What's a microgrid?

The DOE defines a microgrid as a group of interconnected loads and distributed energy resources within clearly defined electrical boundaries that acts as a single controllable entity with respect to the grid. They include one or more DERs asset classes that produce power such as solar panels, wind turbines, CHPs, generators or others and in addition, many newer microgrids contain energy storage as well.

The main distinctive characteristic of microgrids is that the restricted group of energy sources and loads can operate at grid-connected or islanded modes vs common centralized grids that deliver electricity from power plants to consumers over long distances via transmission and distribution lines. While microgrids can run independently, most of the time they don't unless they are located in a remote area where there is no central grid or an unreliable one.

As well as defining what a microgrid is, it's also useful to specify what a microgrid isn't. As we've already seen during our DER management forum series, terminology in the space is quite vaguely used…

Short-use emergency systems such as back-up generators and/or storage deployments aren't microgrids if used isolated. Microgrids can manage and supply energy to their customers 24/7 through the aggregation and management of different DER assets for several days and sometimes even weeks.

Virtual Power Plants (VPPs) differentiate themselves from microgrids as well since this type of aggregation and management software works on DERs already deployed in the centralized grid and are meant to mimic capabilities of a traditional power plant control room but without being designed to be islanded if needed. To enable this, microgrids depend on additional hardware inverters and switches to ensure on-site power flow and power quality management. Besides, VPPs can be put together using assets connected anywhere into the grid while microgrids are geographically restricted to a particular location. And finally, one of the VPPs key characteristics is market participation of the aggregated assets focusing on maximizing economic value while microgrids, on the other hand, are more focused on the end-user power supply.

Figure 1. AC / DC microgrid topology

Why should you care?

Over the last century, massive centralized power-producing assets have generated energy and delivered it through long distances to where it was meant to be consumed. Delivering power from far away is inefficient because part of that energy, sometimes in the not negligible two-digit percentage figures, dissipates on the way. On the contrary, microgrids generate, sometimes store, and consume energy locally making the whole process much more efficient, greener, and providing the platform for further distributed renewable generation deployments.

Another key feature we've already mentioned is the islanding capability which is directly associated with a topic that has been in the spotlight for a while after an ever-increasing harshness in climate conditions: resiliency. Microgrid settings allow them to supply power to their customers when a storm, wildfire or other PSPS type of events occur due to severe climate disasters that produce an outage on the central power grid. In the US, the central grid is especially prone to outages because of its sheer size and interconnectedness.

Customizable microgrid deployments based on client’s needs have been, at the same time, a pro regarding the fulfilment of those specific needs but also a con regarding the difficulty in achieving cheaper, highly scalable solutions vs other rigid structures. Main needs may include maximization on electric reliability, clean energy supply and sometimes even trying to achieve the lowest energy prices or some other outcome. The central controller or orchestrator achieves these goals by smartly increasing or decreasing the use of any of the microgrid's resources or combinations of those incorporating grid information input if needed. For example, an advanced controller can track real-time changes in the power prices on the central grid and act accordingly. If energy prices are low at any point, it may choose to buy power from the central grid to serve its customers rather than use energy from local resources and use those to charge its battery systems.

A significant and underlying point still missing clear definitions and highly variable based on objectives, is the business model behind the deployments of microgrids at scale as the technology further develops in hand with regulatory incentives. As we've mentioned in our last forums, resiliency is a difficult element to price and monetize on… Some of the traditional business models and other new ones gaining traction include:

• Utility Rate Base (URB): Traditional utility funding for new infrastructure.
• Owner financing: Approach used especially in segments such as institutional microgrids for college universities and hospitals.
• Government funding: Usually focused on serving specific public needs such as disfavoured community resiliency or remote energy access where the primary source of funding is through direct government grants.
• EaaS: This model provides the "aaS" no upfront cost feature through the use of PPAs and other approaches such as pay-as-you-go.
• There's new interesting model on the utility ownership side. To further manage residential assets that can be part of the microgrid, the utility retains ownership of residential PV + storage assets which allows standardization both on assets and on software, have known use with them and include them in their own DER roll out programs lowering risks and building confidence.

Global perspectives

According to Guidehouse, the microgrid market is expected to grow into a USD 39.4 billion market by 2028. As natural disasters become more frequent and investors look at different strategies, new opportunities are emerging for microgrids around the world. The Asia Pacific market is driven by a lack of robust grid infrastructure whereas, in further developed nations with reliable grids, the focus is on grid-tied systems and other DER platforms such as VPPs. The biggest player out there comes into play since the State Grid Corporation of China announced an initiative in 2019 to build microgrids under the rationale of a non-wires alternative, given its stated mission to provide reliable electricity to all customers.

Below you can find the estimated annual total microgrid power capacity and implementation spending by region from 2019 to 2028 with a clear leading role of APAC and North America.

Figure 2. Microgrid global market forecast 2019-2028

A recently interesting project on the global microgrid landscape made it to the headlines which can be considered as the holy grail in the clean energy space. Australia's Horizon Power partnered with PXiSE and showed they could power a town of 848 people without generators for 80 minutes entirely on solar and battery power. Other communities and even entire countries such as Costa Rica can claim 100 percent renewable-energy-powered operations, they rely on spinning generation from hydropower, geothermal power or biodiesel-fueled generators. PXiSE used the massive streams of sub-second data from phasor measurement units to coordinate the time and location-dependent variables that inform how the orchestrated inverter operations must be carried out. This type of project clearly shows the huge advancements the space is going through accomplishing previously unreachable challenges.

US perspectives

Figure 3. US extreme weather events causing 1B+ USD in damages. Source: Wood Mackenzie Grid Edge Service and NOAA

Significant extreme weather events are becoming more frequent with the average amount doubling from 2000's to 2010's. These events derive in massive outages as seen this year in Texas and are a big call out to further actively work and strive for enhanced resiliency. Capability in which microgrids can come in hand to complement other solutions.

Data shows a clear correlation between extreme weather events and total installed microgrid capacity additions per state as seen below.

Figure 4. Top microgrid markets by capacity (2019-2020). Source: Wood Mackenzie Grid Edge Service

In 2009, the Obama administration passed an executive order pushing the federal government to cut GHG emissions which established government-focused microgrids as a consistent market since. A similar order by the Biden administration targeting federal government facilities to consume 100% 24/7 clean energy can have similar implications further boosting this market and laying the foundations to strive for fully clean transactive energy. As mentioned before, microgrids can now be designed to deliver several days of resiliency in island mode, a capability which is required and challenged after this order on military facilities with 2-weeks requirements.

To further develop and support the space, US Rep. Jimmy Panetta has introduced a bill into the House of Representatives that would create a 30% microgrid tax credit. The tax credit would run through 2025 and then phase down each year to 10% by 2028 and sunset in 2029. An interesting fact is the wide range of microgrids targeted since the benefit would apply to microgrids with generating capacity ranging from 4 kW to 50 MW.

As the solar PV industry at the beginning of the 2000's had the right ingredients and motivations to kick-off but still struggle with high prices and low standardization, all of the mentioned above support the microgrid market trend for wider adoption in upcoming years and become a real macro solution for resiliency and other specific applications.

Future Darcy forum

After we finish with our DER management series targeting DERMS, Aggregators and Virtual Power Plants (upcoming forum), we will be focusing on Microgrids to discuss all of the above and much more. If you are interested in sharing experiences, are willing to present a utility project during the forum or have any comments, please reach out!

For further DER channel coverage, please visit our DER master framework.