Microgrids: From Niche to $100 Billion Market

ABB’s Longmeadow microgrid in Johannesburg, South Africa.

Energy experts at Navigant Research are convinced that micro-grids are moving from a niche novelty to mainstream, writes Fereidoon Sioshansi, publisher of newsletter EEnergy Informer. They forecast cumulative micro-grid investments of over $100 billion over the next decade, much of it in North America and Asia. Europe is lagging behind, but Finland may represent a growth market. Sioshansi takes a closer look at what microgrids are and how they are poised to shake up the electricity sector.

The first challenge with micro-grids is to decide on a definition. Not unlike smart grid, it means different things to different people. A recent analysis performed for the California Energy Commission (CEC), for example, identified 17 definitions attributed to a variety of organizations including International Council on Large Electric Systems, or CIGRE, using its French acronym. Other terms such as mini-grid, nano-grid and virtual power plants (VPPs) are also commonly used.

Virtually all mostly refer to the ability to optimize and aggregate distributed energy resources (DER) in one form or fashion.

Acknowledging the definitional issue, Peter Asmus, an expert on the topic at Navigant, suggests using one from the US Department of Energy (DOE), recently modified to include off-grid remote systems, which have historically dominated the global micro-grid market. It says, “A microgrid is 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. A microgrid can connect and disconnect from the grid to enable it to operate in both grid-connected or island mode. A remote microgrid is a variation of a microgrid that operates in islanded conditions.”

The key feature of a microgrid, according to Asmus, is the ability to island or disconnect from a larger grid when there is an outage or when it is economically advantageous to do so. 

Definition aside, where are microgrids being deployed and why? According to the 13th edition of Microgrid Deployment Tracker published by Navigant Research in Dec 2017, over 20 GW of projects or portfolios of projects have been identified worldwide.

At present, no central agency or organization accurately and comprehensively tracks microgrids – hence one cannot be sure how many are operating, under development or proposed worldwide. Though incomplete, the Tracker is the most comprehensive tally of microgrids by region and segment available.

According to Navigant Research, Asia Pacific leads, followed by North America. The former tends to be mostly remote, off-grid systems, whereas the latter – particularly those in the US – tend to be connected to a utility grid.

The North American market, according to Asmus, is the most interesting region over the last 5 years due to recent extreme weather conditions leading to major power outages. This has resulted in increased interest – and funding – to maintain vital services during emergencies. In some cases, the micro-grids can in fact enhance the resilience of the macro-grid, to which they are usually connected.

Connecticut was the first state to pass a law promoting microgrids in 2011. Since then Maryland, Massachusetts, New Jersey, New York and others have enacted programs, as has California, which recently issued an RFP [request for proposal, a type of tender, editor] with $44 million funding to develop low-carbon microgrids. With recent storms knocking out power in Texas, Florida and Puerto Rico, other states are likely to follow.

Most such programs are focused on community and utility distribution microgrid projects, which face the most challenging regulatory barriers. Asmus, however, believes that the commercial and industrial (C&I) segment is poised for major growth. The primary reason is the declining cost of key enabling technologies, such as solar PVs, wind, energy storage systems (ESS) and the proliferation of new and creative business models that are increasingly able to monetize more of the value of such systems and capture them.

The most vexing conundrum facing microgrid development, according to Asmus, is financing – unsurprisingly. Among the promising C&I business models is Schneider Electric’s microgrids-as-a-service offering. By taking on the risk for performance and removing the upfront capital investment, the vendor can make the value proposition more attractive. Variations on this theme, including a combination of DERs (distributed energy resources) plus intelligent distributed ESS are beginning to gain traction among C&I customers.

Some proponents of Micro-grids argue that the best way to grow the market is not only to allow, but encourage utilities to invest in

s such systems just as they do with other infrastructure: by putting those costs into customer rates. Some utilities have been successful in this effort, among them the pioneering San Diego Gas & Electric Co. (SDG&E) project in Borrego Springs utility distribution microgrid. Others, however, have confronted regulatory skepticism and rejection, including Baltimore Gas & Electric Co. (BG&E), Commonwealth Edison Co. (ComEd) and others.

For their part, the regulators, many of whom do not understand, let alone appreciate the full value of micro-grids, are reluctant to allow utility rate-basing of microgrids until and unless they can be assured of the cost effectiveness of the schemes – and assurance that the benefits are widely shared among all customers, not just a select few.

The key question for regulators, according to Asmus, is to be sure that the dollars invested in microgrids provide system-wide benefits that justify the expense. How long before that critical milestone is reached is anybody’s guess.

In the meantime, Asmus believes that the private sector will lead the market, but he is optimistic that utility, and more importantly regulatory acceptance of micro-grids, will occur within the next 3 years.

This is among the reasons that Navigant Research is forecasting cumulative micro-grid investments of over $100 billion over the next decade. It is convinced that micro-grids are moving from a niche novelty to mainstream. Many others concur. Whether we call these micro-grids or by another name may not matter as much as the emerging consensus that much more is likely to happen on the customer end of the business. Regulators can encourage and facilitate the transition process by providing better clarity and regulatory support.


Source : https://www.theenergycollective.com/fereidoonsionshansi/2421442/microgrids-niche-100-billion-market

Smart Grid Bulletin July 2019

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