Industry Report - 三菱東京UFJ銀行【要約】 Industry Report JAVED SIDDIQUE STRATEGIC RESEARCH (NEW YORK) MUFG Union Bank A member of MUFG, a global financial group 年11

【要約】

Industry Report

JAVED SIDDIQUE

STRATEGIC RESEARCH

(NEW YORK)

MUFG Union Bank A member of MUFG, a global financial group

2016年 11月

【ニューヨーク駐在報告】

米国マイクログリッド

「マイクログリッド」とは、既存の一般的な電力網の小型版と言えるもの

であるが、電力供給先、運用形態、電力源、先進的な運用技術等という点

に特徴を有している。

「マイクログリッド」は、既設の電力網に接続されている状態、あるい

は、既存の電力網から切り離された状態（Island Mode）のどちらでも運用

可能。一方、電力供給先は、一般的に、他と明確に区分された一定区域内

に限定される。また、電力源については、火力、再生可能エネルギー、蓄

電システム等が含まれており、先進的なソフトウェアやコントロールシス

テムによって、バランスよく最適化されている点が特徴的。

「マイクログリッド」導入には、多額の初期投資が必要であり、リスクも

大きい。従って、「マイクログリッド」は現在、政府のインセンティブに

強く依存している状況にある。政府のサポートがなければ、「マイクログ

リッド」の更なる本格的な普及には時間を要すると考えられる。

実際、総発電設備容量に対して「マイクログリッド」が占める割合は足

元、僅かなものに過ぎない。但し、①電力供給の信頼性向上、②長期的な

電力コストの削減・効率化、③環境責任遂行、④排出ガス削減を目的に、

「マイクログリッド」の設備容量は急速に増加しており、2020 年までの

年平均成長率は 21%に達する見込み。Siemens、ABB、日立製作所といっ

た、発電インフラに強みを有するプレイヤーの参入も進んでいる。

「マイクログリッド」の普及は導入主体により、異なるものになると考え

られるが、まず、公共性の高いサービス、大学、軍施設での活用が有望視

されるほか、各地自治体での導入も相応に進展すると想定される。

「マイクログリッド」の本格的な普及には、現状、多数の課題があるもの

の、参入事業者、行政、利用者によって、持続可能なフレームワークの構

築が徐々に進むと考えられる。

1

【Summary】

Industry Report

JAVED SIDDIQUE

STRATEGIC RESEARCH

(NEW YORK)

MUFG Union Bank A member of MUFG, a global financial group NOVEMBER 2016

Microgrids

Microgrids are exactly what the name implies – smaller versions of the modern

electrical grid that we are familiar with today. What enables microgrids to stand

out, however, are a number of key features that define customer loads, operating

modes, sources of power generation and advanced intelligence.

Microgrids can operate connected to the macrogrid or in a stand-alone fashion

(island mode). Customer loads for microgrids exist within clearly defined

boundaries. Generation fuels include a balance of renewable, thermal and

storage, optimized through advanced intelligence software and controllers.

Due to the significant upfront capital investment and risk required to adopt

microgrids, the industry is heavily dependent on government incentives.

Without government assistance, it would be significantly more challenging for

microgrids to gain traction.

Although installed capacity is a small piece of the overall grid today, it is

growing rapidly, at a CAGR of 21% through the end of this decade. This

growth will be driven by a number of factors including 1) reliability 2) longer-

term cost reduction/efficiencies 3) environmental stewardship and 4) emissions

reductions. These drivers have brought in major players that have built on

previous experience in the arena including Siemens, ABB and Hitachi.

Adoption will depend on the type of microgrid application, with the highest

likelihood of penetration occurring in critical services, campus/university and

the military, followed by cities/communities.

Although there are a number of challenges that exist, industry players, regulators and

customers are likely to gradually work towards establishing a framework that will

last going forward.

2

Table of Contents I. Background ......................................................................................................... 3

1. Microgrids Provide the Origins for the Modern Electrical Grid ........................ 3

2. Drawbacks of the Macrogrid – Microgrids as a Solution ................................. 4

II. What is a Microgrid? ............................................................................................ 4

1. Overview ....................................................................................................... 4

2. Features ........................................................................................................ 5

3. Installed Capacity .......................................................................................... 8

III. Financing ............................................................................................................. 8

IV. Drivers of Microgrid Adoption .............................................................................. 9

1. Reliability ....................................................................................................... 9

2. Longer-term Cost Reduction/Efficiencies ..................................................... 10

3. Environmental Stewardship ......................................................................... 10

4. Emissions Reductions ................................................................................. 12

V. Types of Microgrids ........................................................................................... 12

1. Critical Services ........................................................................................... 13

2. Campus/University ....................................................................................... 15

3. Military ......................................................................................................... 15

4. City/Community ........................................................................................... 16

5. Commercial ................................................................................................. 17

6. Data Center ................................................................................................. 18

7. Industrial ...................................................................................................... 18

VI. Major Players .................................................................................................... 19

VII. Challenges ........................................................................................................ 22

1. Technical ..................................................................................................... 22

2. Ownership ................................................................................................... 22

3. Regulatory Landscape ................................................................................. 23

VIII. Conclusion ....................................................................................................... 24

3

Microgrids l November 2016

I. Background

1. Microgrids Provide the Origins for the Modern Electrical Grid

Microgrids planted the seeds for today’s electrical grid.

Today’s microgrid actually draws its origins from the early days of the electrical grid that we

are all familiar with today. At the beginning of the 20th

century, most major cities in the US

operated their own electric grids that were islanded from each other. Even as late as 1918,

half of electric customers in the US were still receiving their power from small-scale isolated

power systems with generation plants sized well under 10 MW in capacity. The areas served

were less than a few square miles, and the power systems in individual towns were not

connected with each other. This setup is similar to the microgrids of today.

