Coal, Gas, Renewables

Microgrid Momentum Raises Legal and Regulatory Uncertainty

Issue 12 and Volume 118.

By Ram Sunkara, Michael Stosser and Jackson Allen, Sutherland Asbill & Brennan LLP

Severe weather, power outages and other grid disruptions have paved the way for the development of microgrid systems. Grid reliability is of paramount importance, and microgrids are a key component of the equation. Because they can operate independently from the grid, microgrids offer an attractive alternative for energy users that require uninterrupted and reliable energy in order to operate, such as military bases, hospitals, universities, and commercial and industrial end-users.

Microgrid Definition and Technology Variety

A microgrid is a group of interconnected loads and distributed energy resources that act as a single entity that can connect and disconnect from the grid, and thus operate either with the grid or in an “island mode.”

Because a microgrid project can incorporate a variety of technologies, it has the potential to provide less costly and more reliable power than the grid. Microgrid generation resources can include conventional natural gas-fired generation, combined heat and power generation, and other energy sources. Microgrid installations also can include the integration of renewable energy generation resources.

Energy Storage

Energy storage can be used with renewable resources, such as wind and solar systems, to reduce the effects of interruption of generation. It also can provide a source of back-up power. Energy storage is a critical aspect of a microgrid system and provides many benefits, including power quality, frequency and voltage regulation. Several energy storage technologies are used in microgrid systems, and it is this wide variety of technologies that gives developers the flexibility to design and customize microgrids to reflect the needs of the energy end-user.

Legal and Regulatory Uncertainty

Although microgrids are viable options, legal issues and regulatory uncertainty surround their development. Most jurisdictions have not yet developed a clear regulatory framework for microgrid applications, and developers must navigate a complex maze of legal and technical issues to develop and implement a microgrid system. Because the regulatory landscape remains somewhat uncertain, it is imperative that developers understand the issues relating to the jurisdiction of a proposed microgrid project. These issues relate to whether the state has jurisdiction over the microgrid system, whether the microgrid is a generation or a transmission asset, whether it is self-contained, and whether it returns power to the grid. Other issues relate to safety, zoning, the environment, interconnection to the electric grid, coordination with the utility and the applicable independent system operator, and the requirements of the North American Electric Reliability Corp.

Ownership Issues

Ownership issues also must be considered when developing a microgrid project. There are a myriad of different ownership models, and each model presents its own set of legal and commercial issues. If a microgrid has multiple investors or developers, such as a community-based microgrid system, there may be issues of ownership regarding physical, storage and generation assets, and distribution and transmission lines. Other ownership issues relate to the rights to, and profits from, the sale and transfer of the energy, steam and heat produced by the microgrid system.

Microgrid Financing

Additional legal and commercial issues may arise relating to financing a microgrid project. For example, project financing will require a developer to secure a revenue stream through an agreement with an end-user. Such an agreement with a single end-user may not present a challenge. But community-based systems for a large number of end-users will be more complex, especially if those projects are funded through municipal bonds and other types of government funding.

Conclusion

Grid reliability has become a concern in the wake of storms and natural disasters. Microgrids provide reliable energy, especially in times of emergency or grid service interruption. It is imperative for project developers, utilities and customer-owners to carefully consider all of the issues and possible hurdles that a microgrid project will encounter and be prepared to address those issues appropriately.

Authors:

Sunkara   Ram Sunkara is a partner in Sutherland Asbill & Brennan’s Houston office. He chairs the firm’s Distributed Generation and Combined Heat and Power (DG/CHP) Practice and counsels utilities and corporate energy consumers.
Stosser   Michael Stosser advises on the development and financing of energy storage systems and on federal and state regulation of electric systems.
Allen   Jackson Allen is an associate in Sutherland Asbill & Brennan’s Atlanta office and has experience counseling clients on the development of DG/CHP facilities.
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