Microgrid power struggle tests century-old monopolies

Microgrids that can disconnect from a centralized electric grid and operate independently are sizzling hot these days.

Cities vulnerable to storms want them. Neighborhoods interested in renewable energy and lower power bills want them. And now, traditional utilities want them to make their systems more reliable and to expand their business.

So when will microgrids dot American cities and towns? Answer: when new policies reduce historic barriers created by monopolies and open the door for decentralized and third-party energy arrangements.

But utilities will fight to protect their marketshare and we’re now seeing the beginning of a struggle that will likely take years to play out.

Utilities smell opportunity, but want control

Since Hurricane Sandy wreaked havoc on Northeastern power lines and infrastructure in 2012, interest in microgrids has been growing – not the least among utilities.

But Sandy was just the tipping point. Even before that disastrous storm, concerns about power grid failures – most of which occur at the local distribution level – were on the rise. Between 2003 and 2012, such outages cost the U.S. economy a whopping $336 billion.

A growing number of power providers are thus turning to microgrids for protection, but also to complement their business models as they roll out smart meters and advanced wires infrastructure.

Commonwealth Edison, for example, just introduced legislation allowing the Illinois utility to invest $300 million to build several microgrids, including at the Illinois Medical District, the Aurora FAA facility, and the Chicago Heights water pumping and treatment facility.

Yet ComEd, not surprisingly, wants to control the microgrids and own distributed generators such as solar arrays and cogeneration units that are part of the grid. As a result, the utility expands its monopoly to these decentralized power plants along with wires and other infrastructure.

It’s not hard to understand why. Utilities want to have the cake – the new microgrids – while eating it, too. They have no desire to see a big piece of their business – distribution of energy – fall into the hands of someone else.

Monopolies stifle innovation

It’s a nationwide trend. Central Hudson Gas & Electric in New York, Duke Energy in North Carolina, DTE Energy in Michigan and Southern California Edison are all building, owning and operating microgrids.

This will likely have implications for the long-term development of clean energy sources.

The broad adoption of small and truly resilient, localized electric systems will give a big impetus for clean energy adoption on a large scale. So as long as traditional and powerful utilities are able to monopolize power grids, we won’t be able to enjoy the innovation that results from competition.

As Thomas Edison noted, “I can only invent under powerful incentive. No competition means no invention.”

Support for independent microgrids growing

Interestingly, champions for independent microgrids hail from all political spectra – and they’re increasingly making their voices heard. Just this month, Sen. Lisa Murkowski, R-Alaska, hardly a clean energy advocate, introduced a bill pushing for a national push to develop microgrids in isolated communities.

And in New York, regulators confirmed this spring that utilities with guaranteed rates of return and market advantage will only in rare cases be allowed to compete in the growing market for microgrids and other distributed energy resources.

As the door continues to open for new contract arrangements between power consumers and third-party developers, microgrids will open America’s vast power distribution system to competition.

This will, in turn, engage entrepreneurs and innovation, and add more microgrids to the map. It’s the market at play – and it’s powerful.