IEEE Electrification Magazine - March 2014 - 35

energy sale and purchase transactions while maintaining
reliable service. second, microgrids and their asset components could operate as part of a larger te market, maximizing their cost-effective operation in a larger, deeper
pool of resources that also are being traded in real time.
moreover, the te vision proposes a
new electricity market structure that
exploits new technology capabilities
to enable the cost-effective, marketbased deployment of distributed
resources while resolving the disincentives, cross-subsidy concerns,
and unintended consequences of
disruptive forces.
specifically, the basic principle of a
te market is for customers and suppliers to enter into long-term contracts or subscriptions for fixed
quantities of electricity services (energy, distribution, and transmission) for
fixed payments. then, automated agents and devices acting for customers would buy and sell electricity services as
market prices and customer needs change.
the te idea is simple, with familiar analogs in wholesale
commodities markets, where participants enter long-term
contracts to secure commodity supply and transport capacity-e.g., natural gas-and then engage in spot-market and
forward trades to manage fluctuating needs and price
exposure. the te model is foreign to the utility industry
because historically the industry has been designed and
operated under a strict central dispatch model with regulated cost-of-service rates.
market pricing within a central dispatch model has
been less than satisfactory, especially in competitive retail
markets, largely because end users can only make energy
purchase decisions. they cannot sell their energy or
capacity-or that ability is severely constrained-leaving
market power in the hands of the central dispatcher. participation in such central-dispatch markets is complex
even for the largest customers.
also, the te market model has been impeded in part
because storing electricity is expensive, and a key feature
of most commodities markets has been the ability to store
supply resources. however, the need for storage becomes
less important in a system where market resources can be
dispatched or curtailed very quickly, virtually in real time;
where resources are increasingly modular and distributed;
and where information processing power is sufficient to
manage the real-time dispatch of localized resources
through competitively priced transactions.
te concepts and standards are being discussed and
developed through such organizations as the gridWise
architecture council, the harvard electricity policy group,
the open adr alliance, the organization for the advancement of structured information standards, and the smart
grid interoperability panel (sgip). as such development

continues and te concepts are demonstrated and
deployed in operating energy markets, they might support
or complement the emergence of microgrids as efficient
systems for deploying and managing resources. and ultimately they could offer visionary approaches for transforming regulatory and operational
models to exploit the capabilities of
new der technologies.

A microgrid could
qualify for federal or
state tax incentives
for certain discrete
elements of the
project.

Microgrid Organizational
Models
generally, three types of organization
entities are best positioned to
finance and govern the microgrid.
other organizational structures will
likely follow with supportive federal
or state legislation.

EIDs
energy or special improvement districts are organizations with one or more energy users
enabled by state and local laws to self-generate and distribute power for both heating and cooling services. the
initial customer for a microgrid could choose to be the
sole participant in the eid or add other neighboring participants to optimize microgrid efficiency and capacity utilization. the eid is formed for the following reasons:
xx
it enables the initial customer and other participants
(if any) to capitalize the microgrid with the same cash
flows already allocated for traditional gas and electric
service. the initial customer and each eid participant
would sign an esa to purchase a specific quantity of
electric, heating, cooling, and energy management
services from a microgrid company. this operates
much like a performance contract. if structured as an
operating lease, the esa could avoid a liability on the
balance sheet.
xx
it allows legal access to electric power from both the
new microgrid and existing grid sources.
xx
it enables low-cost regulation as a municipal or cooperative utility.

Private Equity DBOOT
in a private equity dBoot structure, the company uses
private equity funding to design, build, own, operate, and
transfer the microgrid. the dBoot structure enables the
participants to monetize federal tax credits, reduce community and energy user exposure to project risk, avoid
any liabilities on their books, and add a valuable asset to
the community infrastructure once the company achieves
payback. especially when combined with pace financing,
this model offers substantial potential.

Microgrid Operating Company
a microgrid operating company is commissioned to
design, build, and operate the microgrid for the end users

IEEE Electrific ation Magazine / MARCH 2 0 1 4

Table of Contents for the Digital Edition of IEEE Electrification Magazine - March 2014