TODAY’S STUDY: A Microgrids Primer

Microgrids: Expanding Applications, Implementations, and Business Structures

Nadav Enbar, Dean Weng, Ryan Edge, and John Sterling, December 2016 (Smart Electric Power Alliance and Electric Power Research Institute)

Executive Summary

Historically, microgrids have been employed to provide an additional layer of electricity supply reliability for customers in remote locations with limited access to the grid, or for large institutions managing campus-style energy systems. However, new interest in these systems is now emerging, driven by the changing energy landscape, specifically: nEfforts to modernize the electricity system to more effectively leverage rising penetrations of interconnected distributed energy resources (DERs)

nDesire to accommodate increased customer choice

nNeed to provide critical or emergency services, and enable greater grid resiliency in response to more frequent extreme weather events.

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This report characterizes the latest developments in microgrid deployment, the expanding capabilities of these systems, the business models being used in their deployment, and the obstacles and opportunities that lie ahead.

Because the term “microgrid” is often used to refer to a range of distributed energy systems, for this report we use the U.S. Department of Energy (DOE) definition, which is considered the standard for the industry.

The DOE defines a microgrid as: “. . . a group of interconnected loads and distributed energy resources (DERs) within clearly defined electrical boundaries that act as a single controllable entity with respect to the grid, and that can connect and disconnect from the grid to enable it to operate in both grid-connected and ‘island’ mode.”

The microgrid concept is not new; it is simply a reformulation of local power systems as they were originally designed. Like the traditional, centralized electric grid, microgrids generate, distribute, and regulate the supply of electricity to customers, but do so locally and on a much smaller scale. However, the systems themselves and interest in them have evolved.

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Microgrid Drivers

nSuperstorm Sandy and other extreme weather events in recent years have underlined the need for enhanced resiliency and reliability for critical public services—ranging from hospitals to police stations to military bases. Microgrids offer the capability to “island,” or to operate disconnected from the grid, for long periods of time and provide uninterrupted power to mission critical entities or remote rural communities.

nThe falling cost of solar power and battery storage make these technologies a compelling economic choice for microgrid installations. Additionally, they do not introduce the risk of fuel cost volatility.

nAdvances in software control systems and the desire to integrate “smart” loads—such as networked thermostats, lighting and occupancy-sensing controls, and building energy management systems—have resulted in improving microgrid control systems. These systems can collectively optimize interconnected DERs to provide a range of energy and grid services.

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Microgrid Implementation Types and Business Models

nMicrogrids are customized to their purpose and location—ranging from commercial or industrial, to military, to remote rural systems—thus, the details of their design and construction vary significantly.

nWhile the different use cases for microgrid installations are multiplying, and individual technologies are not exclusive to any one installation. Most are built to increase reliability and resiliency.

nUntil recently, a large portion of microgrids have been third-party installations serving a single customer. However, utility-owned microgrids are also being developed, primarily due to statelevel policies and directives, in tandem with technology maturity and expanding applications for these systems. A small number of hybrid, “unbundled” microgrids are also emerging.

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Microgrid Barriers And Challenges

Although the technology and equipment necessary for creating microgrids are available today, off-the shelf commercial solutions are rare. A number of technical, economic, and regulatory issues must be addressed to unlock the full potential of microgrids. For example:

nTechnical: Considerable technical challenges exist when toggling a microgrid between gridconnected and islanded modes. For example, during transition to island mode, phase and frequency drift is highly likely, which could cause loads and DERs to trip. Without a finely calibrated synchronization process, grid reconnection could damage generators and loads within the microgrid and in surrounding systems.

nEconomic and regulatory: Determining standardized methods for valuing microgrids—from either the customer or utility perspective—is difficult due to an intersecting and fluid set of economic and regulatory issues. For example, regulatory and market uncertainties affect the upfront costs and life-cycle economics of microgrids and associated DER technologies.

A second challenge is that a microgrid’s costs and benefits can be difficult to monetize, or nonmonetizable, thus complicating value stream calculations.

nStandards:Current technical standards offer guidance for microgrid development, but do not address more nuanced issues germane to system design. For example, further definition is required for protocols governing advanced protection coordination, multilayer-device communications and controls, microgrid-to-grid interactions, and grid resynchronization.

Looking Ahead

Microgrids can be justified across a wide variety of use cases based on a specific set of major drivers.

Behind these use cases, the ownership and control of the component technologies range along a continuum between the extremes of customer and utility control. Since no two markets or utilities are alike, microgrids will continue to proliferate based on unique served loads, targeted drivers, and deployed technologies.

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