Microgrids Can Improve Energy Reliability in Tennessee. Will Regulators Let Them?

Microgrids – localized electrical grids that can operate independently or in conjunction with an overarching electricity grid ­­– offer a variety of benefits for end users. They can promote the integration of renewable energy sources and mitigate fossil fuel reliance while reducing the amount of energy lost during transmission across great distances. They also enable communities and businesses to generate their own energy in the face of natural disasters or grid failures.

The reliability of microgrids could stand to benefit Tennessee, where extreme weather has been known to impact the grid – extreme cold in late December 2022 necessitated rolling blackouts. The state’s regulatory scheme, however, creates hurdles to their implementation, including the Tennessee Valley Authority (TVA) monopoly over generation and transmission within most of Tennessee.

Microgrids: Legal Opportunities and Barriers in Tennessee, authored by Caroline Cox and Victoria Schmit, lays out the challenges to microgrids presented by the current legal and regulatory landscape before offering policy recommendations to encourage microgrid adoption.

“As more companies, cooperatives, and individuals seek to build their own microgrids either to supplement energy from the grid or to be able to disconnect entirely, the question of microgrids’ status under current regulatory regimes is critical,” the authors write.

What’s a Microgrid?

As Tennessee does not define what a microgrid is in the state’s laws or regulations, the paper begins with a broad-based definition of microgrids. Because not all microgrids are the same in size, structure, and connectivity, the authors go on to categorize different varieties of microgrids, ranging from nanogrids (think rooftop solar panels on a single-family home) to campus microgrids (on a single site, like the one at Vanderbilt) to large commercial microgrids.

“Each of these different and often overlapping types of microgrids may be subject to different regulation under current regulatory regimes,” the authors write.

How are Microgrids Regulated in Tennessee?

Two key players regulate electricity in Tennessee: the Tennessee Valley Authority (TVA), which is governed by federal law, and the Tennessee Public Utilities Commission (TPUC), which is governed by state law. The TVA generates and transmits wholesale electricity through most of Tennessee and regulates local electricity distribution within its territory. The TPUC regulates the few non-TVA-customer electric utilities. Because of TVA’s large footprint in the state, the TPUC has limited authority over electric utilities and microgrid development.

The authors detail the regulatory reach of both entities and assess to what extent these regimes currently regulate microgrids. They point to Erlanger Baroness Hospital’s microgrid as an example of one that is TVA-approved (and, in this case, funded), but also note that the dearth of large microgrid projects in the Tennessee is likely the result of uncertainty about the ability of local power companies to encourage such projects in TVA territory.

The authors also point out that most microgrid projects exist in a regulatory gray area. TVA’s contracts with local power companies create some limited flexibility for distributed generation projects, but larger microgrids may have to navigate local power companies’ contractual caps on alternate energy supplies. Additionally, for microgrids serving multiple customers, the risk of being deemed a public utility under state law—which would likely prohibit the microgrid from selling electricity in an existing utility’s service territory—is acute. With the exception of nanogrids, which serve only one customer, microgrid projects face an uphill battle to deployment in Tennessee without TVA support or state regulatory clarity.

What Can Tennessee Do to Promote Microgrids?

“Tennessee lags behind other states when it comes to microgrid deployment,” the authors write.  Despite the challenges presented by the current regulatory regime, microgrids represent a potentially effective approach to meeting the state’s energy needs.

The paper offers a few recommendations to removing these obstacles, starting with TVA policy and state legislation that expressly address microgrids. The authors suggest that adding language “in the Tennessee Code defining microgrids and discussing their oversight within the state would reduce confusion about the overall place of microgrids in the statutory scheme.”

They also advocate for additional clarity from state lawmakers and regulators about whether and what types of microgrid projects qualify as public utilities. Other recommendations include the reintroduction of the Green Power Providers Program, which allowed customers to sell power from rooftop solar and private renewable installations to TVA, and TVA leadership in developing new microgrid projects within its territory.

“Microgrids have numerous benefits for Tennessee’s electric system, ranging from reducing overall demand and corresponding emission of pollutants, to providing cleaner energy alternatives for generation, to improving system efficiencies and grid reliability,” the authors conclude. “It is in Tennessee’s best interest for TVA and the state to encourage such projects, or at least provide regulatory certainty for those interested in developing microgrids.”