However, there were severe limitations in those microgrids of the early years of electricity.

First of all, these systems were not very reliable since all the energy for each microgrid was

supplied from a single power plant or two. It became clear to system engineers soon enough

that interconnecting small systems and pooling resources would improve the reliability of the

grid. Interconnections would also provide generator redundancy to back up power plants if

one plant could not handle the load. Connecting these microgrids also provided load

diversity, which helped balance out the demand for electricity over different time periods.

Eventually, the potential to realize these benefits fostered various technological innovations,

enabling the interconnection of the many isolated microgrid systems throughout the country

into a macrogrid. This macrogrid was primarily comprised of large-scale central plants

connected by transmission lines – in other words, the macrogrid is defined as the electrical

grid we are familiar with today.

This macrogrid model worked well for the remainder of the 20th

century and still provides the

prevalent structure for the grid today, driven by the following advantages:

Aggregation of many users and large, robust systems help to provide balance between

load and generation and minimizes distortions.

Increasing the size of generation plants to serve a larger load profile provides economies

of scale.

The variability of renewables, such as wind and solar, can be smoothed over larger areas.

A broad range of options for generation allows for fuel flexibility and more economic

dispatch.

4


2. Drawbacks of the Macrogrid – Microgrids as a Solution

Microgrids can help to resolve some of the shortcomings of the macrogrid.

While the macrogrid has shown many advantages, future grid expansion faces challenges.

One issue is that the cost of building new transmission and substation infrastructure has

significantly increased in most areas. There have also been delays for approvals and

permitting access to rights of way in highly populated urban areas, not to mention general

public resistance to the construction of new lines.

For the more remote customers, long distribution lines and service drops have added to

service costs and increased losses. Macrogrids have also faced challenges in recovering from

damage to lines in areas with significant exposure to trees, wind and flooding – particularly

during severe storms and natural disasters.

There are multiple solutions available to cope with these macrogrid challenges. One of the

answers is the microgrid, which can help to alleviate some of these drawbacks by providing a

complement to the traditional macrogrid approach.

II. What is a Microgrid?

1. Overview

Microgrids are smaller versions of the macrogrid, with a number of key features that

distinguish them from their macrogrid counterparts.

Microgrids are exactly what the name implies - smaller versions of the macrogrid that we are

familiar with today. What enables microgrids to stand out, however, are a number of key

features that can be described as follows (Figure 1 and Figure 2 on p. 5):

Figure 1: Microgrid Features

o Operating Mode:

Connected to the macrogrid (grid-connected mode) or

Stand-alone fashion (island mode)

o Serve loads within clearly defined electrical boundaries

o Incorporate multiple sources of power generation, including distributed energy

resources, as well as heating and cooling

o Advanced intelligence using sophisticated software and controllers to manage the grid

autonomously and optimize configurations

Source: MUB Strategic Research, Department of Energy

5 Microgrids l November 2016

Figure 2: Typical Microgrid Structure

Source: IHS

2. Features

Key microgrid features include operating modes, customer loads, sources of power

generation and advanced intelligence.

1) Operating Modes

Microgrids can be operated in grid-connected mode or island mode. The mode used depends

largely on the balance between the strength in demand and availability of supply at any given

time.

If a microgrid power plant fails, it can rely on the macrogrid to fill the supply gap. If the

macrogrid is running low on supply, it can turn to the microgrid for support. A typical

instance would be during peak demand periods in the summer where there is significant

cooling demand stressing the generation capacity of the macrogrid. In these instances, the

macrogrid can draw on surplus power from the microgrid.

When there is a storm, the macrogrid might shut down while the microgrid can switch to

island mode to continue providing power to its load centers. This was the case after

Superstorm Sandy, which hit the Atlantic seaboard in 2012. Sandy is estimated to be the

second costliest storm on record in the US, behind only Hurricane Katrina. Over 8.5 million

customers lost power from Delaware all the way up the coast to Massachusetts. It took

weeks to restore power after this storm in some areas.

However, a few microgrid locations were able to keep the lights on during the storm and its

aftermath, including Princeton University, New York University and Co-op City in the Bronx.

This is one example of the benefits of the option for operating in island mode, since these

microgrids did not have to wait for the macrogrid to slowly and gradually bring power back

to resume their own operations.


CHP39%

Natural Gas26%

Diesel17%

Solar10%

Energy Storage4%

Hydro2%

Wind1%

Fuel Cells1%

2) Customer Loads

Microgrids often are described as mini versions of the macrogrid, since they can mimic, on a

much smaller scale, the grid’s primary function – to produce energy from more than one

source and coordinate its distribution through wires and pipes to one or more customers.

For microgrids, these customer loads tend to hold clearly defined boundaries, such as in

college campuses, hospitals, military bases or data centers. Each of these load centers are

typical of microgrid customers, in that they have many buildings that are close together and

often house facilities where power reliability is crucial. Businesses are also joining the list of

microgrid customers, since power outages can result in serious losses, and microgrid

islanding can prevent this from occurring.

Community microgrids are an emerging application of the microgrid concept, in which there

is a focus on ensuring that the citizenry receives critical services during a grid outage.

Community microgrids could include police and fire stations, hospitals, waste water

treatment plants, schools, emergency shelters, grocery stores, gas stations and

communications facilities.

3) Sources of Power

Generation

Microgrids typically include a

combination of dispatchable and

intermittent generation (Figure 3).

Dispatchable generation is

comprised of conventional

thermal fuels such as natural gas

and diesel. Intermittent

generation includes the

renewable fuels such as solar and

wind. Energy storage is also

incorporated into the microgrid,

through batteries and fuels cells,

helping to balance the

intermittent nature of renewable

fuels.

