In a green-light that would make Kermit the Frog proud, Pacific Gas & Electric (PG&E) just snagged approval from the California Public Utilities Commission to build an 8.5 MW hybrid battery energy storage and green hydrogen fuel cell system, signaling a big-time shift towards cleaner backup power solutions.

Developed by Energy Vault, the cutting-edge system is designed to bolster power supplies to a Northern California substation frequently plagued by power outages due to wildfires.

According to PG&E's projections, the hydrogen system, which forms a microgrid, could churn out up to 293 MWh within a two-day timeframe, although these figures could vary based on the length and severity of power disruptions.

The launch of this microgrid in 2024 marks a distinct shift from PG&E's previous reliance on diesel generators for backup power, and it will be a tangible outcome of a 2021 mandate for California utilities to seek cleaner backup power alternatives.

Public safety power shutoffs, proactive measures aimed at preventing wildfires during hazardous weather conditions, have been rolled out 33 times by the state's trio of large, investor-owned utilities from 2013 to 2019, as per CPUC records.

Energy Vault is set to own and manage the energy storage system under a long-term tolling agreement with PG&E, and they're in a position to boost the system's capacity to a hefty 700 MWh if required.

This upgrade would replace the diesel generators traditionally used in PG&E’s Calistoga microgrid during widespread grid outages.

With construction set to commence in the final quarter of 2023, the project is on track to begin commercial operations by mid-2024, which is very exciting.

Once in full swing, it has the capacity to supply power to over 2,000 electric customers for a minimum of 48 hours.

In crafting this agreement, PG&E and Energy Vault engaged in consultations with local stakeholders, including representatives from the City of Calistoga and Marin Clean Energy. The City of Calistoga has demonstrated its support for the project, issuing a letter of intent to lease municipal property to Energy Vault for the storage and dispatching resources.

What Is A Microgrid?

Microgrids are locally-based energy systems which are designed to supply power to a specified geographical area, such as a college campus, hospital complex, or neighborhood. These microgrid systems are typically independent from the larger grid system, and consist of various forms of distributed energy, including solar panels, wind turbines, combined heat and power generators, and increasingly, energy storage systems, typically batteries. Microgrids also often include electric vehicle charging stations, creating a self-contained, sustainable energy ecosystem.

Three main key characteristics distinguish microgrids: locality, independence, and intelligence.

Microgrids generate energy locally, reducing the inefficiencies of power transmission over long distances, as seen in traditional centralized grids. Instead of pushing power from distant plants, microgrids generate power close to consumers, overcoming energy loss that can range between 8% to 15%.

Microgrids can function independently from the central grid, a feature called "islanding". So, when a power outage gets caused by a natural disaster or related event, the microgrid can continue to supply power to its customers, ensuring uninterrupted service.

However, unless in a remote area with no central grid or an unreliable one, most microgrids remain connected to the central grid, maintaining a symbiotic relationship.

Intelligence is the third characteristic of a microgrid, emanating from the microgrid controller, the central "brain" of the system. The controller manages generators, batteries, and nearby building energy systems, orchestrating multiple resources to meet customer-defined energy goals. Advanced controllers can even track real-time changes in power prices on the central grid, optimally utilizing resources for cost efficiency and reliability.

While microgrids are self-sufficient energy systems, they are not simple distributed energy systems like rooftop solar panels, which cannot keep power flowing during a grid outage. Similarly, backup generators are not microgrids as they are only employed in emergencies, while microgrids operate 24/7/365, managing and supplying energy to their customers.

Microgrids are not new, with their usage dating back decades, primarily on college campuses and by the military. However, as distributed energy prices fall and concerns about electric reliability increase due to severe storms, cyberattacks, and other threats, the installation pace is growing dramatically.

Why Microgrids Now?

PG&E has faced increasing calls to develop more microgrids, which could be part of why it invested in this recent venture.

For instance, a Marin County Grand Jury found that PG&E needs to invest in more microgrid infrastructure to protect local citizens.

And the California Public Utilities Commission recently approved new rules for a microgrid incentive program that PG&E, Southern California Edison, and San Diego Gas & Electric can all participate in to develop microgrids for vulnerable communities.

Why Is PG&E So Expensive?

PG&E is making these investments at a time when California energy customers are worried about their energy bills. PG&E claims it doesn't control market prices for gas and electricity, nor does it mark up costs. Whenever PG&E wants to change rate costs, it has to submit a proposal to the California Public Utilities Commission PG&E. So why were recent energy bills so expensive? Three reasons: energy market prices, aging infrastructure upgrades, and undergrounding power lines.

1. Energy price fluctuations raise energy prices

This past winter's energy bill spikes mostly had to do with the surge in natural gas prices, which was a result of unprecedented market forces in the western natural gas markets, including amplified demand due to colder temperatures, the increased need for gas-fired electric generation, lower Pacific gas storage inventory, and pipeline delivery constraints.

As PG&E stated, natural gas prices were notably higher in the West Coast from November 2022 through January 2023. The increased prices were driven by several market factors including colder-than-usual temperatures leading to more gas usage, increased demand for gas-fired electricity due to fewer hydroelectric sources and imports, lower gas storage levels, and pipeline delivery constraints.

