Microgrids: Fact or Fiction?

Nov. 26, 2014
Transmission & Distribution World's IdeaXchange experts address the opportunities and benefits microgrids represent for utilities.

We had a tremendous response to our question on Big Data (http://tdworld.com/smart-grid/big-data-big-bust-0). We received so many well thought out and insightful comments. Now we would like to consider another topic.

Microgrids are attracting great attention these days. According to a Utility Dive study (http://www.utilitydive.com/news/surprise-97-of-utilities-see-microgrids-as-a-business-opportunity/289045/) 97% of utilities surveyed say that they see microgrids as a “viable business opportunity.” 

Our own Johan Enslin weighed in on the topic in a recent article entitled “Are Microgrids a Myth?” (http://tdworld.com/smart-grid/are-microgrids-myth). Johan closed his commentary by stating “…microgrids, with all of their promises, will surely fade into an interesting experiment if we don’t get a solution to the future utility business model.”

My question is this – Fact or Fiction: Do Microgrids represent a real opportunity for utilities and if so what will utilities need to do to realize the benefit?


It is useful to debate the future with microgrids, but it is also helpful to recognize that the electric power sector started as microgrids all the way back to Pearl Street... Back to the future with the flux capacitor!

Microgrids will likely rise in areas of high prices (e.g., California and the Northeast), and in areas requiring grid security (e.g., defense installations). In states where utilities can play in this space, it would be worthy to enter the market as it is directly related to electric utility core competency. Third parties may enter the space as well, if state regulations allow, to operate, maintain, and ensure benefits via aggregation. Regardless of who plays, distribution must and will be transformed into a more automated and smart system, perhaps seeding the advent of distribution grid operators that interface with transmission grid operators.

Microgrids also make some sense in commercial and industrial applications. One can envision, for example, a DC network fed by a microgrid in a commercial building avoiding the multiple and inefficient AC-DC conversions. But did you ever try to start a motor (e.g., HVAC system) with PV panels alone?

Microgrids should not be considered separate and apart from the grid. Interconnection standards would be required for grid connection. Market reach and economies of scale would be drivers for grid connections. If you'll recall, economies of interconnection are why microgrids went the way of the dinosaurs. Having said that, today we have rooftop solar, micro-turbines, combined heat and power, and eventually the game changer — energy storage via batteries — that will enable a microgrid renaissance. But price points for micro-sources will require market reach and aggregators to make the economics work without subsidy, and that requires grid connection.

It is my prediction (educated guess) that microgrids will grow slowly through mid-century in areas with high prices, in some commercial and industrial applications, and at installations requiring energy security, but grid connection will be a smart way to remain flexible for energy and economic choices. Electric utilities would be smart to advocate interconnection standards, improve customer reliability to avoid the issue, but get ready to provide the services needed to place microgrids in context with the grid.


Microgrids: “A collection of generation, storage and loads that can be operated as a group disconnected from the rest of the grid, in a balanced and efficient fashion. Microgrids can connect and disconnect from the rest of the grid based on economics, grid conditions, power quality and any other reason. A microgrid when disconnected can operate within typical power quality parameters balancing load and supply.”

There are hundreds of thousands of “microgrids” in North America today, all of them disconnected from the main grid permanently. In most cases, if the main grid was to pass a microgrid location, the microgrid would need re-engineering to connect. This includes at 720,000 off-grid homes, more than 200 off-grid-isolated communities in Canada and a number of remote facilities.

Microgrid technology is not new, nor is it rare. It is not a new trend. Modern microgrids typically make some assumptions that most people skip right by:

1. The cost of capital and operations is equal to or less than getting power from the typical utility grid once all of the costs of being part of the utility grid and all the subsidies are included.

2. That some portion of the heat is usable instead of a waste product, in some cases for making drinking water by evaporation

3. That some portion of the load is controllable, so that the microgrid can manage peak internally to a reasonable level of installed generation as needed

4. That it can connect during periods of low prices to the utility grid and take full advantage of the lowest-cost energy

5. That at peak wholesale pricing some of the load can be reduced and the microgrid generation sources can sell power at the peak prices

6. That there are no issues with when the microgrid disconnects and reconnects, without regard to the condition of the remaining customers when it takes either action

7. That there is an increase in reliability when the microgrid is created

8. That it is OK to turn off loads within the microgrid for economic reasons

9. That they do not operate as regulated entities

These assumptions make it possible to make business cases that a utility cannot make with typical regulatory rules.

For many reasons, microgrids can make sense. HydroOne in Canada operates dozens of remote villages as microgrids because the costs of attaching these villages to the utility grid are greater than the cost of operating them as isolated grids. Conversions from DC to AC and back again for industrial buildings that have large photovoltaic arrays may make the case for making the industrial building a microgrid (with some rotating generation machinery to provide inertia for starting motors). The addition of DC batteries into the mix greatly increases the value of being a DC-based building.

