IEEE Electrification Magazine - March 2014 - 33

the microgrid. energy project development companies will
likely contribute the equity investment necessary to complete the design of the microgrids and act as the general
partner of an lp or company. Under this approach, microgrid
end users-if other than the equity partner(s)-would pay
little or no capital costs toward the development of the
microgrid. the experience of the developer and its partners
will be pivotal to attracting third-party capital.
a significant benefit of a dBoot approach is that the
lp or company can earn significant tax benefits that are
not available to entities such as municipalities, special districts, and nonprofit and other government bodies that are
not tax-paying entities. Businesses
within the community can be offered
options and assume roles as investment partners in the lp or company
and thereby earn federal tax incentives to lower their investment costs.
Under the dBoot approach, energy users served by a microgrid would
enter into an energy services agreement (esa) with the company to pay
charges for electric, heating, and cooling services, and to manage efficiency
and dr measures. the esa can have a
term of up to 20 years and allow the
lp or company that financed the
microgrid to recover capital costs and
expenditures for construction of the
microgrid. after payback to the company, sole ownership of the microgrid asset could transfer
and vest to the end users in its entirety.
the company might guarantee that the esa service
charges would be no higher than the same rates that the
energy users would have paid without the microgrid. such
charges could include costs to obtain qualitative benefits
from the microgrid beyond bare costs for energy supply.
this would guarantee that energy users in the microgrid
never pay more than utility rates and other costs they
would incur for the same set of benefits, but in the esa, it
does not limit the possibility that they would pay less. a
true-up could be used annually, and any savings from
actual costs would be shared among the company and the
microgrid's energy users.

technology revolution with microgrids. Ultimately, a
change in distribution company business models could be
fostered by these developments integrated with technology. these evolutionary trends resemble the changes and
transformation that happened when decentralized telecommunications, information processing technologies,
and cloud computing merged. Just as the telecom industry
transformation led to the emergence of new service models and a wave of investment in infrastructure, the industry's evolution toward a more distributed model will bring
new investment and business opportunities.
the effects on legacy central utility models might lead to
utility stranded asset compensation
claims. theories of stranded cost
recovery could appear at the state level
for distribution assets, which could
impose a chilling effect on the development of microgrids and distributed
energy resources (ders) in general if
they prompt policy makers to reduce
existing support for the increasingly
distributed architecture of the power
grid or even to erect additional regulatory barriers and limits.
additionally, however, utility
companies will have new opportunities to earn returns-regulated or
unregulated-on distribution assets
serving independently managed
microgrids. this precedent exists
where utilities earn a regulated rate of return on transmission assets already in the utility's rate base but independently managed by the regional transmission organization
or independent system operators. in other cases, utilities'
unregulated affiliates earn revenues on nonutility assets,
including independent power producers and merchant
transmission systems.
in some cases, regulated utilities might initiate or participate in microgrid development. as in connnecticut
light & power's participation in the hartford parkville cluster microgrid, san diego gas & electric's Borrego springs
demonstration project, and initiatives at duke energy to
develop neighborhood-level microgrid architectures, utilities might continue earning regulated rates of return on
existing distribution assets used in a microgrid project as
well as incremental revenue streams-regulated and
unregulated-on additional related investments.
in some cases, environmental compliance obligations
will necessitate replacing aging boilers, creating opportunities for utilities to participate and contribute toward
optimizing new plants or repowering investments with
integrated microgrid solutions. in other cases, load pockets requiring new transmission service might be better
served with localized resources, of which microgrids or
microgrid-type load-management and distributed generation (dg) models might prove to be more effective.

Safe interconnection
can occur using
standardized and
proven systems and
procedures, fostering
a new technology
revolution with
microgrids.

Utility Models for Financing
Utility grid models have been evolving since the enactment of the public Utility regulatory policies act in 1978
and its implementation by the Federal energy regulatory
commission and the states by 1982. technology advances
have gradually affected the utility system, increasing
opportunities for development and operation by nonutility
stakeholders. now technology is creating opportunities in
electricity distribution.
safe interconnection can occur using standardized and
proven systems and procedures, fostering a new

	

IEEE Electrific ation Magazine / MARCH 2 0 1 4

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