miles apart, either in other states or regulatory regions. As of December 2009, 35 states required utilities achieve between a 5% (Arizona) and 38% (Massachusetts) renewable generation mix by 2015. These states and regions are in danger of creating significant power instability on large transmission systems. Through rapid adoption of bulk renewable generation, these instabilities could soon become a national issue. President Obama has made the national RES a cornerstone of his energy strategy – advocating that 25% of our electricity be generated from renewable sources by 2025.

Not to pick on California, but we see substantial state-directed incentives for customers to build their own renewable generation capacity. For example, the California Solar Initiative (CSI) has installed 520 MW and aims to install 3,300 MW . The California Self Generation Program (SGIP) has installed 330 MW distributed generation and is sufficiently budgeted to double that capacity ; and growth in electric vehicle sales (which may increase electric energy household consumption 50%-100% with an accompanying electric storage capability) will see slow but inevitable growth in power production occurring behind the electric meter. Utilities need to reconsider their operational framework. They need to consider consumer-owned assets in their power delivery plans.


Figure 1: SGIP technologies

Imagine after the globe’s economic recovery, communities decide to “go green” and create a renewable, sustainable environments for themselves. Individually and collectively, sustainable living is not expensive; for that matter, if built right, it may be more reliable than traditional utility-built power. It is designed to ensure that resources are carefully managed to maximise efficiency, reuse and minimise cost and waste. We will soon see the emergence of economically viable electric distribution and operation systems occurring that are veiled to the utility. These are the microgrids of the future. A microgrid can exist within a single household, a community, a business park and even a sectionalised part of the traditional power distribution system.

The term “microgrid” has evolved from its roots as a utility-built system that ensures reliable distribution feeders using local generation and power flow control strategies. In the new economy, it is a localised, scalable, and sustainable power grid consisting of an aggregation of electrical and thermal loads and corresponding energy generation sources capable of operating independently of the larger grid. Research and federally funded pilot projects have demonstrated that distributed generation operating within a microgrid is a viable energy efficiency option and has the potential to greatly improve our energy generation and reliability issues.

Microgrid components include distributed energy resources (DERs, such as demand management, storage, and generation), control and management, secure network and communications infrastructure and assured information management. When renewable energy resources are included, they usually are in the form of small wind or solar plants, waste-to-energy, and biofuelled combined heat and power systems.

The microgrid is both an energy market consumer and provider of electrical power. During normal or peak loading, or at times of power grid failure, the microgrid can operate independently from the larger grid and isolate its generation nodes and loads from the disturbance without affecting the larger grid’s integrity. Such independent microgrid operation can offer higher reliability and long term cost stability than that provided by traditional grid control.

A technical complexity for microgrids is the sensing, monitoring and resultant control of the DERs. Microgrids will need to perform complex system control functions such as dynamically adding or removing new energy resources without modification of existing components; automating demand response; autonomous and self healing operations; connecting to or isolating from the transmission grid in a seamless fashion; and, managing reactive and active power according to the changing need of the loads. This is the very nature and operation of large utilities. They do this work every day, but not with respect to customer-owned assets.

Consider that utilities and transmission system operators work with consumers already to manage demand response. This is accomplished by communicating load reduction signals to consumer assets. As large scale wind and solar become prevalent on the transmission grid, either large scale storage or large scale demand response needs to come into play. Most independent system operators made provisions for these operations through ancillary market mechanisms.

The technical difficulty becomes one of how to quickly reduce aggregate demand, or conversely, increase distributed generation in real time as bulk wind or solar drops or peaks. Through the introduction of wide-area control systems that are placed between the bulk power grid and the DERs, customer-owned assets could collectively stabilise the frequency and voltage swings. In addition, it is entirely feasible to incorporate large end-use energy participants as supporting resources for renewable energy production and potentially offer them revenue. Utilities are experts at managing large scale infrastructure design and operation. As aggregated customer-owned assets become viable resources, new networking models will be required.

Whether they are built by utilities or by consumers, microgrids will fundamentally need to interoperate with the utility power system and its associated data and network infrastructure. Once microgrid controls are operational at a local distribution grid, they become resources for the renewable generators on the transmission grid. A significant enabler integrating these geographically dispersed assets is the smart grid in that it is flexible to serve many purposes. It inherently offers communication flexibility, self healing power circuits, diverse generation types and consumer participation. It is the fabric needed to stitch large transmission problems with distribution solutions.