The solar energy provided in microgrids often comes in the form of distributed energy, in

which customers are hosting the solar panels, using the electricity themselves and delivering

the electricity to the microgrid. This distributed energy helps to turn energy consumers into

energy producers as the center of the system.

Figure 3: Microgrid Generation by Fuel/Technology

Source: GTM Research


Although renewables are a small portion of the overall pie, the share has nearly doubled since

June 2015, and is expected to continue to expand, as lower emissions and a smaller carbon

footprint continue to be major drivers of microgrid adoption.

To achieve higher efficiencies, microgrids include combined heat and power (CHP), also

known as cogeneration. The difference between a conventional power plant and one with

CHP, is that CHP plants actually utilize the heat energy from generation to heat or cool

buildings, to manufacture products or to run other heat-intensive processes. By contrast,

conventional power plants without CHP simply discard the heat.

As a result of re-using heat by-products in generation, CHP plants can derive up to twice the

energy from the same amount of fuel compared to a conventional power plant. In this

manner, microgrid deployment of CHP drives increases in efficiency.

Some microgrids also incorporate district energy into the network, often coupled with CHP.

District energy systems supply steam or hot water for space heating, and chilled water for air

conditioning, through an underground piping network, enabling customer buildings that are

connected, to avoid the installation of boilers, cooling towers and chillers. In a number of

microgrids, thermal energy storage complements this system, by storing energy during off-

peak hours and providing energy during peak demand.

4) Advanced Intelligence

Microgrids also employ advanced intelligence through sophisticated software and controllers

to optimize grid configurations. For example, advanced microgrid controllers balance the

use of microgrid onsite power and the need to draw on macrogrid offsite power in order to

optimize price and operational value.

In order to make these decisions, the controllers utilize software that analyzes electricity

prices minutes or days ahead, as well as weather and other variables. Some of the most

advanced microgrids utilize controllers that manage the grid autonomously, without any

human intervention.

Advanced intelligence also provides black-start capabilities, which allows microgrid

generators to start up cold, without the need for auxiliary power from other power plants.

This function makes it possible for the microgrid to seamlessly switch between macrogrid

and self-supply without the customer realizing the switch took place. It also proves critical in

crisis situations when the macrogrid shuts down, since it allows the microgrid to start-up

without outside support. By contrast, the lack of extensive black-start capabilities in the

macrogrid is what often causes lengthy downtime in the event of macrogrid blackouts.


3. Installed Capacity

Installed capacity is expected to grow rapidly off of a small base.

There is currently 1.54 GW of installed microgrid capacity in the US, as of May 2016, the

most recently released data from GTM Research (Figure 4). This is less than 1% of total US

installed electricity capacity of 1,069 GW.

However, rapid growth is expected off of this small base. By 2020, microgrid installed

capacity is expected to expand by a CAGR of 21% to 3.71 GW.

Since there is significant upfront cost to microgrid adoption, this growth will be contingent

on longer-term cost reduction and efficiencies and optimization, as well as continued

availability of government incentives and mandates that help to foster renewables. Without

progress in these areas, the growth rate will likely be lower.

Figure 4: US Microgrid Installed Capacity

Source: GTM Research

III. Financing

Government funding for microgrids is available from federal as well as state sources.

Due to the significant upfront capital investment and risk required to adopt microgrids, the

industry is heavily dependent on government incentives. Without government assistance, it

would be significantly more challenging for microgrids to gain traction.

Since it is still early days for microgrids, the federal government has focused on research.

On the state-level, incentive programs vary significantly, driven by the need to foster

implementation of microgrid concepts.

The Department of Energy (DOE) has allocated $220 million in funding to explore a grid

modernization effort, which includes microgrids, as part of the strategy. Microgrids are the

focus of 5 out of 88 research projects funded in this effort.

2016 – 2020 CAGR = 21%


Connecticut has allotted $53 million to microgrid projects through a program that began in

2012. Each project can win $3 million to $5 million. Both municipal and private microgrids

can apply. Projects are not being asked to compete against each other, but instead, will be

considered on their own merit, which acknowledges the highly customized nature of

microgrids.

In 2014, Massachussetts granted $18.4 million to cities and towns for energy resiliency

projects, which included microgrids, along with CHP and battery storage. One of the cities

awarded, Northampton, received $3 million for a microgrid for three key emergency facilities,

including a school, hospital and department of public works.

California in 2014 provided funding of $20.5 million for two types of microgrids. The first is

low-carbon-based microgrids for critical facilities, such as hospitals and fire stations. The

California Energy Commission mandates that all projects for this category have 20 percent

lower emissions than a comparatively sized diesel generator.

The second group includes high-penetration renewable-based microgrids, which are projects

that can incorporate high amounts of renewable energy – up to 100% - to meet load while

avoiding adverse grid impacts, through the use of a microgrid controller/energy management

system.

New York has initiated a program called NY Prize, a $40 million grant program to create

model community microgrids, which New York defines as standalone energy systems that

can operate independently in the event of a power outage. As part of the first stage, New

York has begun awarding prizes out of this grant program to cities to conduct engineering

assessments that evaluate the feasibility of installing and operating a community microgrid at

proposed sites throughout New York State. Funding from this program is available for local

governments, community organizations, non-profit entities, for-profit companies and

municipally-owned utilities.

IV. Drivers of Microgrid Adoption

With funding secured, microgrid developers are then incentivized by the primary drivers of

microgrid adoption:

1. Reliability

Microgrid reliability ensures continuous operations during outages.

Critical facilities cannot afford to shut down operations during macrogrid outages. The

islanding capability of microgrids enables customers to continue to be connected throughout

outages.

For regions that are prone to natural disasters, this option proves especially relevant in

improving the resilience of electricity supply. Reliability is one of the most important drivers

across all application types.