As KCRA reported back in January, this combo of harsh winter, increased demand, and snarled supplies dealt a chilly blow to the pocketbooks of PG&E customers. The higher natural gas prices in wholesale markets led customer bills to surge around 32% more compared to the previous winter in 2021. In total, that translated to an additional burden of approximately $79 extra a month spent on energy.

With prices soaring, PG&E has tried to explore new avenues to cushion the impact for consumers. The organization recently put a proposal in motion to change the rates it charges for electricity to be income-based, which would lower energy costs for lower-income households. And it also made moves to advance the California Climate Credit - typically issued in April - by a month or two. This credit, appearing twice yearly on bills, amounts to around $91 and offsets both gas and electricity usage. PG&E is also leveraging natural gas reserves built up during summer, utilizing underground storage to draw from and moderate customer prices.

2. Replacing aging infrastructure could raise prices

However, another reason you may see PG&E prices get more expensive is due to the investments it needs to make to its grid infrastructure. As the largest investor-owned utility in California, PG&E needs to make serious investments in its aging infrastructure, but it's plagued by missing data, a backlog of repairs, and billions of missing dollars it will need to find somewhere to pay for its wildfire protection plans.

In 2019, PG&E was pushed into bankruptcy due to billions in liabilities from wildfires sparked by its power lines. The utility now plans to invest about $18 billion through 2025 to safeguard its infrastructure from fire threats, as per a plan recently submitted to regulators earlier this year. In July 2023, it made public statements to investors that it was "safer than ever."

To be fair, PG&E is also making efforts to reduce these costs and prevent them from being passed onto customers. Recently, it applied to secure a $7 billion federal loan for a significant overhaul of its electricity grid. As first reported by The Wall Street Journal, PG&E is looking to the federal loan as a source of "cheap money" to enhance its clean energy transition more swiftly and at a lower cost to its customers.

The loan will fund state and federal approved projects tied to enhancing resiliency, building and vehicle electrification, and distributed energy resources. The first part of PG&E's application to the Department of Energy’s Loan Programs Office has already been submitted. If the loan is approved, it will be used for the construction of new transmission lines, conversion of existing lines to higher voltage ones, and the replacement of overloaded transmission conductors with higher-capacity ones, potentially undergrounded. In addition to the above, the loan will also support upgrades to substations and distribution capacity, overhead and underground, enabling the connection of more distributed energy resources to the grid.

The funds from the loan will finance projects approved by the California Public Utilities Commission or the Federal Energy Regulatory Commission. This won't include new projects but will cover those that are pending or already approved. The lower interest rate on the federal loan is expected to result in cost savings compared to what PG&E could secure on the market currently.

3. Undergrounding could raise energy prices

As reported by Utility Dive, PG&E's current initiatives have focused on wildfire mitigation measures, which have reportedly reduced the number of acres burned in high-risk areas by 99% last year compared to the average for 2018-2020. The utility is also shifting around 10,000 miles of overhead power lines underground, with plans to complete over 600 miles by year-end. This initiative should also eliminate the need for Public Safety Power Shutoffs during windy conditions.

As PG&E gains experience and leverages emerging technologies, the pace of the undergrounding work has accelerated. A key example is adopting San Diego Gas and Electric's strategy of burying lines at a depth of 30 inches, a six-inch reduction from the traditional standard, saving PG&E $25 million this year alone.

While PG&E managed to underground 73 miles of power lines in 2021, the target for 2022 stands at 350 miles. By 2026, the company plans to bury an additional 750 miles, reaching a cumulative total of 2,300 miles. The process is not without disruptions, with work varying greatly depending on factors such as soil density and terrain angles. Traffic and access to homes, schools, and workplaces are managed by dedicated teams accompanying the work crews.

Historically, utilities argued that burying power lines was excessively costly. However, in the wake of a series of deadly and destructive wildfires ignited by its equipment, PG&E reversed its stance, citing long-term cost reductions associated with undergrounding.

Despite the high upfront costs (initially $4 million per mile, now closer to $3.3 million), undergrounding is proving to be more economical in the long run. Reduced maintenance, inspection, and vegetation management costs are some of the benefits associated with this approach. Although underground power lines can be more challenging to repair than their above-ground counterparts, large access boxes placed 800 to 1,200 feet apart help facilitate this process.

Investments in safety measures, such as enhanced weather forecasting, safety power shutoffs, improved power line safety settings, and undergrounding, are already yielding results. Ignitions and acres burned have decreased significantly, marking an improvement in system safety.

As KCRA reported, PG&E has sought a 21% rate increase over four years from the California Public Utilities Commission, largely to cover safety measures such as undergrounding. While this could be challenging to justify to customers, 85% of the rate hike request is for safety-related improvements. With a project of this magnitude and complexity, it's clear that PG&E's operations come with a hefty price tag. The utility, however, believes that the costly upfront investment will prove beneficial in the long run, as it seeks to mitigate the risk of wildfires and ensure the safety of its customers.