Europe has been operating huge wind turbines offshore for more than a decade, while here in the U.S., this cutting edge clean technology seems perennially “five years off.”

The infamous project proposed offshore of Cape Cod, Massachusetts has been under deliberation for more than 10 years. During that time, Denmark, Germany, the United Kingdom, and seven other countries have already installed 53 offshore wind farms totaling 3,813 megawatts (MW) of carbon free electricity. That is enough power to keep the lights on for more than 2.8 million American homes, or a city larger than the size of Chicago.

The international wind power industry is watching Washington, DC to see if lawmakers will extend the federal production tax credit (PTC) for wind power. But their eyes are also focused on Trenton, the state capital of New Jersey, to see if state regulators there will help launch America’s long-awaited offshore wind energy industry.

In August of 2010, New Jersey Governor Chris Christie signed into law the Offshore Wind Economic Development Act, which authorizes up $100 million in ratepayer-funded subsidies for offshore wind developments in the Atlantic Ocean that connect to the New Jersey grid.  Special “offshore renewable energy credits” (ORECs) help make projects more economic, but unlike the Solyndra federal government loan guarantees, these subsidies are only awarded after projects meet a cost/benefit criteria and produce renewable energy delivered state consumers. In addition, a “Clean Energy Manufacturing Fund” offers additional grants and loans based on local job creation.  Many experts consider New Jersey’s offshore wind program to be the most well conceived state policy initiative in the nation.

Perhaps the most unusual company pursuing the Garden State’s offshore wind power opportunity is Fishermen’s Energy, based in Cape May, New Jersey.  Several of the East Coast’s largest commercial fishing companies have partnered to create the company, which has been developing a 25 MW project for several years. In contrast to Cape Wind and other ambitious proposals, the New Jersey-based consortium chose a step-by-step approach: a demonstration project. It is siting its five turbine windfarm within the three-mile state-controlled boundary off Atlantic City, a city looking to extend its image – and economy – beyond casino gambling.  If building America’s first offshore windfarm were a race, Fishermen’s Energy might look like the tortoise to Cape Wind’s hare.

Showcasing a savvy approach, Fishermen’s Energy has trimmed pre-development costs and shortened the development cycle to what may be less than half that of the Cape Wind project by doing the following:

• Sited its first project in state waters, thereby eliminating redundancy in permits/paperwork and limiting federal agency reviews to the Army Corps of Engineers
• Relied upon shore-based anemometers, radar, and new laser-based technologies to collect data, eliminating the need for site-based meteorological towers in the ocean
• Engaged environmentalists and recreational fishermen in dialogue about the merits of its pilot project in advance of large-scale developments off the New Jersey coastline
• Discovered data on avian and sea life studies performed by a credible third-party company – Geo-Marine – that covers almost 127 miles of coastline (including its project site), to help secure its permits from the Department of Environmental Protection
• Used one of its company’s vessels – an 85-foot former fishing boat – to install a buoy at the installation site to monitor whale activity for two years
• Recruited financial support from XEMC, a Chinese industrial giant known as “China’s GE,” in planning for a 5MWdirect drive wind turbine

All these innovative steps – and more – add up to project savings, a critical accomplishment in light of the tight fiscal constraints imposed by the state OREC program.

The New Jersey Board of Public Utilities (BPU) is currently reviewing the company’s proposed pilot project.  By modestly committing consumer dollars to the pilot project, New Jersey would lock in its leadership of an entirely new industry: offshore wind power.  If the Fishermen Energy’s pilot project is allowed to move forward, more than 500 MW of additional offshore wind capacity could come online to serve New Jersey within the next five years, creating as many as 11,000 manufacturing, installation and ongoing operation and maintenance jobs for the Garden State.

A Microsoft/OSIsoft survey released in early 2012 ranked renewables integration (43%) as the second most important reason for implementing a smart grid, behind smart metering (71%).

A forthcoming report for Pike Research will show how microgrids are leading the world today in terms of revenues derived from smart grid renewables integration, but recent market activity has intensified in regards to the concept of a Virtual Power Plant, a smart grid optimization platform that still faces skepticism.