Those applications that value reliability the most – such as critical services, are also amongst

the most likely to venture into microgrid investment first, since the opportunity cost of being

without power is too high.

2. Longer-term Cost Reduction/Efficiencies

Microgrids can, over time, reduce costs by improving efficiencies in the grid.

In the development of a microgrid, at first there are increased costs due to the capital

investment involved to build the microgrid infrastructure, particularly for the construction of

generation and distribution equipment.

However, over time, the microgrid project can in some instances, reduce long-term costs.

Through the use of advanced controllers, microgrids can optimize the use of generation,

switching between macrogrid and microgrid power, depending on which is most efficient at

any given time.

This optionality reduces costs for both grids by employing the lowest cost generation at any

given time. Over the longer-term, it is expected that this optimization will provide a return

on the initial investment to deploy the microgrid.

Opportunity costs of power outage downtime are also avoided through the use of microgrids.

These opportunity costs could be staggering, particularly when it comes to critical services in

government or health care, or the reputational damage that could impact commercial and

industrial firms.

3. Environmental Stewardship

Microgrids enable developers and customers to meet environmental stewardship objectives using renewable energy as a source of generation.

Federal tax credits help to lower the cost of adoption of renewables-driven microgrids

throughout the US. Renewable portfolio standards (RPS) also play a role in microgrid

implementation by mandating the inclusion of renewables in the grid.

1) Wind Tax Credits

For wind, the most relevant tax credit is the production tax credit (PTC). Originally enacted

in 1992, the PTC has been renewed and expanded numerous times, in the American

Recovery and Reinvestment Act of 2009 (ARRA), the American Taxpayer Relief Act of

2012, Tax Increase Prevention Act of 2014 and most recently extended in the Consolidated

Appropriations Act of 2016.

The PTC is $0.023/kWh tax credit for wind electricity facilities commencing construction

before December 31, 2016.

There is a phase-down schedule for wind projects after 2016 as follows:

For 2017, the PTC amount is reduced by 20%




The duration of the credit is ten years after the facility is placed in service. The PTC

program will expire December 31, 2019.

2) Solar Tax Credits

The most relevant tax credit for solar currently is the investment tax credit (ITC).

The ITC was established in the Energy Policy Act of 2005. It is a 30% federal tax credit for

solar systems on residential or commercial properties. Originally the tax credit was supposed

to step down in 2017.

However, similarly to wind, this was extended in Consolidated Appropriations Act of 2016

to keep the ITC in effect at 30% through 2019.

There is a phase-down schedule for solar projects after 2019 as follows:

o For 2020, the ITC amount is reduced by 26%



3) State Renewable Portfolio Standard (RPS)

One of the most relevant state initiatives to lower emissions is the Renewable Portfolio

Standard (RPS). RPS is a regulatory mandate requiring that a minimum percentage of a

state’s total electricity generation come from renewable sources, such as wind, solar, biomass

and other alternatives to fossil and nuclear generation.

Microgrids can help states to achieve these mandates, since renewables are usually

incorporated into microgrid systems.

Currently, RPS policies exist in 29 states, as well as Washington DC (Figure 5). These states

represented 63% of total US retail electricity sales for the period January 2016 - August 2016.

Figure 5: Renewable Portfolio Standards

Source: Berkeley Lab


4. Emissions Reductions

EPA mandates can foster microgrid adoption.

1) MATS

In December 2000, the Environmental Protection Agency (EPA) determined that under the

Clean Air Act, it is appropriate to regulate coal and oil-fired power plants, based on the

determination that air toxic emissions, most notably mercury, pose hazards to public health

and the environment.

In February 2012, pursuant to this determination, the EPA published final air toxics standards,

also known as Mercury Air Toxics Standards (MATS), to limit emissions for power plants.

In response to the MATS rule, about 62 GW of coal generating capacity has already been

retired or converted.

By driving the retirement of these coal power plants, MATS opens the door for alternative

fuel sources in the electric grid. Renewable energy in microgrids is one of these alternative

sources that can benefit from the reduced competition from coal.

2) Clean Power Plan

In August 2015, the EPA released a final version of its Clean Power Plan (CPP) rule,

intended to address carbon dioxide emissions from existing US fossil-fueled electric plants.

These electric plants currently constitute slightly over 30% of total US greenhouse gas

(GHG) emissions and slightly less than 5% of global GHG emissions.

The CPP standards targets reductions from three primary avenues – renewables, shifting

generation from coal to gas and improving coal unit heat rates. Since renewables are eligible

for compliance with the CPP, this should encourage microgrid development going forward.

One obstacle, however, is the fact that the Supreme Court in February 2016 placed a stay on

the CPP, could delay implementation, depending on how long the legal challenges take to

resolve.

V. Types of Microgrids

There are numerous types of microgrids in the market today. While the drivers are similar

throughout, their importance and the likelihood of penetration vary depending on application

type (Figure 6 on p.13).

The likelihood of penetration will be highest areas include critical services,

campus/university and military. Since these groups often operate autonomously from their

surroundings, the island mode features of microgrids provide a good fit. Island mode also

reduces downtime when the grid goes down, proving especially important when lives are at

risk.

Cities/communities will also be important in leading the implementation of microgrids.

Often these groups value reliability as well as view microgrids as a means to improve their

environmental stewardship.


The slower penetration will occur in the commercial, data center and industrial space. This is

because these entities have a shorter time horizon here for payback, so they might wait for

the economic incentive to be stronger before assuming the risk of implementation.

Figure 6: Microgrid Types and Drivers for Adoption

Source: GTM Research, MUB Strategic Research

Real-world application of each of these microgrid types helps to explain these drivers even

further:

1. Critical Services

East Bronx Healthcare plans to utilize the microgrid to improve reliability for the critical services provided by its hospital network.

