Microgrids – moving towards large scale commercial deployment

The falling costs of renewables and energy storage are making microgrids more commercially attractive.
Published: Sun 13 Aug 2017

Microgrids are considered a key component of the decentralised energy system with their potential to bring resilience and other benefits to the grid and to support the development of smarter communities.

However, according to a new white paper from the Global Smart Grid Federation (GSGF), microgrids are only now reaching the point of readiness for commercial deployment - due principally to the fast falling costs of renewable energies and energy storage.

The GSGF’s focus is on grid connected microgrids that can be islanded or controlled to minimise the effect of intermittent generation on the grid, or what have also been called smart microgrids.

Components of a microgrid (Source GSGF)

The number of such microgrids to date isn’t specified but constitutes probably a relatively small proportion. Navigant Research’s latest tracker counts more than 1,800 microgrids in operation, under development and proposed in 135 countries. Of these 45% are remote microgrids.

Microgrids on islands and in remote areas for electrification obviously have a completely different set of economic drivers.

Microgrid challenges

The white paper reviews several microgrid cases, noting that these were all built fully or partially on external financial support, such as through subsidies from government.

These include increased renewables penetration demonstrated in the Los Alamos microgrid in the US; increased resiliency and security in Nice Grid in France and the Maale Gilboa microgrid in Israel; the provision of economic benefits from the energy market and bill reduction in Alectra Utiltiies’ POWER.HOUSE microgrid in Canada; and an alternative solution to grid investment in the Penetanguishene microgrid also from Alectra Utilities and Con Edison’s Marcus Garvey microgrid in the US.

In addition to the cost factor, the other key barrier identified to commercial deployment is regulatory and in particular pertaining to the business models and how and by whom the services and values provided by microgrids are valuated and remunerated.

Microgrid recommendations

While the prices of renewables and especially storage are expected to further decrease in the next several years, the white paper proposes some additional options for improving the economics of microgrids.

These include a greater shift to modular and scalable options away from the usual customised solutions and continued efforts towards standardisation of control and communication technologies, which should enable multi-vendor microgrid systems.

Peer to peer trading is another growing opportunity as distributed energy resource penetration grows, and blockchain has the potential to void the need for an energy trading centre, further reducing the microgrid’s costs.

However, along with cost reductions, microgrid business models must be developed in tandem with regulatory and market structure reforms, the white paper states.

The conventional power grid and existing regulations were not designed for distributed local solutions and technologies. Thus, there remains uncertainty surrounding how microgrids should be treated under the current regulatory framework and for example, by whom they can be owned and operated and the procedures for interconnection to the grid.

Clarifying the functions and ownership models of microgrids through regulation is critical. Additionally, the services and values offered by microgrids should be properly evaluated and remunerated, for example, by allowing microgrids to participate in various electricity markets.

"It is clear that the commercial deployment of microgrids has struggled due to high costs and uncertainty surrounding their business models,” states a GSGF statement. “However, with the ongoing cost reductions and changes in regulatory frameworks to encourage microgrid business models, microgrids will shift from pilot to commercial deployment.”

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