The company that first introduced the term to the world, Siemens, is taking the concept of a VPP to the next level in terms of actual market commercialization.

Given that Germany is phasing out nuclear power, the 23 megawatt (MW) “Regenerative Combined Power Plant” (RCPP) experiment carried enormous implications.  A total of 36 wind, solar, biogas, CHP, and hydropower generators were operated as if a single power plant was supplying 24/7 power to the equivalent of 12,000 households.  Project leader Dr. Kurt Rohrig of Kassel University was awarded the German Climate Protection Prize 2009 for his work on this cutting-edge renewable supply management experiment.  While it generated the equivalent of only 1/10,000 of Germany’s total supply, this successful R&D venture has convinced academics and a partnership featuring Enercon GmbH (whose wind turbine provides a unique suite of grid services), SolarWorld AG (a major manufacturer), and Schmack Biogas AG that the entire country of Germany could be completely powered with a diverse blend of complementary renewable energy resources.

Doubters have pointed out that the RCPP project failed to account for grid congestion challenges that might frustrate this sort of VPP under real market conditions.  That’s why Siemens’ recent announcement to work with German utility RWE Deutschland AG (RWE) to fully commercialize this VPP model is so important.

Siemens’ VPP commercial offering is based on is its Decentralized Energy Management System (DEMS), which is designed to enhance both wholesale and distributed generation operations according to pre-defined economic, environmental, or energy-related priorities.  A variety of combinations of supply- and demand-side resources can be optimized, whether the generator is a large wind farm or an on-site biogas unit.  DEMS was first deployed at a small Austrian paper and pulp mill in 2003.

Siemens was one of the first private companies to explore the concept of VPPs, playing a key role in providing the management system for another pioneering effort in Germany.  Since October 2008, this project has aggregated the capacity of nine different hydroelectric plants ranging in size from 150 kW up to 1.1 MW, with a total VPP capacity of 8.6 MW.  The VPP framework opened up new power marketing channels for these facilities that would not have been viable if these distributed energy resources (DER) were still operating as standalone systems.

Operated by RWE from a centralized control room based in Dortmund, the Siemens/RWE project will grow to 20 MW this year by adding combined heat & power (CHP) units and emergency back-up power systems to the existing hydro portfolio.  It will be expanded to 200 MW by 2015 by further integrating biomass, biogas and wind resources into the network, making this an official commercial offering in Germany, where recent market changes have created fertile ground for VPPs.

Since February of this year, power from this VPP has been sold at the Energy Exchange (EEX) in Leipzig, Germany under new amendment terms of the Renewable Energy Sources Act. This is the first direct marketing of renewable power under this new program. Given the proposed reductions in Feed-In Tariff (FIT) rates, the EEX is being viewed as a key new innovation to help optimize growing renewable energy resources in Germany.

For such a small country, Denmark certainly knows how to do sustainable energy in a big way.  Late last month the Danish Parliament passed the most ambitious renewable energy goal in the world.  By 2050, the country’s entire economy will be powered by renewable energy.  Given Denmark’s reliance on variable wind power, in order to accomplish this goal the smart grid will need to play an increasing role in aggregating and optimizing the country’s energy resources.

Already, Denmark obtains more than 25% of its electricity from wind power.  Under the new commitment from the Danish government, 35% of the country’s energy will come from renewable sources by 2020, with roughly half of that coming from wind power.  It’s important to note that this 100% renewable goal applies to Denmark’s entire energy supply, not just electricity, and therefore also includes heating, all industrial activity, and transportation.

One could clearly argue that Denmark is in a unique position due to its compact size and community-owned wind, combined, heat & power (CHP) and district heating and cooling networks, which provide a cultural ecosystem of support for sustainable energy strategies and stakeholder buy-in.  (One rarely hears of any NIMBY protests against wind power here!) The goal of 100% renewable energy is also matched with specific policies (and funding) attached to specific wind projects both onshore and offshore.