East Bronx Healthcare Microgrid

The concept of a microgrid for the East Bronx Healthcare hospital system was driven by the

unique positioning of these four hospitals in the wider New York City network.

During storms and outages, the four East Bronx hospitals remain open not only for their

existing patients, but also to serve those transferred from evacuated hospitals in Manhattan

and other New York City boroughs.

The medical facilities also house $700 million in biological research that run the risk of being

lost during extended power outages. This includes advanced research into cancer treatment,

cardiovascular disease, aging, transplantation surgery and children’s health.

Microgrid Most Important More Important Important Penetration

Type Driver Driver Driver Likelihood

Critical Services Reliability Cost Reduction

Emissions

Reduction High

Campus/University Cost Reduction Reliability

Emissions

Reduction High

Military Reliability Cost Reduction

Environmental

Stewardship High

City/Community Reliability

Environmental

Stewardship Cost Reduction Medium

Commercial Reliability Cost Reduction

Environmental

Stewardship Low

Data Center Reliability Cost Reduction

Environmental

Stewardship Low

Industrial Reliability Cost Reduction

Emissions

Reductions Low


By exploring the microgrid strategy, this hospital network is trying to avoid the downtime

caused by storms. In 2012, Superstorm Sandy knocked out power lines in the area for 56

hours, during which the only source of electricity for the hospitals was single-purpose

emergency generators.

In order to improve reliability, a $34 million microgrid is being considered as part of New

York Prize to develop a microgrid for East Bronx Healthcare. This microgrid would help to

ensure continued electricity supply for the hospitals, which serve about 10 percent of the

Bronx population – over 137,000 patients annually.

To serve the combined load of 21 MW peak demand from the facilities, the microgrid

proposal integrates several distributed energy resources, including five 4.6 MW natural gas-

fired CHP units, 1 MW CHP microturbine, 1 MW of solar PV, battery systems for energy

storage, steam turbine generators and heat recovery steam generators. In addition, two 2

MW diesel generators would provide black start capability. The design would also

incorporate existing steam generation at the four hospitals.

This microgrid is designed to handle East Bronx Healthcare electrical demands. If one of the

generators fails, another can step in to fill the void. During normal operations, any excess

capacity could be exported to the macrogrid. Heating, cooling and hot water would also be

taken care of, as the CHP components of the system harness thermal byproducts of electricity

production.

To improve redundancy that is necessary for the mission-critical care and research conducted

at the medical facilities, the CHP generators are each limited in size to 20 percent of peak

load, with a higher quantity of smaller CHP engines, rather than a smaller quantity of larger

CHP engines.

In this microgrid, generated power is sent into the distribution system of the local utility

operator, Con Edison, which in turn, redistributes the electricity to microgrid customers. If

the macrogrid fails, then Con Edison will automatically island the microgrid, allowing it to

operate grid-independent for as long as required.

The project developer will build, own, operate and maintain the microgrid. This developer

will plan to enter into power purchase agreements (PPAs) with the hospitals. Similarly as in

the renewables arena, these PPAs could provide the necessary contracted cash flows for

project finance opportunities.


2. Campus/University

NYU transitions to CHP microgrid, resulting in cost reductions, improved reliability

and a smaller carbon footprint.

New York University

New York University (NYU) is one of the largest universities in the US, producing power

on site since the 1960s. The university installed a large oil-fired cogeneration plant in 1980.

At the end of that plant’s useful life, NYU made a strategic decision to transition way from

oil-fired technology towards a modern natural gas-fired CHP microgrid.

The new CHP system has an output capacity of 13.4 MW – twice as much as the old plant’s

capacity – and has been fully operational since 2011. By making this switch, the university

hoped to gain better control over energy expenditures, as well as improve reliability

The capital cost of the upgrade was substantial, at $126 million. However, one advantage of

deploying microgrids in a university setting, is that these institutions have access to diverse

sources of funding. NYU was able to issue tax-exempt bonds arranged through the

Dormitory Authority of the State of New York, which provided a low cost source of

financing. The consistency of funding from NYU tuition and fees also helps to make these

types of projects feasible.

The NYU microgrid operates in grid-connected mode, accessing power from the Con Edison

distribution grid, when demand is superior to the generating capacity of the micro-grid.

Island mode proved to be a major advantage during Hurricane Sandy, during which the NYU

microgrid disconnected from the local distribution grid and continued providing reliable

power to much of the NYU campus.

NYU has estimated savings to total energy costs to come in at $5 to $8 million per year. The

microgrid has also reduced the university’s greenhouse gas (GHG) emissions by 23% and

brought down EPA criteria pollutants by 68%.

3. Military

Miramar Naval Base goes beyond the typical military microgrid backup power model

to optimize economics while improving environmental stewardship.

Miramar Naval Base, San Diego, California

With $20 million in Congressional funding, Miramar is one of the largest military microgrid

projects in the US. The project is building upon distributed energy assets already on the base,

including 1.6 MW of solar PV and 3.2 MW of landfill methane gas.

A synchronized flow battery is used for energy storage. Two diesel and two natural gas

generators will also be added to the system, bringing total capacity to 7 MW. This microgrid

is expected to be operational by July 2018.


This military microgrid goes beyond the traditional military microgrid backup power model

by providing support services to the central grid, firming up renewable energy, managing

load and participating in demand response programs. These efforts will help Miramar to

become more actively engaged in limiting its environmental impact while boosting reliability

in the system.

Advanced software will be used to optimize complex relationships between the Miramar

grid and the macrogrid to achieve the best economics for the entire system, helping to reduce

costs for the base. In order to achieve these objectives, Miramar managers are planning to

collaborate with the California Energy Commission, California Public Utilities Commission

and the California ISO.

4. City/Community

The Fort Collins microgrid will help the community to depend less on the macrogrid

and improve reliability.

