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Overcoming Market Challenges to Microgrids
The faster a broader market for micro-trading arrives, the more the capital markets will invest in microgrids.
The ideal microgrid mostly supports its host, but can buy to make up
occasional deficits, and can sell surplus when it can get a maximum
build-out of this model leads to unbundling, which then drives the
target price of power still lower. Clearly the subsidized model in
which net metering gets retail prices, i.e., in which local power
providers are paid for both power and distribution, is pretend. But if
the local power price is 15 cents, and 10 cents of that is maintaining
infrastructure, then the marginal price of power is closer to 5 cents,
which will make the break-even for site-based generation a more
The hybrid model
(sell when you can, buy when you must) destroys the traditional
assumptions for how to allocate the infrastructure costs fairly. A
fixed price for distribution, a monthly charge for having a meter on
your property, seems likely. Models may include membership, or vesting,
or any number of such organizing approaches. I am not trying to
describe those, here.
Many conversations around future power get wrapped around the axle of universal acceptance. The generally accepted model for technology diffusion and acceptance is as described by 1Everett Rogers is instructive here. Rogers divides the population into different groups, each with markedly different motivations in respect to a particular technology.
In particular, the
observations of Tara Hunt (“Miss Rogue”) are instructive. If you spend
all of your time focusing on solutions that are acceptable to the
majority, you will never win over the Early Adopters, and so you will
never successfully deploy anything. As regulated cost-recovery
entities, traditional utilities always aim at the late majority.
Special tariffs devised by the utilities commissions are not adequate
to overcome this structural problem.
In today’s markets (speaking with some hard-won experience here) the
ideal customer for a microgrid values something at higher than
commodity power value.
Each of these has a profile of generation and storage within the host site. But how much storage?
A microgrid should
have sufficient storage to charge while the sun shines and supply needs
all night (or whatever other profile fits the distributed generation
profile). It should have enough extra to last through, say, a week of
rain. It should have enough extra to pull through extreme events,
perhaps paired with a plan to reduce power consumption. Consider the
hurricane and two weeks of power supporting critical functions only….
The problem with this functional description is that it over-buys storage, and storage is expensive.
traditional means to effectively “increase” storage, i.e., improved
efficiency of course remains important. Efficiency gains means the same
storage lasts longer. That topic needs no introduction to readers of
this e-journal. High efficiency may reduce the ability of a site to
reduce demand in a crisis, so efficiency does not negate other issues.)
A model growing in popularity is third party ownership of the microgrid. For the capital markets to enter this space, a long term contract with the host for power provision gets much of the way there. Federal Investment Tax Credits may be part of the story, but those don’t pay for storage. A desirable model is to augment the contracted cash flows with some day trading in power markets. Unfortunately the market is so shallow that it is difficult to do any arbitrage on the forward curves of the day trading market.
The faster a
broader market for micro-trading arrives, the more the capital markets
will invest in microgrids. Given enough microgrids, trading between
microgrids will become an important way to broaden these markets. These
trades must be local, to offer reliability and resilience and to stay
within the bounds of distribution, and bankable, so the transactions
can have value to capital sources. Together, this suggests that
blockchain trading, particularly bankable such as open ledger, can play
a critical part in developing capital markets to fund microgrids.
1 Rogers, Everett (16 August 2003). Diffusion of Innovations, 5th Edition. Simon and Schuster. ISBN 978-0-7432-5823-4.
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