Multiple classes of microgrid deployments will evolve to support different purposes and amounts of power generation capability. The different classes of microgrids can scale to be economically efficient, as well as environmentally supportive, and produce varied levels of self-sustainable power. Geographically adjacent microgrids will collaborate with each other using smart grid technologies. Legacy utility grids will expand by connecting geographically dispersed microgrids that each contains distributed renewable generation to the transmission grid. For example, campuses will add and manage their own cost effective and environmentally clean power generation along with establishing academic research centres. Industrial parks will build microgrids, flattening rising energy costs and provide self sustainable, reliable power to their factories.

The different classes and sub-segments of individual microgrids can be viewed as cells that network to form a collaborative power system. Each cell addresses a local focus, yet is available to support adjacent cells with power generation for the purpose of demand response or failure recovery. Adjacent cells can be leveraged to provide sustaining power when a neighbouring cell can’t support its demand or scheduled as a planned failover recovery mechanism. The adjacent cell concept presents an opportunity for each class of microgrid operator to generate revenue by bidding excess generation capability into the wholesale energy market or potentially to negotiate collaboration directly with a neighboring cell.


Figure 2: Networked microgrids

These new service models will come with new risk, mostly addressed by smart grid technologies. Providing control to manage power stability includes analysing and orchestrating voltage level consistency, voltage frequency stability and the underlying power signal phase relationships. Avoiding catastrophic system failure and keeping the grid at operating equilibrium requires monitoring and performing changes to these power state variables at the granularity of seconds or minutes.

Of course, all of this is constantly in check against situational considerations, such as outage detection, planned maintenance, and meteorological conditions. Providing control to manage the microgrid digital infrastructure, and its associated distributed energy generation, storage and loads requires analysing a broad set of operational parameters and system-wide state variables. These parameters include dynamic price and performance attributes of the distributed energy generation, as well as information reflecting the energy consumption, cost, environmental and reliability desires of the distributed loads.

In the legacy power grid, system control came from the perspective of the utility organisation and its captive audience of customers. Load shedding and “peaker generation” were the primary means of managing peak demand. Base-load power generation came from the utility’s bulk systems and therefore, the core intent of the control system was managing the power stability of the grid.

In the new microgrid digital domain, additional non-power specific infrastructure must be built with its associated control functions. These orchestrate critical IT elements, including cyber security, distributed information management, process automation, workflow orchestration and advanced resource forecasting. These all stand as new control areas that must be addressed in the pursuit of building out the smarter power grid.

The microgrid also introduces the notion of dynamic cost. Load and supply will arbitrate on various cost attributes, including reliability, carbon output, availability, etc. These attributes have analogues in transmission grids. Yet these control complexities arise from the automation of dispatchable energy generation and storage. These new sets of “digital goals” need to be considered holistically and combined with the existing and traditional set of power balancing goals. Additionally, with the introduction of DERs, the power system control logic must now consider a distributed and cooperative set of decision logic versus the legacy logic which was primarily focused on local and “bulk energy” driven criteria.

Legacy power grid issues have evolved over many decades and have become well known. Power engineers have myriad commodity components to choose from when designing traditional bulk power systems and cogeneration. However, incorporating renewable energy generation, networking microgrids, and integrating DERs is in the evolutionary stage. Consequently, commodity products are not abundantly available. It is apparent that a new paradigm of control is required to address the holistic, combined analogue/digital centric perspective power engineers must now consider.

Many control idiosyncrasies exist and must be accounted for when developing microgrids and integrating renewable and variable energy resources. The characteristics of renewable energy systems, particularly electronically coupled units, are different from those of legacy turbine generator units. Microgrids are subject to a significant degree of local imbalance caused by the presence of variable energy resources. A large portion of the energy supply within a microgrid can be delivered from highly variable wind and solar based generation units. As such, new modes of control as well as short and long term energy storage must now come into play when attempting to stabilise and manage the volatile energy distribution. New topological constraints are also an issue, such as the ability to island sections of microgrid loops from the ubiquitous power grid without affecting macro level load balancing and synchronisation.

