Smart Microgrids

Description

Microgrids are smaller-scale versions of a local centralised electricity system - a.k.a. a macrogrid - and are equipped with control capabilities that allow them to operate in tandem with the local macrogrid, or autonomously on a stand-alone basis. As such, microgrids have existed for decades powering industrial sites, military bases, campuses and critical facilities such as hospitals, primarily using fossil-fuel-fired Combined Heat and Power (CHP) and reciprocating engine generators. However, many cities are now interested in microgrid systems that can better integrate renewable generation resources and various energy loads, serve multiple users and/or meet environmental or emergency responses.

Microgrids can bring several benefits to the environment, utility operators and customers; benefits that are especially important for cities as they strive to create smart, safe, and liveable communities with thriving economies. Considering local priorities and challenges, municipalities have three good reasons to pursue microgrids:

1. Microgrids contribute to reducing GHG emissions and help cities meet their climate goals by:
   • Fostering the integration and aggregation of renewable energy sources, thanks to their ability to balance energy production and usage within the microgrid through distributed, controllable generation and storage (e.g. CHP, thermal storage or fuel cells).
   • Harnessing energy that would otherwise be wasted (e.g. electricity transmission losses or waste heat from energy production), thanks to the proximity of where energy is generated and where it is needed.
2. Microgrids can strengthen and increase the resilience of the central grid by:
   • Increasing the system-wide reliability and efficiency, as they help reduce or manage energy demand whilst alleviating grid congestion, thanks to their ability to isolate and take over local energy demand autonomously.
   • Reducing grid vulnerability by coping with impending power outages and safeguarding against potential cyberattacks on energy infrastructure.
   • Sustaining energy service during emergencies or natural disasters, especially for critical public services, and helping the macrogrid recover from system outages.
3. Microgrids can better serve the community and enhance the local economy by:
   • Keeping electricity tariffs under control thanks to more efficient and cost-effective grid management, greater use of valuable wasted energy and/or reduced investments in additional energy capacity or transmission infrastructure.
   • Favouring the competitiveness of municipalities, as these can offer low energy costs and elevated levels of reliability that may attract new business and jobs, especially industries highly sensitive to power outages (e.g. data centres, research facilities, etc.).
   • Ensuring power reliability for isolated or hard-to-serve communities by providing clean, reliable, and resilient energy cost-effectively.
   • Constituting an ideal way to integrate renewable resources on the community level and allow for customer participation in the electricity enterprise.

Problems to be solved

Value Model

Value Model for a Smart Grid System (BABLE, 2021)

City Context

Local governments can play a key role in supporting the implementation of community microgrids in existing electricity grids to meet city-specific objectives. This is a complex task that requires institutional changes and regulatory updates. Nevertheless, microgrid providers and developers respond to market signals, and local policy can create clarity, communicate priority levels and lower entry barriers. In addition, local governments can engage stakeholders and citizens around needs and opportunities and even become a microgrid customer in specific municipality-led initiatives, e.g. the German village Feldheim which claims to be the only grid-independent village in the developed world with 100% renewable resources. Some key factors to ensure the deployment of community microgrids are the following:

• Setting the policy environment by creating the right mix of policy instruments and incentives to remove all regulatory and administrative barriers. Besides traditional distributed energy resources incentives such as feed-in-tariffs or net metering schemes, other effective alternatives include waiving permitting fees to expedite processes or granting zoning incentives to projects that include microgrid features, such as energy storage, renewable energy generation or intelligent management. Similarly, regulations that prevent on-site energy storage or preclude utility ownership of storage facilities need to be updated.
• Technology infrastructure enabling future microgrid development such as smart meter deployments or connectivity infrastructure coverage.
• Community involvement and motivation to increase the social value of implementing and operating the microgrid within the community, and in turn increase social acceptance.
• Local utility's attitudes and level of activity greatly influence community microgrid developments. Historically, resistance from utilities has hindered community microgrid deployments, but recently there have been some utilities proactively pursuing these projects. There is a push from the EC on utilities to increase the level of activities with non-traditional electricity infrastructure development, which could improve the conditions for community microgrid development.
• Environmental constraints such as area of influence, space availability, renewable energy sources and other local resources, as well as the energy density of the area.

Supporting Factors

1. Setting a supporting policy environment.
2. Enabling local energy trading between distributed generation and bidirectional power flow.
3. Clear and transparent interconnection rules with the main grid.
4. Availability of local energy markets.
5. Ensuring economic efficiency and profitability when the security of the power supply is not an issue.
6. Supporting viable business models and benefit sharing to cope with high capital costs.
7. Creating appropriate governance models for community-led initiatives.
8. Ensuring stakeholder involvement to maximise social value.
9. Pursuing protection of data and communication.
10. Deploying appropriate storage technology and size.
11. Better integrating Energy Management Systems and Business Management Systems.
12. Increasing usability in interfaces with community residents to ensure transparency and foster energy-efficient behaviour.