Microgrids for reliability became a huge issue after Sandy and other disasters. The real question will be for extended outages: Will fuel, controls, repairs, filters and other operations components be stocked close enough to the microgrid to keep them running beyond the initial fuel load or battery charge? Additionally, in many cases the power was restored to neighborhoods before the buildings were inspected and approved to receive power. As time goes on, only careful planning and operation of the initial microgrids in areas that are reliability challenged will make it possible to continue to push microgrids for reliability and resiliency. As we are learning in California, as the population of photovoltaic grows, the peak pricing period for power moves out of the peak period for solar-based power generation. That means that microgrids that are going to rely on selling power at peak periods that is generated by photovoltaic may struggle to meet revenue targets as the amount of photovoltaic in that area increases.

Disconnecting and reconnecting at will may end up getting heavily controlled to make sure that the remaining customers are not adversely impacted. If that happens, some of the justification for microgrids may be harder to make.

Overall, microgrids are critical to the future of the industry; they have a place – from highly power-sensitive manufacturing facilities to data centers that need almost perfect reliability to hospitals. The use of waste heat is overlooked by many in the economics of microgrids and may be very important both for economics and community security. Anyone doing economics on a microgrid cannot stop at one scenario, they have to look at range of possible scenarios from photovoltaic saturation to demand-based pricing for use of the distribution grid, to pure DC power use, to changes in tariffs, to changes in regulation and connection agreements. There is far more reward in a properly planned microgrid today than there is risk, but defining what is properly planned is sometimes difficult. Anyone jumping into a microgrid decision without looking at all the scenarios and assumptions (think about what happens if the assumption is false and the impact of that change in the assumption) is probably in a situation where the risk outweighs the rewards.

After all, without putting a large amount of non-renewable generation in Manhattan, there is no way that Manhattan can become a microgrid. The energy density is too great, even with a high level of energy-efficiency improvement. The energy-consumption density greatly exceeds what renewables could produce.

The future of the grid is neither microgrids, nor everyone connected to the utility grid; it is somewhere in the middle. The question is, where will the needle land?


In Europe, the phrase "autonomous networks" is more commonly used instead of the term microgrids, as "grids" implies something metal that you stand on and “micro” implies the metal grid is small (or my feet are small).

One of the problems in Europe is the increasing level of renewables and other embedded generation (e.g. micro CHP) on distribution networks. The main "problem" lies on LV (415/220-V networks) with PV & CHP, plus 10/11/20-kV networks mostly wind plus some MW-class PV. Upper voltage levels (33 kV/66 kV/132 kV) are more amenable to transmission-style solutions to their problems, which resolve mostly into load-flow control. (The quote: "If it was not for the embedded generation on the 33 network, it would fall flat on its face" suggests that embedded generation can be quite "useful.".

The "PV-problem" tends to manifest itself on LV-U/G networks (usually radial with some interconnection between MV/LV subs). Typical S/S sizes in Europe (e.g., UK, Benelux, France, Germany) 500 kVA with roughly 200 households per sub. This provides some indication of carrying capacities for embedded generation. The recent EU-Deep FP7 R&D project suggested that most networks could take up to 50% embedded RES (in terms of power delivered).

On O/H networks, it is difficult to generalise on power demand per feeder – 500 kW through to 3 MW or 4 MW. Renewable energy sources (RES) can usually account for 50% of load with no/minimal adjustments needed.

The current view amongst UK DNOs is that classical network control techniques (focused on maintaining supplies in the event of faults through network reconfiguration) are not scalable with respect to embedded RES since all data flows back to a central control. Easy when the focus is network re-configuration in passive situations, increasingly difficult with networks that are "active."

This inevitably leads to the concept of autonomous networks and sufficient embedded control to enable the network to "do its own thing" with respect to voltage control, power flows and, possibly, eventually, islanding in the event of faults. These are not "my views" —  these are the views of people I know responsible for network development in big Euro DNOs.

In the UK, the Low-Carbon Network Fund has been supporting various R&D projects in this area. Other projects under other programmes are taking place in other EU member states.

The "problem" is that regulators tend to dislike "socialising" costs associated with RES. This conveniently ignores the fact that in the 1950s governments where quite happy to socialise costs with respect to, for example, rural electrification (which had exactly zero economic justification). Something has to give, and ultimately, it will be the wholly econometric approach to networks.


Fact or Fiction: Do Microgrids represent a real opportunity for utilities and if so what will utilities need to do to realize the benefit?

Yes and no. They represent something of an opportunity for someone. Certainly a lot of the attention given then is now the usual “next new thing” bubble being blown up by people who want to get paid to study/be proponents for them, or who have equipment, systems or technology licenses to sell for them and thus a vested interest in selling you the concept whether it is really that good or not. But microgrids along with solid-state transformers/control hubs (the next next-new-thing) represent a real new capability and significant change in the economy of scale for local and consumer power and reliability production.

