Microgrids - More Than Just a Back-Up Plan

By realizing all of the potential value streams, microgrid investments can be structured to be more economically viable and become primary power models.
Published: Wed 12 Feb 2014

The microgrid market is expected to grow from US$10-bn to US$40-bn in estimated revenue by 2020. Successful pilot programs, lower prices for solar photovoltaic systems, and fewer regulations against distributed energy have helped to promote the microgrid.

Microgrids promise a more reliable electricity supply, especially during a disaster which often ends up crippling grid power supply. Centrally located public facilities, such as hospitals, police and fire stations, that are crucial to the public’s safety and well-being, can be linked to a common microgrid circuit which is isolated from the main power network. During a major power interruption, the public can rely on this external circuit to supply power until grid power is restored.

But, the microgrid doesn’t make economic sense if its sole purpose is to provide back-up power. It would be viewed as a greater investment if it can provide quality and diversity of services that incumbent utilities are unable to compete with.

Factor in microgrid’s potential

By providing ancillary services into the market, the microgrid has the opportunity to offer even greater potential than only supplying power during a disaster.

The potential relies on the size and location of the microgrid generation and local/regional conditions. Says Rick Wornat, Director of Energy Business Consulting at EnerNex, “If the fundamental economics can be enhanced through a more robust microgrid design and a broader economic perspective, then the chances of resolving those other issues is greatly improved – and the citizenry of a local community can be the ultimate beneficiary.”

The flexibility of microgrids

Microgrids are flexible in nature and can be designed for:

  • Interruptibility

  • Efficiency of generating sources and loads

  • A certain level of reliability and power quality

  • An environmental emissions profile

  • Enhancing economic value by selling services to the macrogrid

Microgrids can be customized to the needs of the end-user. By matching up supply and demand resources, one can tailor the performance of the network to provide specific operating or environmental performance characteristics.

Microgrids and the market

The microgrid can be used for distributed generation, and dispatched to offset high market prices. It can also produce excess energy or capacity for sale to the regional market. The microgrid also has the ability to stimulate dynamic power markets, creating power that is more resilient and cheaper.

Energy independence options

The microgrid gives the customer options to manage energy risks and optimize costs. The customer is able to optimize on-site power production based on grid costs and fuel costs of on-site generators. Customers will be able to expand fuel sources on-site, thereby relying less on utility power. In addition, there will also be a reduction in security risks associated with on-site reliance on one or two fuel types.

Microgrids attract private capital

The global microgrid sector is growing at an alarming rate. Much of the investment in microgrids will come from customers. According to research, the US microgrid market (which represents 64% of the global market), is customer-driven. While electric utilities scramble to find large sums of money to upgrade aging infrastructure, comply with environmental and renewables standards, and deploy smart grid technologies, growing customer investment in microgrids will help alleviate the pressure on utilities and rates. This will also see the grid modernized.

Microgrids improve power system efficiency

A microgrid relies on power-generating equipment located within close proximity to the consumer. This reduces high transmission losses in the transmission and distribution system and has the potential of saving energy costs by reducing total generation requirements.

These are only a few of the many benefits offered by the microgrid. As microgrid costs fall and new opportunities arise as a result, microgrid economics should improve for a wider range of end-users and their specific needs.

Engerati Analysis

The microgrid complements the current power system and its operations by adding value and flexibility. However, the right business models must be in place, providing greater benefits for all end-users. This model will gain the most traction in emerging markets where grid infrastructures are nascent.

Further Reading

Bloomberg Businessweek-Why the US Power Grid’s Days Are Numbered

GreenBiz-Can microgrids save outmoded utilities?

Smart Grid News-Energy assurance planning: The business case for microgrids

Smart Planet-Microgrids: $40 billion global market by 2020