UPDATE: a version of this article appeared on the WorldWatch Institute’s ReVolt Blog, and can be accessed here: http://blogs.worldwatch.org/revolt/all-eyes-on-connecticut-microgrid-pilot-program-gets-underway/

One of the more interesting and underreported stories in the energy industry today is Connecticut’s ambitious electricity system pilot project—one that could have a widespread ripple effect across the country. On Wednesday, July 24, government officials announced plans for nine microgrid projects, as part of the state’s Micgrogrid Pilot Program aimed at ensuring electricity grid resilience and reliability during severe weather events.

“Microgrids” are essentially small-scale electricity generation and distribution systems integrating various distributed energy resources (DER) that can be managed locally and completely independently from the main grid. Fossil-fuel generator microgrids are common in many developing countries such as Haiti, India, and Brazil, and some U.S. universities and military bases have also implemented their own systems in order to insulate their operations from main grid outages. However, the concept of connecting already-electrified communities with microgrids is being touted as a means to encourage more renewable distributed generation (DG), relieve congestion from the main grid, and increase reliability in the process. (not to mention, a way to ensure humanity’s survival during the zombie apocalypse).

Prompted by the protracted blackouts that crippled Connecticut and much of the east coast during hurricane Irene and other storms, state lawmakers charged the Department of Energy and Environmental Protection (DEEP) with implementing a microgrid pilot program. The momentum behind this endeavor only strengthened after hurricane Sandy swept across the region. Late last year, DEEP opened up the application process and nearly three dozen Connecticut cities, towns, universities, hospitals, and companies applied to participate in the $18 million Microgrid Pilot Program. Once complete, renewable, fuel-cell, and fossil-fuel power will be delivered to the project areas on a 24/7 basis, without being integrated into the larger grid.

The nine applications that were ultimately selected represent a cross-section of the important resources that the state wants to safeguard during severe weather storms: police stations, supermarkets, university dormitories, city halls, senior centers, fire departments, gas stations, cell towers and shelters. Construction of the projects will be underway soon, with several coming to completion by the end of 2013. Governor Malloy has appropriated another $30 million for additional microgrid projects over the next two years.

A micro idea with macro potential for developers

The energy industry will be watching Connecticut’s progress closely because this pilot program could outline the path forward for the many potential microgrid sites around the country — nearly 24,000 in the estimation of one microgrid development company. Ideally, these grids would not all just operate small cogeneration plants (CHP), but would instead harness the best in renewable energy technology, advanced metering infrastructure, and electricity storage to form an independent and self-healing system. They could be grid-connected to provide more generation capacity and stability, and also “islandable” at a moment’s notice if severe weather or some other emergency require transmission operators to shed load from the main grid.

Waiting in the wings are big developers like General Electric, ABB, Siemens, SAIC, Schneider Electric, Boeing, Honeywell and Lockheed, along with boutique technology firms such as Spirae, Integral Analytics and Power Analytics (formerly EDSA). Many of these companies have already gotten a big boost from the Department of Defense’s massive multi-state investment in microgrid projects, as well as from several university microgrid endeavors. If the Connecticut project proves successful and lawmakers look for other microgrid opportunities, these companies stand to profit handsomely. Indeed, some analysts already forecast that the global microgrid market could be valued as high as $40 billion by 2020.

A micro idea presenting macro challenges for utilities

Despite all the buzz and momentum behind microgrids, one major industry group—investor-owned utilities (IOUs)—has not yet decided whether to embrace or shun this new technology. Microgrids present a dual challenge to these utilities. First, IOUs prefer to invest in tried-and-true technology because they are tasked with keeping the lights on and the system reliable. Second, IOUs stand to lose “market share” with every kilowatt generated by a customer or saved through an energy efficiency program. Under the traditional regulatory model, IOU revenue is determined by a PUC-approved calculation that amortizes the cost of utility assets and a reasonable rate of return across all the utility’s ratepayers over a period of years—a regulatory model that rewards large capital investments and increasing energy consumption.

Microgrids strike to the heart of this business model by presenting customers with the real option of one day being able to exit the utility’s service area entirely. If IOUs compensate for this lost revenue by raising rates on remaining customers, that could perpetuate yet more departures and eventually trigger a “cascading natural deregulation” of the whole utility industry.

Perhaps seeing the writing on the wall, some utilities have begun engaging with microgrid and smart grid technology. Thanks to a $10 million grant from the Department of Energy and the California Energy Commission, San Diego Gas & Electric (SDG&E) recently completed a complex project in Borrego Springs, California that integrates many microgrid elements including smart meters, distributed generation, and storage. A few other utilities, including some municipal utilities like Austin Energy and SMUD, are also moving forward with smart grid and microgrid-like projects. Although a step in the right direction, it remains to be seen how these projects will surmount the traditional IOU “business as usual” regulatory model.

It is difficult to say what the role of utilities will be as microgrids advance, especially after Connecticut’s pilot program. Many commentators have argued that the rise of distributed generation and demand-side management is driving the old utility model into extinction. In order to survive, utilities will have to make room for a more active and dynamic customer, one that expects advanced pricing and demand-response mechanisms along with other consumer-oriented services. Nonetheless, IOUs are arguing that—as the owners of nearly 66% of the country’s transmission and distribution system—the low-carbon economy of the future will have to make room for them too.