Microgrids have long been viewed as bespoke energy systems mostly deployed by universities, hospitals, and corporations looking to ensure power reliability and reduce costs. Widespread outages caused by major named storms, such as Sandy in 2012 and Maria in 2017, demonstrated the essential role microgrids can play in maintaining service continuity, with some communities sustaining power through local generation even as millions lost power.
Despite the value they’ve provided to both utilities and customers, microgrids have not been deployed at the scale and pace many expected. Across the U.S., utilities have largely remained stuck in the pilot phase, testing individual projects but failing to capture the broader system-wide benefits microgrids can deliver when deployed efficiently.
As extreme weather events grow in frequency and intensity, and the cost of power and traditional grid investment grows, microgrids are gaining attention as a unique tool for utilities to maintain reliable power while providing additional customer benefits.
Why Microgrids Matter for Utilities
Microgrids offer utilities a range of strategic and operational advantages that go far beyond backup power. As electrification grows and climate pressures intensify, their value to the entire system beyond the microgrid boundary increases. In the event of service disruption, microgrids can operate independently to keep critical facilities online and support more targeted service restoration to speed up grid stability.
Elegantly-placed microgrids can offset the need for more costly grid infrastructure upgrades that address reliability, resilience, and system capacity challenges. Pacific Gas and Electric has deployed microgrids in wildfire-prone regions in California to maintain power during planned safety shutoffs. Duke Energy has deployed microgrids at the end of long power lines in hurricane zones in the Southeast U.S. prone to frequent outages to offset the need for a full rebuild and hardening of the power line. And San Diego Gas & Electric is operating a microgrid in Borrego Springs, California, providing roughly 3,000 customers with backup solar, battery, and generator power to strengthen reliability in a wildfire-prone region.
Compared with private developers, utilities have an important advantage when it comes to planning and optimizing microgrids. They have access to system-wide data on outages, customer consumption, and power costs, allowing them to accurately evaluate how microgrids fit within larger grid planning strategies. By integrating microgrids into their capital planning processes, utilities can transform these projects from isolated pilots into essential tools for grid modernization.
The Challenges Holding Utilities Back
While the case for microgrids is strong, utilities face several structural, regulatory, and operational challenges that have slowed large-scale adoption. Understanding these barriers is key to identifying where change needs to happen.
Structural. Utilities have not built internal processes and capabilities to assess microgrid potential at scale. Utilities have several instruments, such as grid-hardening, upgraded substations, and peaker power plants that are their ‘go-to’ when solving grid issues such as resilience and demand growth.
Regulatory. Many utilities operate under regulatory frameworks that were designed for a centralized grid model, making it difficult to recover costs or earn returns on distributed assets like microgrids.
Operational. Integrating microgrids with existing grid systems remains technically complex, given enhanced telecommunication and coordination needs.
Technical complexity further limits scalability. Microgrids have historically required resource-intensive feasibility studies and customized engineering often performed ahead of economic viability assessments, which can slow progress. As a result, many utilities ultimately abandon projects that might have been viable under a more systematic assessment process.
How Utilities Can Scale Microgrids
To realize the full potential of microgrids, utilities will need to take a more proactive role in shaping how these systems are planned, financed, and deployed. Early in the planning process, utilities should assess the economic viability of each site by modeling the full value stack of a microgrid to weigh trade-offs and optimize returns ahead of detailed technical engineering. Utilities should plan for microgrids to be a ‘tool’ in the toolbox and assess microgrids using a portfolio approach rather than one-off pilot programs. Limited capital budgets make it essential for utilities to focus on the most valuable microgrid sites, yet the absence of a common evaluation framework can make comparisons across locations challenging. As utilities complete their economic evaluations, they should prepare clear, concise financial summaries for each site to help regulators understand and validate that capital is being allocated effectively.
As the grid faces mounting pressures from extreme weather, growing electrification, and rising renewable integration, microgrids offer utilities a practical way to strengthen resilience and modernize operations. No longer just backup systems for individual facilities, microgrids are becoming integral components of a more flexible and adaptive grid architecture. For utilities, leading in microgrid development represents both a strategic opportunity and a necessity. By approaching projects with a clear economic framework, prioritizing high-value sites, and engaging early with regulators and partners, utilities can deploy microgrids at scale while maintaining cost discipline. The result is a more distributed, reliable, and sustainable energy system that supports customers, communities, and long-term grid stability.
—Martin Szczepanik is an expert in Energy & Resources at Baringa.
