California Town Tests New Model for Microgrids

In California’s Salinas Valley, the small city of Gonzales is planning a $70 million microgrid to provide a business park with round-the-clock reliable power at cheaper than utility rates, and overcome a grid upgrade bottleneck that would otherwise stifle its economic development plans. 

If it works, the unusual combination of a newly formed municipal utility, large electricity customers as anchor tenants, and a microgrid developer to fund and manage the solar, battery and natural-gas-powered system could provide a new statewide model for towns and cities looking for reliable and clean energy options. 

That’s how Brian Curtis, CEO of Concentric Power, views the Gonzales Agricultural and Industrial Microgrid project. The “multi-customer municipal utility energy services agreement” announced this week could solve many of the more complex barriers to microgrid development in California, he said. 

“It leapfrogs some of the barriers and challenges that have been experienced in the market, not the least of which is interconnection and utility-side upgrades,” he said. “We think we’ve found a pretty elegant way to design with those constraints in mind.” 

Gonzales, a small city of about 8,500 in the country’s most productive fruit and vegetable growing region, has a business park with two major agricultural processing facilities owned by Taylor Farms and Del Monte Foods. Plans to expand those facilities or add new ones have been stymied by insufficient capacity at the Pacific Gas & Electric substation serving the town, Gonzales City Manager Rene Mendez said.

Expanding that substation could take anywhere from three to five years, given PG&E’s backlog of grid projects and the convoluted process for approving upgrades, according to Mendez. It would also impose significant costs to customers seeking the additional substation capacity. 

Beyond that bottleneck, poor grid power quality has been threatening refrigeration and processing equipment at facilities that are processing about $5 million worth of perishables at any given time. And that’s not mentioning PG&E’s fire-prevention blackouts, which left the city without power for a total of about 40 hours last year and could be an economic disaster if they continue, Mendez said. 

In that light, “energy has turned out to be a critical need and a critical tool” for economic development. But with a capital budget of about $20 million per year, Gonzales “can’t throw money at the problem.”  

The town can enlist private development, however, by forming a municipal utility and electric authority. That route helps Gonzales overcome regulations that bar utility customers from sharing power across utility grids. Such regulations made multi-customer microgrids a nearly impossible proposition across the country. 

“We’re flexing the power of a municipal utility to act as a load-serving entity,” explained Dustin Jolley, founder and principal of OurEnergy, a technical advisory firm and project developer that’s advised the city on designing the plan and the 2019 request for proposals that selected Concentric Power. 

A municipal utility to work around microgrid barriers 

California regulators are working on tariff structures for microgrid developers, and multiple customers can share their costs and benefits with utilities. But that’s a complicated regulatory task, involving issues about who pays for grid services or reduced electricity sales that can pit utilities’ interests against those of microgrid customers. 

The California Energy Commission has provided grants to a number of microgrid demonstration projects across the state, but most are operated by utilities or extend only to properties controlled by a single owner. One exception is the Redwood Coast Airport microgrid in Humboldt County, which over years of careful negotiations has developed a proposed tariff structure that could allow its microgrid to serve customers across PG&E power lines. 

Gonzales’ plan is meant to circumvent those barriers. Concentric will fund the majority of the project and earn back revenue through its 30-year energy services agreement. The Gonzales Electric Authority will contribute several million dollars and own the distribution grid assets needed for the project, and then sell the wholesale power to the municipal utility, which will set the retail energy agreements with its business park customers.  

Concentric has already installed a 2-megawatt natural-gas-powered cogeneration system at Taylor Farms’ processing facility that provides heat and electricity, and can also ramp up and down to manage grid power needs. But the microgrid complex now being planned is much more ambitious: 14.5 MW of solar, 27.5 megawatt-hours of batteries and about 10 MW of natural-gas reciprocating engines. 

“That combination, in our analysis, gives the right mix of highest possible renewables but also the reliability they need,” Curtis said. It can also help balance intermittency of two wind turbines that provide 3 MW of nameplate capacity to Taylor Farms and Del Monte via power-purchase agreements. 

An aerial view of the microgrid site (Credit: Concentric Power)

The microgrid’s power will cost about 11.75 cents per kilowatt-hour, higher than typical California wholesale electricity rates. But the retail service agreements being crafted for business park customers will offer flat rates that are lower than utility rates, and without the demand charges that add cost and complexity to the bills of commercial and industrial customers. 

With a mix of roughly 80 percent renewable energy and 20 percent natural gas, the power will be cleaner than what PG&E supplies at present. That lines up with the city’s climate action plan calling for sustainable energy development and reducing carbon emissions to meet its economic and social goals. Gonzales is planning a wastewater treatment plant methane capture facility that could supply its natural-gas units with carbon-neutral fuel in future years, Mendez said.  

A model for the grid integration of distributed clean energy? 

If all goes to plan, the project will break ground in mid-2021 and be put into service by mid-2022. The next step will be interconnecting with the transmission system run by state grid operator CAISO to sell excess capacity via energy markets or to the local community-choice aggregator Central Coast Community Energy, Curtis said. 

“Microgrid clusters are going to be very much a part of the energy landscape in California and across the country,” he said. “What’s required is the right mix of assets, and also the right controls.” 

As for utilities like PG&E, the costs of losing customer electricity sales and the rate-of-return on capital investments to supply them may be counterbalanced by the benefits of being able to rely on a stable energy resource in an area suffering from lack of grid investment, Jolley suggested. 

“Having resilient generation projects that have the capability and sophistication to interact with the broader grid — I think they would view that as an asset.” 

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