Fort Collins

The Fort Collins microgrid in Colorado is part of a larger project known as the Fort Collins

Zero Energy District (FortZED), where the plan is for the district to create as much thermal

and electrical energy locally as it uses.

This microgrid also plans to help the city reduce peak loads by 20%-30%, increase the

penetration of renewables and deliver improved reliability and efficiency to the grid and

resource asset owners.

This microgrid project involves multiple customers including the New Belgium Brewery

and InteGrid laboratory, as well as facilities for the City of Fort Collins, Larimer County

and Colorado State main campus.

Technologies in this microgrid include solar, CHP, fuel cells, plug-in hybrid electric vehicles

and thermal storage. This microgrid also employs load shedding, which is the interruption of

electricity supply to avoid failure of the entire system when demand strains the capacity of

the system.

Similarly, demand side management is also used in this microgrid, which involves reducing

electricity use through activities or programs that promote electric energy efficiency or

conservation.

The project has received $6.3 million in funding from the DOE and $4.7 million from the

various industry partners, including Eaton, Advanced Energy and Brendle.


5. Commercial

Amtrak realizes need for microgrid reliability in wake of a natural disaster.

Commercial microgrids are those employed by enterprises to ensure reliability. Amtrak

realized the need for a commercial microgrid in the aftermath of 2012 Superstorm Sandy,

during which half of its Sunnyside Yard in Queens had to rely on portable backup generators

for a month, due to a damaged transmission line.

As a result, Amtrak is now planning to build a $31.3 million microgrid at Sunnyside Yard as

well as at Penn Station in Manhattan. The project will be comprised of the following

technologies for generation:

o 6 MW CHP unit

o 3 MW and 8 MW natural gas generators

o 200 kW solar PV array

o 1 MW zinc air battery storage unit

The CHP technology will help improve efficiency, while the solar PV and battery storage

contribute to improved environmental stewardship. For commercial entities like Amtrak, it

is often important to their customer base that vendors are constantly demonstrating awareness

of corporate social responsibility (CSR) in this manner.

The generators will be equipped with black start capabilities, enabling the microgrid to

operate in island mode, reducing vulnerability to power outages from the macrogrid.

The microgrid is owned and operated by a special purpose vehicle (SPV) that receives all

revenues associated with the microgrid operation, but in turn will bear the capital and

operating costs. Revenue sources include:

o Electricity sales to Con Edison

o Electricity sales to Amtrak

o Thermal energy sales to Penn Station

o Demand response payments from the battery storage units

This project is one of the projects that one funds for a feasibility study during Phase 1 of the

NY Prize. By obtaining funding from government programs, this helps to reduce the cost of

the project.

Project partners include Amtrak, Booz Allen Hamilton, Con Edison, Viridity Energy,

Verde Advisory and New York City.


6. Data Center

Niobrara Energy Development data center takes advantage of resource availability to provide reliable, environmentally-friendly operations.

Niobrara Energy Development

Planned as the world’s largest microgrid, the 662 acre Niobrara Energy Development (NED)

has secured permits for 52 data centers, a 200 MW gas-fired plant, a 50 MW solar farm and

50 MW of fuel cells.

Energy storage technologies include compressed air, batteries, fly wheel, thermal and

hydrogen storage, super capacitors and super conductors.

The site is located near existing infrastructure for power, natural gas and long-haul fiber.

National Renewable Energy Laboratory resource assessments indicate strong potential for

solar, while wind is already established locally.

By relying on generation produced onsite, the data center will be able to provide reliability as

well as control costs. The solar farm, fuel cells and energy storage will further objectives of

environmental stewardship by increasing their use of clean energy. This is particularly

important for data centers, since they are viewed as one of the largest consumers of energy

and electricity, placing them under particular scrutiny when it comes to the extent of their

environmental footprint.

The project will be marketed to prospective investors on a domestic and international scale.

It will be particularly targeted to investors focused on data centers, cloud computing, power

companies, telecom centers, green energy and infrastructure.

7. Industrial

Port of Los Angeles solar microgrid helps ensure continuous operations while helping the state to meet its environmental objectives.

Port of Los Angeles Solar Microgrid

The Port of Los Angeles, North America’s largest port, is planning to install a $26.6 million

solar microgrid in 2016, as it moves towards its objective of becoming the first marine

terminal to operate solely on renewable energy.

The solar microgrid will include a 1.03 MW solar PV rooftop array, a 2.6 MWh battery

storage system, bi-directional charging equipment and an energy management control system.

Bi-directional chargers not only charge batteries with energy from the microgrid, but also

draw energy from those batteries, when needed, to supply energy to the microgrid.

During a power outage, the solar microgrid will have the capability to island from the

macrogrid and maintain power at the 40 acre facility. During these outages, the port will also

be able to supply energy and serve as a base of operations to distribute goods and support

military operations.


This microgrid is slated to include energy efficiency upgrades, zero emission cargo handling

equipment and vehicles, charging infrastructure and a dockside vessel emissions treatment

system. Data collection and analysis will be conducted to track energy efficiency and cost

savings for two years subsequent to the start of operations.

The California Air Resources Board (CARB) is contributing a $14.5 million grant from the

state’s cap-and-trade auctions towards this project, with the remainder funded by Pasha

Stevedoring and Terminals, the port and other partners.

In moving towards its objectives of helping the state to meet its regional air quality and

statewide climate goals, this microgrid is expected to reduce 3,200 tons per year of GHG and

nearly 28 tons of diesel particulate matter, nitrogen oxides and other harmful emissions.

VI. Major Players

Major players have leveraged existing strengths in power infrastructure to dominate

the field.

There are a number of major players in the microgrid arena, with new players coming up

even more frequently in recent years, as the space picks up momentum. In this report, we

have chosen to focus on three of these firms - Siemens, ABB and Hitachi - since they

provide a good representation of the operators in this industry. Some of the qualities that are

important in assessing microgrid players include years of experience, renewables capabilities,

financing capabilities and expertise in controllers.

