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Editor's note: This is the final installment in a three-part series. Part I can be viewed here and Part II here.

Microgrids may well become a platform for integrating technologies such as distributed generation (DG) and energy storage, enabling these and other innovative applications. Will microgrids serve utility needs, or will they enable utility customers to break away? Can microgrids be implemented to the benefit of both utilities and customers?

Despite these uncertainties, a recent IEEE Smart Grid survey conducted by research firm Zpryme found that smart grid executives expect microgrids to play a larger role in energy services in the years ahead.

In this article, I’d like to note the survey results and explore a few issues raised by the expectations the survey revealed.

Microgrids, defined
Microgrids typically are thought of as self-contained energy systems with the ability to operate independently of the grid, either as standalone systems or, if grid-tied, by “islanding.”

Microgrids are likely to be powered by distributed generation, which could be fossil-fuel-driven (likely diesel) generators and/or renewable resources such as wind, solar photovoltaics, fuel cells or other means. Energy storage would add a logical component. Typically, microgrids also include load-management functionality to manage the supply/demand mix. Drivers for microgrids range from the business case to policy to “energy surety,” depending on the sponsor. 

Because microgrids can serve non-utility sponsors, the allure of self-sufficiency would appear to challenge traditional utility interests. The more self-sufficient a utility customer becomes, the less power it buys. Yet, as we’ll see, microgrids can serve both the utility and the sponsor; currently, that is the path of least resistance to adoption.

Top 3’s
The IEEE Smart Grid global survey of smart grid executives cited three top benefits of microgrids: energy security/surety, renewable energy integration and supply/load optimization. In addition, respondents said the top three industries likely to employ microgrids include hospitals, government and utilities.


Common use cases will make our subject more tangible.

“Energy surety” or continuity drives microgrids for military bases, industrial plants and facilities and campuses (hospitals, corporations, universities, national laboratories).

The U.S. Department of Defense (DOD) is a leading adopter of microgrids for stationary bases in order to meet its obligations to protect the American people and their allies. The business case is subordinate to mission criticality. 

In contrast, certain industrial plants and facilities (ports, mining, refineries, airports) and campuses must have uninterruptible power to ensure the continuity of productivity, the safety of patients and/or the protection of assets. Energy surety and its costs typically are set against the cost of the consequences of power failure.

Campus-like facilities are exploring microgrids, especially where the high cost of grid-based electricity makes a self-contained system offering a mix of DG and load control an attractive proposition. The same is true for isolated, off-grid communities in environmentally sensitive areas (think Alaska or islands) where fossil fuel must be shipped in at great cost.

Finally, utility-controlled microgrids can take advantage of islanding to reduce load on a stressed grid and/or defer capital investment in capacity or to meet load growth through a line extension.

The utility angle
I spoke with my colleague Eliot Assimakopoulos, microgrid commercial leader for GE Digital Energy, about the benefits and challenges to utilities posed by microgrids.

“In the past, distributed generation projects tended to present a threat to the incumbent utility,” Assimakopoulos said. “When microgrids and their potential value to the utility are clear, that resistance decreases. That value includes meeting peak load constraints and load shifting to defer capital investment. A microgrid must bring value to the utility to get a positive response.”

The use of technologies such as microgrids to defer capital investment in infrastructure typically is referred to as “deferral opportunities,” which could provide utilities with ancillary benefits with monetary value such as frequency regulation.

In fact, if certain factors line up, a microgrid can help a utility optimize its available resources, while maximizing the use of renewable energy, limiting greenhouse gas emissions and still meeting load requirements. This approach is being explored in Maine and California. In contrast, in Connecticut, a number of non-utility, potential microgrid sponsors are looking at microgrids to bolster system reliability and resiliency in the wake of devastating storms.  

The expectations
The IEEE Smart Grid survey respondents expect the European Union to see the most near-term growth in microgrids. That expectation appears to be based on the region’s aggressive mandates to limit greenhouse gas emissions and integrate renewable energy. The rub is costs. If the EU backs off its environmental mandates for economic reasons, that would remove a key driver for microgrids.

In North America, in the absence of policy drivers, the challenge for utilities is to develop a positive business case. This is certainly possible, but only when multiple factors mentioned above line up in a utility’s favor. Should policy drivers develop, they will remain fragmented; the U.S. has 50 state-level public utility commissions.

