Mighty Microgrids

Friday, April 22, 2016
Matt Grimley & John Farrell

Executive Summary

The electric grid is no longer a 20th-century, one-way system. A constellation of distributed energy technologies is paving the way for “microgrids,” a combination of smart electric devices, power generation, and storage resources, connected to one or many loads, that can connect and disconnect from the grid at-will. 

Expanding Uses

For years, microgrids were most common at hospitals and military bases — places that require more reliability than the aging grid offers. Today, microgrids are increasingly used for more:

  • To integrate very high portions of renewable energy, such as Kodiak Island (Alaska) or Stafford Hill (Vermont).
  • To manage energy costs or “arbitrage” to buy energy from the grid at low prices and self-generate when prices are high, such as the University of California San Diego.
  • To provide resilient and safe public spaces during times of natural disaster, including many new microgrids planned in the wake of Hurricane Sandy.

Opportunity to Grow

The economic case for microgrids grows as the cost of distributed generation and energy storage continue to fall. Some companies already offer turnkey “nanogrids” that serve a single building. Larger, community microgrids are also being built, testing out the technology, and the business and legal models. A few states such as New York and California are changing the rules and offering funding to accelerate development of microgrids.

Why Microgrids Face Macro-Problems

Unfortunately, policy and political pressures may inhibit growth of nanogrids and larger microgrids. Nanogrids face many of the same barriers as distributed solar, including utility attempts to reduce the financial benefits, shifts to fixed charges, or slashing net metering compensation.

Microgrids, particularly those that connect multiple buildings (and cross public rights-of- way like streets) face larger problems. Five particularly large barriers loom large:

  1. Microgrids are undefined in most state laws, leaving legal uncertainty about whether they will be classified and regulated as utilities.
  2. Microgrids may run afoul of state laws prohibiting sales of electricity by non-utility entities.
  3. Microgrids may have particularly challenging interconnection issues that are not addressed by single generator interconnection rules.
  4. Microgrid controllers, the "central brain,” have typically been individualized, inhibiting easy replication and increasing cost.
  5. Microgrids may have few revenue streams if there aren’t markets for services such as voltage control and frequency regulation. Additionally, depending on microgrid ownership (the utility, a public entity, a private company), it’s unclear how the benefits should be shared.

Microgrids are just one more way that the grid is becoming democratized and miniaturized. To some extent they are unstoppable, the continuation of economic and technology trends favoring local, decentralized power generation.But microgrids are also a unique challenge, a “back to the future” moment that runs afoul of decades of policy centralizing ownership and control of the electricity system. State policies are at best ambiguous and at worst hostile toward microgrid development. Whether microgrids will be mighty depends on whether the rules will change in time to allow it.