ABB has the most experience out of the group, having built microgrids for the past 15 years.

Hitachi is a relatively newer entrant, inspired by the needs for infrastructure post-Fukushima,

with Siemens falling somewhere in-between.

Renewables deployment is one of the leading incentives for the buildout of microgrids. That

is why this skill is critical in microgrid companies. Siemens has established leadership in

wind worldwide, placing it in the top ranking for this category amongst the competition.

Hitachi sells equipment packages for wind and solar that includes 2 MW turbines, 1.3 MW

and 2.6 MW solar modules and the accessory equipment for utility-scale renewable

installations. Hitachi is also designing storage solutions that support wind and solar. ABB

provides a substation offering that integrates renewables into the transmission and

distribution network.


Microgrid projects often require significant capital investment. Those providers with

financing solutions hold a competitive edge. Through Hitachi Capital, Hitachi can provide

financing solutions to its microgrid customers. For Siemens, once feasible microgrid

solutions are analyzed, the company works with clients to detail the financial requirements to

achieve their objectives. ABB has partnered with financial solution providers to increase its

penetration rate in the field.

Since controllers are a key component of the advanced intelligence in microgrid operations,

leadership in this category is helpful for microgrid companies. In Navigant’s rankings of

firms that provide microgrid controllers, Siemens took the lead, with ABB following as a top

10 contender, with both firms exhibiting leadership in strategy and execution in delivering

these solutions to customers. Hitachi has begun to incorporate demand and voltage control

to automate some of its microgrid solutions.

Siemens

Siemens has leveraged existing strengths in generation, transmission and distribution

products, as well as expertise in advanced controllers to enter the microgrid market in North

America.

Siemens is targeting applications that are focused on critical services, community and

commercial and industrial usage of microgrids. In Navigant’s most recent quarterly report on

the industry, Microgrid Deployment Tracker 2Q 16, it placed Siemens in the leading position

for microgrid capacity.

The firm’s Blue Lake Rancheria microgrid is an example of the community microgrid

concept. This microgrid is located at Blue Lake Rancheria, a 100 acre Native American

reservation in northern California.

This project was funded in part through a $5 million grant from the California Energy

Commission’s Electric Program Investment Charge (EPIC). It will be powered by 0.5 MW

solar PV, 950 kWh battery storage system, a biomass fuel cell system and diesel generators.

Using the Siemens software, the microgrid will make predictions regarding power load needs

and dynamically manage and control distributed power generation through integrated

weather and load forecasting. It will allow also the reservation to operate in island mode in

coordination with the local utility Pacific Gas & Electric. This microgrid is expected to

reduce 150 tons of carbon per year.


Figure 7: Hitachi NY Prize Projects

· Tomkins County

· Syracuse

· Village of Canton

· Town of Warwick

· Town of New Paltz

· Village of Ossining

· Village of Irvington

· City of White Plains

· Village of Croton-on-Hudson

· Town of North Hempstead

· Town of East Hampton

ABB

ABB comes in second position in Navigant’s Microgrid Deployment Tracker 2Q 16, as

microgrids have become a key focus of the company to accelerate revenue generation. The

company built on its expertise in power plants, systems, controls and services, to enter the

microgrid arena very early, installing 11 MW of microgrids in remote areas of the world over

the past 15 years.

Key drivers for ABB’s focus on the microgrid business include: 1) the need to electrify

remote regions 2) the need for facilities like hospitals and data centers to island from the

macrogrid during power failures and 3) the need for utilities to search for ways to improve

reliability by isolating pockets of generation and load so that they can spare users from an

outage.

Kodiak Island is an example of ABB’s expertise in microgrids. Kodiak recently decided to

upgrade its existing port crane to electrically driven instead of a diesel driven one. However,

installation was expected to generate power fluctuations that could be destabilizing for the

island’s existing microgrid.

ABB also implemented flywheel energy storage to maintain stable voltage and frequency, by

accelerating and decelerating a rotor to store kinetic energy and draw down on that energy as

needed. ABB has also extended the life of the two 1.5 MW battery systems and helped to

manage intermittencies from the island’s 9 MW wind farm.

Hitachi

Hitachi has an established presence in the power arena in

products that include nuclear power, transmission and distribution,

solar, wind and information and control systems.

Hitachi’s entry into the microgrid arena was borne largely in

response to recognition that because Japan is so prone to natural

disaster, a rethink of the design of Japan’s energy infrastructure

was necessary. This became particularly apparent after the

Fukushima earthquake in 2011, which paralyzed large sections of

Japan’s energy infrastructure.

Building on its experience in Japan, Hitachi’s microgrid business

has since made its way to North America, where the company is

acting as a project developer that designs, builds, owns and

operates microgrids.

Hitachi is currently working on 11 NY Prize projects (Figure 7),

as well as 13 microgrids in Canada.

Source: Microgrid Knowledge


VII. Challenges

1. Technical

Balance of energy resources is key to technical design.

Microgrids often incorporate renewables – usually solar or wind – as a means to lower the

cost of the project through access to government incentives for renewable installations. These

renewables are often part of a balanced portfolio, which includes dispatchable generation

(diesel, gas or CHP) and energy storage.

The conventional thermal fuels do not require any extra equipment or software, and can

provide constant power to users 24/7. The intermittent nature of renewables, however, will

require the use of control algorithms and demand response, which will need to operate much

more quickly in microgrids, in order to preserve energy balance and system stability. Energy

storage will also provide some support, but this technology is still in the early stages, and will

take some time to develop to more scalable solutions.

This is why balance in the portfolio is the key to uninterruptible power in a microgrid.