On the institutional side, value-proposition-related factors across the fragmented public and private sectors make projections difficult. Institutions trying to “green wash” to meet shareholder or public expectations have a mixed bag of drivers and the business case is less clear.

In all cases, microgrids’ value proposition - particularly for utilities - is positively affected by the continued low cost of natural gas.

“You're going to see more combined heat and power (CHP) natural-gas-fueled projects at the distribution level over the next couple of years, which will create an opportunity to better manage the system,” Assimakopoulos said. “The natural gas opportunity may create more opportunity for microgrids, particularly in their ability to optimize the supply and demand mix. That allows you to do some pretty innovative things in terms of managing the cost of peak load.”

The role of standards
The IEEE Smart Grid survey respondents placed high importance on standards for microgrids. This is particularly important to utilities with interconnection concerns. And, in fact, there's development going on in that space, around the IEEE 1547 series.


Without interconnection concerns being met, I cannot imagine much utility interest in microgrids. Utilities cannot afford to struggle with microgrid isolation, restoration and disconnection. It’s important to point out that, because microgrids enable distributed generation and renewable energy resources, standards relating to those two technologies must also be settled.

The DOD’s interest in microgrids is a powerful potential driver, but we’ve seen it approach standards with an “engineered solution,” i.e., a non-standard solution to meet a localized need. Third parties enabling such work might benefit their client by focusing on negotiated solutions that address the client’s goals as well as the local utility’s practical needs on interconnection issues.

In terms of cybersecurity standards, the Smart Grid Interoperability Panel’s Cyber Security Working Group has produced cyber-sec guidelines in lieu of standards, NISTIR 7628, which should serve the DOD’s needs.

Implementation hurdles
An understanding of how utilities and their customers might both benefit from microgrids leads, inevitably, to a discussion of mutual value. Is there a win-win here?

Remember, from the utility perspective, microgrids generally represent the potential loss of electron sales. So they need other, tangible benefits. It behooves large customers seeking to implement microgrids to understand this dynamic and to find ways to make the value proposition work for the utility as well.

“Environments where the utility faces significant local constraints that restrict growth because of limits on supply could create a win-win scenario,” Assimakopoulos pointed out, “if the local microgrid host meets its own objectives in a manner that enables the utility to defer more expensive investment or to manage their grid in a less costly manner.”

The lack of a direct benefit to the affected utility from implementing a microgrid simply makes the grid more complex to operate and can be expected to result in utility pushback.

“That’s why we temper our enthusiasm for microgrids,” Assimakopoulos told me. “Microgrids have become part of the smart grid hype cycle. Without a direct benefit to the utility, there’s likely to be resistance. We need to manage expectations.”

The upshot(s)
Ultimately, I think of microgrids as a core platform, with many potential applications that can improve the business case, particularly when the many factors discussed here line up favorably. In the platform model, opportunities for innovation abound.

This is particularly true, Assimakopoulos added, when there’s clear economic value, such as when a microgrid can replace or cut fossil fuel use where the cost of electricity sits above $0.35/kWh, or where renewables penetration is high, especially on the distribution system, and needs managing.

Beyond the thoughts expressed here on the drivers for utilities and large clients, another possibility is being developed by third parties - energy service companies, or ESCOs - to offer microgrids to utilities as an alternative to more capital-intensive infrastructure projects to handle load growth or to optimize the supply-load mix on specific parts of the overall grid.

As with energy storage, players in the microgrid space will seek more field performance data and a bundling of value propositions that make microgrids simultaneously attractive to utilities, their large customers and third-party enablers.

John D. McDonald is an IEEE Smart Grid technical expert, as well as director of technical strategy and policy development at GE Digital Energy. He is also past president of the IEEE Power & Energy Society (PES), an IEEE PES distinguished lecturer, board chair of the Smart Grid Consumer Collaborative and board chair of the Smart Grid Interoperability Panel 2.0 Inc., among other affiliations.

McDonald wrote this series to further analyze the results of a recent survey sponsored by IEEE Smart Grid and performed by market research firm Zpryme. The report, titled “Power Systems of the Future: The Case for Energy Storage, Distributed Generation and Microgrids,” can be found HERE.

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