The State of the Microgrid Market: Promise and Present Realities

If, as Navigant Research suggests, the global microgrid market will exceed $40 billion annually by 2020, where is all the capacity going, and what’s fueling it (literally and figuratively)?

Peter Asmus, a long-time researcher of smart grid technologies at Navigant, shared that market projection and others at the 4th Military & Commercial Microgrids Summit in Washington, D.C., July 17 to 19. Navigant’s study of the microgrid technology sector (part of the larger smart grid sector) finds that North America is still leading, with 6 GW of total microgrid capacity expected to be installed by 2020. Other growth regions are islands, Japan, and South Korea. Europe, Asmus said, has traditionally had fewer reliability problems than North America and so has focused more on “virtual power plants” (more widely dispersed distributed generation and demand-response loads that are controllable as a single “unit”).

As in many nascent technology fields, there isn’t complete agreement about what various terms mean. For example, when does a “microgrid” become a “nanogrid”? Is a microgrid any two connected electrical components, as I heard one presenter claim?

Traditionally, the U.S. Department of Energy definition of “microgrid” has been the most commonly accepted one: “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.” (See this new DOE webpage for a primer on microgrids.)

Microgrids can be powered by any number, type, or combination of generation sources, from fossil-fueled generator sets to solar panels and batteries. As the DOE explains, “A microgrid generally operates while connected to the grid, but importantly, it can break off and operate on its own using local energy generation in times of crisis like storms or power outages, or for other reasons.” It’s that ability to disconnect from a disrupted grid in order to continue delivering power to loads that makes microgrids so attractive to customers from data centers with extreme reliability needs to college campuses and communities seeking “islands” of power during disasters.

Is It Bigger Than a Breadbox?

As for “nanogrid,” that term is even more ambiguous. Some try to define nanogrids by size—perhaps up to 1 kW or not over 5 kW. Some even argue that every laptop and USB device constitutes a nanogrid, Asmus explained. Calling any electronic device a nanogrid seems a bit silly (considering that the traditional “big” grid provides electricity to power any sort of device, thereby delivering application-agnostic service), but considering individual networked buildings nanogrids makes more sense. Such nanogrids are often deployed within microgrids, according to Asmus.

Another category of nanogrids is cellphone towers, which—particularly in developing parts of the world—become de facto charging stations.

Navigant finds that North America is the smallest nanogrid market, because most such installations are off-grid. The largest growth areas for nanogrids appears to be in the Middle East and Africa as well as the Asia Pacific region. Nanogrids, at least when they are permanently separate from the grid, raise fewer regulatory issues, Asmus said.

Technology Components

Though diesel gensets have the longest track record for generation in microgrids, gas turbines (especially on educational and commercial campuses) are also common, especially in combined heat and power configuration. More recently, Asmus pointed out, the trend is to add solar photovoltaics to diesel installations to lower fuel costs (while ensuring power availability when the sun doesn’t shine).

Storage is the killer app for many microgrid applications. Though prices are coming down and technology options are increasing, for now, most developers rely on familiar lithium-ion batteries. With cheaper energy storage, more microgrids will be better positioned to participate in emerging ancillary services markets, which will improve their business case. Those ancillary services markets also provide a stable, recurrent revenue stream, noted Dirk van Ourwerkerk, a partner at Anbaric Microgrid.

As for the smart meters, sensors, and controls, those components are becoming widely used in other grid applications as well and are largely off-the-shelf elements.

Several presenters noted that the technology challenge is not at the individual component level; it’s the combination of technologies that poses the challenge. Having individual technology partners and end customers take on more of the performance guarantees can help manage risk for developers, Dirk van Ourwerkerk suggested. For microgrids, he claimed, the EPC (engineer, procure, construct) model is a problem because 80% of the risk is outside of the developer’s expertise.

Hype, Hope, and Hurtles

Several attendees commented that there has been a lot of hype over microgrids lately, including coverage in The Wall Street Journal. Another indication of growing interest: attendance at this summit was 50 to 60 in 2013 and approximately 120 this year.

But there was also general agreement about the reality that “making the business case work” is crucial for growing the market. Asmus and others noted that utilities’ historic “anti-islanding” bias has proven a challenge, as have subsidies for other, more conventional fuels and generation configurations. There are no widespread integration policies or business models for microgrids. There aren’t even clear controls technology “winners,” which is not necessarily a bad thing. In spite of the fragmented and difficult market, microgrid popularity continues to grow.

Though less than a handful of utilities were in attendance, some utilities are starting to look seriously at microgrids. Asmus noted that Duke is trying to build a microgrid with off-the-shelf components, and utilities in the Northeast are looking to microgrids as part of their efforts to make the electricity system more resilient.

Nevertheless, several speakers commented that the local distribution utility is the biggest obstacle and must be brought on board early in any development process. The utility is also the reason that micro or nanogrids existing behind a single meter are the easiest to deploy.

Speakers and attendees at this year’s microgrid summit weren’t voicing grandiose claims that microgrids would supplant the continental grid and traditional utility business models, but all indications point to the fact that one way or another, the “big” grid and the microgrid have a lot to gain from each other if they can find common ground for connection and operation.

Something for Everyone

In a panel on financing microgrids, moderator Todd R. Coles, partner at Troutman Sanders LP, launched the panel discussion by saying that microgrids offer something for everyone, as they provide energy security, support social policy, and provide grid support.  The catch is financing them, especially as there is no single model or market for doing so.

Some companies, like NRG, are looking at microgrids as part of their effort to “drive breakthrough generation” and come up with new ways to make money, explained NRG Energy’s director of strategy, Nick Haschka. Others, like Anbaric Microgrid, are getting into the field as a transmission alternative, according to van Ourwerkerk. Today, 90% of microgrids are built by end customers, van Ourwerkerk said, but the market is larger if third-party financing is involved.

In response to an audience question, Jeff Weiss, co-chairman and managing director of Distributed Sun LLC, said the best prospects for growth in the microgrid market is where resiliency and price come together. Microgrids only work if they are financed, he said, and they will only be financed if the technology is proven, resilient, and reliable, which is why there’s a lot of solar generation involved; capital markets will only finance what they know, he added.

Another area for growth, according to van Ourwerkerk, is the industrial segment, where many of the components of a microgrid already exist. People think of microgrids as a 0 or a 1, but many sites have elements of a microgrid, even if they are not extracting the full value of those assets, he explained.

For more coverage of this event, see:

Interest Growing in Commercial and Community Microgrids

Military Microgrids: Wanted and Needed but Tough to Deploy

Islands Are the Low-Hanging Fruit for Microgrids

Gail Reitenbach, PhD, Editor (@GailReit, @POWERmagazine).