Can this city’s microgrid plan skirt the traditional utility model?

Cities have historically been at the mercy of incumbent utilities when it comes to meeting emissions targets. 

But now a city in Michigan is embarking on an energy project that — if successful — could demonstrate that municipalities need not be beholden to the power companies that serve them. Ann Arbor, with a population of less than 124,000, is looking to bypass its local utility by building a series of microgrids as it aims to meet one of the nation’s most ambitious decarbonization targets. 

• The top line: City planners in Ann Arbor realized its incumbent investor-owned utility, DTE Energy, would not be able to move fast enough to meet the city’s goal of 100% renewable energy by 2030. So the city is now looking to build a series of microgrids to provide a clean alternative to DTE’s plans — and keep the goal alive.
• The market context: If it goes ahead, Ann Arbor’s Sustainable Energy Utility initiative is thought to be a first-of-a-kind project in the U.S. Its aim is not only to give citizens access to locally-produced clean energy, but also to overcome grid reliability issues plaguing DTE’s electricity network without having to invest considerable sums in upgrades. 
• The current take: Missy Stults, Ann Arbor’s sustainability and innovations director, said the city is open to “all tools, resources, and pathways” to meet its 2030 goals. “Meeting these goals necessitates using every tool in our toolbox — and creating some new ones,” Stults said. “While DTE has been making progress in their clean energy transition, even those ambitious plans are simply far too short of the goals that have been established in the city.”

The somewhat audacious vision of skirting the utility’s control of the city’s energy provision has symbolic significance beyond Ann Arbor — it shows that cities intent on decarbonizing may have options beyond the traditional utility model. 

The idea didn’t emerge overnight. Ann Arbor lawmakers hatched the SEU plan after considering various options for citywide clean energy provision, including the purchase of the Detroit-based DTE’s local assets. 

But that route has proved challenging when pursued elsewhere. Perhaps the most notable example is an attempt by the city of Boulder, Colorado, to create a municipal utility by buying infrastructure off the local IOU, Xcel Energy. The move led to a legal battle costing millions of dollars and was abandoned in 2020. 

In Ann Arbor’s case, though, buying DTE's assets would mean the city suddenly owned the exact coal and gas assets that it's trying to get away from. (DTE’s current generation mix includes 54% coal and 14% gas.) And it is unclear how much Ann Arbor would have to pay for the privilege; Stults told Latitude Media that most of the city’s existing electrical system would need to be upgraded. 

Furthermore, Ann Arbor has a lot of trees, and when those trees meet the city's web of overhead wires, tree damage becomes a major consideration for the electrical system. However, Stults said, "burying the lines comes with significant expense financially but also in terms of tree canopy coverage. Moreover, we have significant lines that run through backyards and lots, which means it’s not even as simple as discussing right of way burial of lines — we’ll have to go through backyards and disrupt a significant amount of infrastructure.”

Mindful that climate change could further degrade distribution infrastructure, Ann Arbor sees a need to invest in decentralized generation “to ensure we are increasing the resilience of our people, our places, our institutions, and our communities,” said Stults. The proposed SEU is viewed as a way of encouraging DTE to introduce more clean energy while investing in the local community "by supporting large-scale adoption of behind-the-meter solar and energy storage systems,” she added.

The ideas underpinning the SEU have been tried and tested in today’s energy markets, she added, although the way services are being combined to improve resilience, reliability, and clean energy distribution are considered novel. 

Technical questions

And although the chosen architecture for the SEU will be a series of community microgrids, their set-up is also different from the standard, according to Johanna Mathieu, associate professor of electrical engineering and computer science at the University of Michigan.

Instead of having a single point of interconnection with the main grid, the SEU will connect to DTE’s infrastructure at every home, said Mathieu, who is providing grant application support for the project. Homeowners, who will be able to connect to the SEU on an opt-in basis, will have separate meters for the municipal utility and the IOU, she added. 

The two systems will not exchange electricity, she added, although SEU microgrids will rely on the DTE network for frequency and voltage control. This proposed arrangement has given rise to a series of interesting technical questions, which Ann Arbor is addressing with equipment provider Schneider Electric.

For one, what happens when the amount of energy from distributed renewables on the SEU exceeds the demand from customers? To address this issue, SEU microgrids will initially be sized to only cover essential loads, meaning customers may still rely on DTE for some of their electricity provision.

In addition, the microgrids will be equipped with batteries for energy storage. And there are plans to pilot demand-side initiatives such as automated control of heating and air conditioning systems, so the need for solar power curtailment is minimized. 

Another question is how to maintain SEU frequency control if the DTE network experiences a blackout. Planners are pondering whether battery inverters or biofuel-based generators could provide grid stability instead. 

“It's not clear how to run this thing,” said Mathieu, “so there's a lot of really interesting research on power electronics and inverter design that needs to happen. But it looks like something we can achieve in the next few years.”

Huge potential

If Ann Arbor can get the SEU to work then the consequences could be wide ranging, said Kevin Kircher, an assistant professor at Purdue University’s School of Mechanical Engineering who is not connected with the project: “The upside potential is really a radical re-envisioning of the model that we have between consumers and their energy provider."

“We have this whole field that involves these slow-to-adapt incumbent utilities, and we can change that so that we have public, clean, affordable, reliable power being deployed quickly, and in the neighborhoods where people want it," Kircher added. "That could be huge, potentially.”

Given the implications, Kircher would be surprised if the SEU does not see pushback from DTE and the wider utility industry. As it stands, Ann Arbor is treading carefully to ensure the SEU’s design cannot be legally challenged by DTE or its stakeholders.

“We certainly are having a lot of discussions with them about how we can meet our mutual goals,” Stults said.

Nevertheless, it is still early days. Ann Arbor has only recently completed an economic modeling exercise to demonstrate the viability of the SEU and is now looking to test the findings with a third-party rate firm. It is also creating a governance and staffing plan for the utility. 

The work will likely be watched with interest in the U.S. and abroad as a growing number of cities worldwide look to bypass traditional energy providers with utilities of their own. 

“We’re seeing a return to publicly owned utilities, particularly focused on generation,” said Daniel Pérez Rodríguez, managing director of L'Energètica, a clean energy provider owned by the regional government of Catalonia in Spain. “However, the idea of a microgrid operating in parallel with the main grid is not something I’ve seen before. It’s a big deal.”