Economics will also add new control constraints. A microgrid may be required to provide pre-specified power quality levels or preferential services to critical industrial loads such as factories, data centers or healthcare institutions. In addition to supporting regular scheduled loads, microgrids may participate in wholesale markets, and as such, be required to control generation and distribution to support energy trading in an effort to financially sustain them. Energy market trading will also convey additional security, measurement and accounting traceability aspects not previously addressed in the legacy power grid.

Some utilities have considered the migration of generation sources from the transmission grid to the consumer. The Department of Energy funded development of smart grid projects around the country. Although intended as research, utilities believe the projects are launch points for grid modernisation. In 2006, the University of San Diego released a frequently cited report “San Diego Smart Grid Study” , which explains both business and sociological benefits to implementing a smart grid. The summary of the benefits based on the percentage of total benefits realised are presented in Table 1.

Note the distribution between total societal and system benefits is nearly equal at approximately 50% each. From the report analysis, microgrids in the San Diego region would realise internal rates of return in the range of 20% to 30% when both societal and system benefits taken into account.

Immediately following this important study, in 2007 the Department of Energy issued a smart microgrid funding opportunity notice to encourage utility exploration in managing renewable distribution assets, primarily integrated into smart microgrids .


Table 1 – Benefits of implementing a smart grid

Large scale smart meter and modest smart grid deployments started about four years ago. With the utility’s intimate connection into consumer energy patterns, it leads to reason the utility is wellsuited to help consumers become self-sufficient. After all, some consumers are heading that way anyway.

Using better real time information about grid operations and renewable generation production, reliability and grid dispatchability should improve measurably. Through advanced controls to monitor, diagnose and avert catastrophic events and address reliability challenges associated with an expanding portfolio of DERs, utilities should champion control and management of consumer assets. Automatic detection, isolation, and restoration with minimal human intervention will result in a reduction in down time and improved customer and employee safety. Load pockets may transition to microgrids and island when necessary or desirable. Both transmission and distribution capacity utilisation and system reliability will improve with less human intervention and better situational awareness.

As national renewable energy integration efforts expand, similar to efforts described above, technology deployments of large penetration microgrids will mutually support each other across many states facing similar challenges to meet their goals more economically and with less risk. In addition, leveraging open systems for customer participation will advance the knowledge base for utilities on evolving industrial/commercial microgrid systems and identify opportunities to leverage residential DERs.

A new utility business model must evolve in response to microgrid emergence. Central renewable generation has a limited future if large scale, cost effective storage isn’t found soon. That model embraces utility-owned microgrids.

Utilities must consider owning and operating consumer DER assets, rather than allowing them to emerge invisibly to the grid. Utilities need to begin exploring key questions: 

  • What regulatory policies are needed to enable consumer participation? 
  • How do utility scale circuits transition in and out of microgrid operations? 
  • How do microgrids perform at utility scale regarding reliability and economics? 
  • How do microgrids handle transients, outages, and emergency conditions? 
  • What information and communications is necessary between other microgrid utility operations?

The call for dynamic and distributed control methodologies, not only within microgrids but also across multiple networked microgrids, presents new technical challenges along with expanding economic opportunities. Energy production by distributed resources can provide stabilising effects for the national power grid. However, integrating the management and control of distributed resources into large scale renewable energy markets suggests that end-to-end control systems are needed to manage the assets in real time. Cell-based and networkbased microgrids will evolve, creating an entirely new market for energy production and consumption. Achieving this modern power system goal requires incentives, either through new market mechanisms, funding for development, or regulatory change to authorise utility participation.

Consumer ownership of renewable energy, electric vehicle storage and internet controlled building automation will force the utility to consider its role in the future. As excess wind disturbs the transmission system, coupled with lengthy litigation surrounding transmission line siting, alternative distributed generation sources will be sought out by these utilities. A natural evolution towards microgrid deployment owned either by consumers or by utilities will result, each by their own accord. Remaining relevant in this future is up to the utility.

1. California Solar Initiative
2. CPUC SGIP programme
3. Lawrence Berkeley National Laboratory: The CERTS MicroGrid and the future of the Macrogrid
Department of Energy MicroGrids
4. San Diego Smart Grid Study
5. Department of Energy R&D notice