The country will, by necessity, lead the way with smart grid aggregation and optimization networks such as microgrids and virtual power plants (VPPs).  In order to accommodate larger penetrations of renewable energy, the Transmission System Operator (TSO) Energenit.dk is redesigning its market dispatch rules accordingly.  Under the current system, Energenit.dk only accepts power bids from power producers of at least 10 megawatts (MW) in size, and load forecasts are updated every 15 minutes.  Under the proposed new real-time market being rolled out, there will be no size limit on scheduled resources, and prices will be updated every five minutes, opening up the door to distributed energy resources – including demand response — that can respond quickly to price signals.

The country has laid the foundation for this new aggressive renewable energy policy by moving forward with trend-setting smart grid renewables integration projects rivaled only by Germany in terms of scale and ambition (my next blog post will cover Siemens and VPPs.)  In 2011, Energinet.dk – with significant help from Spirae, an innovative software/hardware provider based in Colorado – completed a cutting edge R&D project with major ramifications for renewables integration: a 65MW VPP, commonly referred to as the “Cell Controller Project.”  It consists of distributed wind and CHP units owned by farmers and village heating districts, and will be operated by Energinet.dk.

This successful R&D experiment set the stage for an even more cutting edge VVP project of similar size (67 MW) that involves PHEV and residential heat pumps, along with wind and CHP on the Island of Bornholm – the European Union’s smart grid-renewable energy smart grid showcase.  Residents there are already receiving bill credits when the grid operator uses the batteries in plug-in hybrid electric vehicles (PHEVs) as short-term storage to help firm up wind power.

Also known as the “Bright Green City” project, this Bornholm VPP is being developed with DONG Energy with a goal of obtaining 76% of its total electricity from renewables by 2025, with 90 MW of wind power is planned to be added to the existing 30 MW in current operation.   An additional 5 MW of distributed solar PV is also on the drawing boards for Bornholm.   PHEVs are a key part of this greening of local infrastructure effort, leading some observers to come up with a new acronym:  an Electric Vehicle VPP or EV-VPP.   In a partnership to be launched in 2012 with the EV battery provider Better Place, DONG Energy hopes to roll out this EV-VPP throughout Europe.

The success record of smart grid renewables integration is a mixed bag, with European countries boldly plowing forward while many utilities in the United States exhibit what a former California state regulator called “electrotrophobia” – the fear of change linked to greater reliance upon intermittent renewable energy resources.

Massive amounts of new transmission lines will be necessary in the U.S. to access the best wind resources, yet the biggest buzz is about advances at the distribution level.  The truth of the matter is that the integration of renewables is not a reliability issue, as these resources are integrated around the world at penetration rates 10 to 20 times higher than in the United States, without major catastrophes.  It is really all a matter of costs to ratepayers and of reducing the environmental impacts of the current reliance upon natural gas fired generation — along with a massive build-out of new transmission infrastructure — to solve the integration problems.  As renewable deployments increase, integration costs are expected to go way up (see Figure 1.1 below) – at least from the perspective of U.S.  utilities.

In isolated cases, such as Denmark, real and rapid progress on smart grid renewables integration is already reality.  While Europe (especially Germany and Spain) appears to be in the lead, the U.S.  and Asia Pacific are also making big strides forward.  Instead of integration costs going up with higher solar PV penetrations, smart grid experts in Germany suggest the opposite could occur with the right low-voltage distribution network technology, highlighting the lack of consensus on how increased renewables will impact utilities.

The synergy between smart grid and renewable energy seems intuitive, but where the rubber meets the road, much more validation needs to be done.  Technologies have come a long way over the past five years.  Today microgrids, demand response, and wind and solar forecasting technologies are all reaching commercial status.  As a result, the tools on the grid side to better manage the variability of renewables are now increasingly available.  These technologies will begin displacing the current reliance upon gas-fired generation at the transmission level over the next six years.  This, in turn, will minimize the environmental impacts of grid integration of solar and wind, reinforcing the value of the smart grid.

On the renewables side, equal if not greater progress has been made with new and improved technology and innovative business models.  The fact that state-of-the-art wind turbines and solar PV systems with sophisticated micro-inverters can self-provide many of the ancillary services that utilities and grid operators worry about speaks to how far this industry has come in responding to integration issues.  Determining the business case for the integration of these renewables through the smart grid is, by necessity, a matter of speculation.  Safe to say Pike Research believes the world will be a very different place six years from now.