Government Initiatives

In European countries, the implementation of local energy systems is supported by many initiatives and policies at the European- or national-level, where many research and development projects, benefitting from national or European funding, are focused on smart grids, energy efficiency, integration of distributed renewable resources, smart network management and much more.

In the context of EU policies, the policy drivers for such projects include increasing grid congestion and energy demand, climate change, depletion of fossil fuels, aging infrastructure of electricity network and internal European energy market; all of these factors pushing for the implementation of local energy systems has been inspired by the latest EU’s climate and energy package ‘Clean energy for all Europeans’, and now the new European Green Deal.

A noteworthy initiative is the establishment of the Smart Grid Task Force (SGTF) as part of the EU third energy package in 2009 to advise on policies and regulations concerning smart grid deployment. For instance, under the development of a common standard for European Smart Grids, several mandates have been issued by the EC to the European Standards Organisations (ESO) seeking to establish standards for the interoperability of smart utility meters, EV charging standards and high levels of smart grid services and operations.

The EU is currently directing member countries to update their electricity market and renewable energy regulations to allow communities to act as aggregators of renewable generation, flexible loads and storage services to the overall grid, paving the way towards community microgrids.

Stakeholder Mapping

Stakeholder Map for a Smart Grid System (BABLE, 2021)

Market Potential

The advancement of microgrids is part of a broader trend towards digitalisation, decentralisation, and decarbonisation of the energy sector. Globally, the growing market of local energy systems is a response to environmental concerns, lack of robust grid infrastructure and power reliability, rising energy prices and a combination of regulatory pressures and incentives. As a result, the microgrid market is expected to quickly grow over the next 10 years.

Annual Total Microgrid Power Capacity and Implementation Spending by Region, World Markets: 2020-2029 (Guidehouse Insights)

Despite being considered a global leader in moving towards a low-carbon energy future, Europe represents only 9% of the global microgrid market. The most direct explanation is that the vast majority of installed microgrid capacity in Europe is located on remote islands that are not connected to the mainland grid. However, a closer look at how EU markets are tightly intertwined and regulated shows a distinct pattern that places severe constraints on the development of microgrids (according to Navigant Research): (1) Europe has been focusing on large-scale renewable energy deployment, such as offshore, which requires massive investment in transmission infrastructure; (2) Deployment of distributed energy resources (DER) has primarily been based on feed-in-tariffs, a business model precluding the key defining feature of a microgrid, i.e. islanding; (3) The preferred methods to address the variability of renewables and increase power reliability lean towards cross-border trading and not towards localised microgrid

Ultimately, the advanced integration of the European market is shifting the focus from microgrids to VPPs. In fact, Europe is at the forefront of the adoption of VPP platforms with sophisticated capabilities that enable the integration of renewables and real-time energy trading to maximise the value of flexibility resources, while opening the door to new value streams to create markets for ancillary services.

Operating Models

Until recently, the business model for microgrids was an obstacle for many organisations, given the required costly capital expenditure and high financial risks associated with their construction and deployment. Now, new financing and operating mechanisms are reducing the barriers to organisations and communities, enabling more microgrids - and hence the sustainable energy transition - to become a reality.

Operating Model for a Smart Microgrid System (BABLE, 2021)

Legal Requirements

Since there are no specific regulations for microgrids in the European Union, it is necessary to first define the key regulatory field of microgrids and link the existing European directives to these fields. The regulatory fields relevant to microgrids and the related directives are:

Renewable energies: considering renewable generation units within the microgrid, incl. measures fostering the integration of renewables, energy efficiency, and decarbonisation.

Regulations Renewable Energies (BABLE, 2021)

Grid connection: concerning distribution grid connection requirements for loads, generation units and energy storage devices.

Regulations Grid Connection (BABLE, 2021)

Self-consumption and energy storage: Conditions for delivering excess of production, possibility of use of storage systems, etc.

Regulations Self-Consumption and Energy Storage (BABLE, 2021)

All in all, the amount of regulation directly applying to microgrids for the EU is low, which also increases differences between regulations for microgrids in each member state. Nevertheless, the impact of some regulations as 2009/28/EC promoting renewable energies is considerable.  To comply with the goals of European directives in line with microgrids, member states have implemented strategies based on economic incentives. The most common support scheme in the EU is based on Feed-in-Tariffs (FITs); however, there are other relevant incentives such as market premiums, green certificates and traditional tenders.

Data and Standards

Data and Standards for a Smart Micogrid System (BABLE, 2021)