Conventional fuels and energy storage provide power when renewable resource is

unavailable.

2. Ownership

Cooperatively-created microgrids pose ownership challenges.

Ownership of generation equipment and distribution wires poses challenges when it comes to

microgrids. This is less of an issue the generator is providing power only to its own

buildings and facilities, as in the case of some universities and hospitals.

However, if the microgrid is created cooperatively by multiple entities, where the electricity

is generated by some and delivered to others, then the framework of where costs and

ownership rights are allocated can become complex.

In order to solve some of these issues, some developers have entered into public-private

partnerships in which a special purpose vehicle (SPV) takes on all the development costs, as

well as manage construction and long-term operations and maintenance (O&M) contracts for

a monthly fee.


3. Regulatory Landscape

Regulatory issues pose a challenge, primarily due to the lack of a framework

governing microgrids.

Microgrids are not a defined legal entity under most utility regulatory bodies. This is in stark

contrast to the roles, rights and responsibilities of electric utilities, which are protected by a

long-established set of regulations that has only begun to adapt to a changing power

landscape.

Most legacy utility regulation is designed to provide support for constructing large,

interconnected power networks (macrogrids) rather than pockets of flexible systems

(microgrids). This has largely prevented third-party owned and operated microgrids from

functioning as small-scale utilities.

The most pressing regulatory barriers are as follows:

Utility franchise rights – Designed to govern the use of public space by third parties,

utility franchise rights basically protect the monopoly of utilities in the distribution space.

Since selling power to third parties through new distribution lines infringes on these

utility franchise rights, non-utility microgrid developers may face significant legal battles

that could considerably increase the cost of potential projects.

Threat of being subject to public utility regulation – Entities that sell energy or power

and whose equipment crosses a public street are technically defined as an electric

corporation and therefore legally are subject to the traditional utility regulation and

ratemaking authority of the state’s public utility commission. If microgrid operators are

treated as traditional utilities, where billing, rates and quality of service are all regulated,

then this could add considerable cost and risk, reducing project viability.

Lack of definition of interconnection procedures – Currently, microgrid

interconnection requirements are negotiated on a project-by-project basis and differ in

each state. This hampers microgrids from supporting utility operations without a

significant amount of customization, increasing the amount of time and cost necessary to

develop microgrid projects.

Even though these issues pose challenges, there is also scope for utilities to get directly

involved in the microgrid arena, as part of grid modernization efforts to address issues that

include system reliability, distribution congestion or generation intermittency. Various states

that include California, Illinois, Maryland and New York have been moving in this direction.

As utilities increase their participation in this space, it could lessen the potential for

contentious litigation.


As microgrids become more prevalent, more established regulatory structures will follow.

Already in the Energy Policy Modernization Act of 2016, the legislation called for RTOs

(regional transmission organizations) to collect data on several characteristics of microgrids.

This data will describe microgrid fuel sources, operational characteristics and costs and

benefits. Although this is a small step, it should help regulators to design a more relevant

framework within which microgrids can more effectively operate.

VIII. Conclusion

Today’s modern electrical grid will continue to face challenges of providing reliability,

limiting environmental impact, all while controlling costs. This is particularly difficult in

crisis situations, such as during natural disasters or when there is excessive load on the grid.

One way to balance these issues effectively is the microgrid.

However, microgrids have significant investment costs. In order to incentivize developers to

assume this risk, state and federal government programs have been implemented. This is

particularly true in the renewables arena, where tax credits and EPA mandates have helped to

foster the growth of wind and solar in recent years. Since the deployment of renewables is

often a key objective of microgrid communities, these incentives should help to foster

microgrid growth going forward.

The likelihood of penetration will be highest in areas that often operate autonomously from

their surroundings. This will be followed by groups that value reliability as well as those that

view microgrids as a means to improve their environmental stewardship.

Growth of microgrids will also depend on how effectively developers and customers navigate

the numerous challenges facing the industry. This is particularly true when it comes to

technical design, ownership and regulation. Although the obstacles will take some time to

resolve, developers have already come up with some innovative solutions, including energy

storage, public-private partnerships and federal legislation mandating data collection on the

industry.

Although these challenges will continue, and new obstacles will arise, the benefits of the

microgrid have already begun to be appreciated, as in recent natural disasters like Hurricane

Sandy, when a huge section of the Northeast lost power, while a few microgrids in the region

operated in island mode without disruption.

As the industry players, regulators and customers gradually come together to reach a lasting

model of implementation, this type of microgrid reliability should become more

commonplace going forward. Longer-term cost benefits will also be realized, through

optimization and efficiencies that balance load more closely with generation, all while

improving the environmental footprint, through the implementation of renewables.

25


Publisher：The Bank of Tokyo-Mitsubishi UFJ, Strategic Research Division (Corporate Research Office)

2-7-1, Marunouchi, Chiyoda-ku, Tokyo 100-8388, Japan

Contact details for inquiries : Kouichi Akimoto

(TEL：03-3240-5386、e-mail：[email protected])

This report is intended only for information purposes and is not intended to constitute an offer or solicitation to buy or sell securities or any other products. Contents of the report are information as at publish date and are subject to change without notice. This report has not been prepared to provide legal, taxational, financial, market-judgmental, or any other advises on propriety of any transactions. In taking any action, each reader is requested to act on the basis of his or her own judgment upon consulting certified lawyers, accountants or other professionals regarding the accuracy, validity and reliability of information appeared in this report. Bank of Tokyo-Mitsubishi UFJ is regulated by the Financial Services Authority. No part of this publication may be reproduced, stored in a retrieval system or transmitted without the prior written permission of The Bank of Tokyo-Mitsubishi UFJ Limited.

Copyright© 2016 The Bank of Tokyo-Mitsubishi UFJ, Ltd. All rights reserved.

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