But you asked specifically about whether they are an opportunity “for utilities” and that is a more difficult question to answer. Probably not for most of them.  I cannot put it better than in my last blog. I think it likely they are one nail in the coffin of the traditional utility model and that only a few utilities, much transformed, will survice. http://www.quanta-technology.com/blogs/lee-willis/following-railroads

If they are an opportunity for utilities, pure stand-alone microgrids, as owned by utilities, will be far and few between. The future, for utilities, is a hybrid mix of microgrids mixed into and used as needed to augment the equipment (mostly a traditional system) where, when, and as needed. A hybrid microgrid is an area of a power system where the traditional system can’t do the entire job required nor can the microgrid alone. They are both more difficult to design and build and to operate, but they are where the real money is for utilities.  So I think it almost certain that there will be few pure, stand-alone microgrids owned by utilities, and there will be few pure traditional central station, non-microgrid augmented power systems.

I wrote about hybrid microgrids at length in Chapter 1 of Electricity Transmission, Distribution and Storage Systems, Ziad Melham editor, Woodhead Publishing, Oxford, 2013. You can find it electronically on sciencedirect.com but you really have to want it – they ask $31.50 just for the chapter alone.


You may want to look at the IEEE response to the DOE Quadrennial Energy Review (QER) question on “Utility and other energy company business case issues related to microgrids and distributed generation (DG), including rooftop photovoltaics.” The DOE, under the White House Office of Science and Technology Policy and the Domestic Policy Council, requested IEEE to provide insights on a specific set of priority issues, including this one.


Short, summary conclusion on this topic by the team lead by John McDonald:

Microgrids and distributed resources should be viewed as integral elements of the overall electrical grid. Traditional grids and microgrids should be purposefully integrated into hybrid grids to fulfill all the consumer needs, with transmission as an enabler to support integration of renewable resources.

The microgrid business case depends on benefits achieved for the consumer and the provider. Key aspects include costs, efficiency, reliability, safety and resiliency — all supported by and coordinated with the balance of the grid in a manner that enables the utility or energy company to defer more expensive investment or to manage its grid in a less costly manner.

Policy should support value creation, with results-based rewards, and not unduly favor either incumbent utilities or non-utility microgrid sponsors


As others have said, microgrids are not in concept something recently developed. They have been with us for years at the sites of defense installations and different types of campuses for example. What has suddenly thrust them into the spotlight, however, is the expanding application of renewables and to some extent the availability of modern electronics and other new technologies.

Despite the glamorous attraction of microgrids for solving today's electric distribution problems, fueled by vendors with a profit motive and activists seeking the holy grail, there are still challenges to be addressed. The establishment of networks of microgrids would be an expensive proposition, introduce reliability and efficiency concerns and possibly result in negative impacts to the environment. In addition, as mentioned by others, over reliance on renewable sources of energy could pose problems for starting large motors. Bottom line, for these reasons and others, the operation of microgrids would require connection to the grid.

Improved methods of storing electricity would of course enhance the outlook for renewables as they are employed in microgrids and also reduce or theoretically eliminate dependence on the grid. Nevertheless, the quest for an improved way of storing electricity goes on, as it has for some time, with no anticipated date for that eureka moment to occur.

As a former utility leader in charge of making business decisions, I would recommend to those top executives in the utility industry out there who are concerned about what is developing, hold off and do not sell the store out just yet. Even with modest success in dealing with the challenges cited above, it will be many years before microgrids and renewables will practically represent a substantial threat to the utility model of today. If anything the evolution of microgrids might depend more on the existence of the present day utility than anything else to provide interconnection capability and serve as a backup source of continuity in the event of what could happen happens.

The game changer for this advice is some major development in storage technology, which would definitely hasten the need for utilities to rethink their business model. But even then, there would be time to react, as the history of the pace of changes in the industry would support. However, I must say, if Lockheed's fusion in a box pans out, all bets are off.


Microgrids present a real opportunity.  The major reason for its existence is so that all or much of the control is local thereby potentially increasing the chance for more reliable power delivery to the home.  This may or may not be more economic; in fact, everything we know so far has confirmed that centralized sources of power are much cheaper. However, if you take the conversion process of coal into energy and the losses from transmission and distribution, the overall efficiency factor from source to consumption is about 33%. This means that the barrier to entry is not that high for other sources of energy if their price or performance is brought up a little more.  However, right now, much of the justification for microgrids is based on reliability, which means that for more reliable power, people are willing to pay more. This is even more prevalent in second- and third-world countries where the power supply is not that reliable — virtually every apartment complex and/or hotel and/or commercial complex has their own localized control mechanism to keep critical loads operational upon loss of utility-side supply which at times can happen several times a day.

I hear too much discussion about potential lost opportunity for the utility, as if the advent of the microgrid will somehow take opportunities (or customers) away from the utility.  That is simply not true. I believe that this is a true opportunity for the utility to take advantage of the vast resources it already has right now and focus on making special accommodations for customers who require greater reliability and are willing to pay more for it – introducing the next-generation microgrid.

As the technologies such as storage and forms of distributed renewables become cheaper, it is easier to see more and more sources of supply at the last mile of the distribution system. This means that there is a possibility, at least in the case of  a storm or emergency scenario, for parts of the grid to be split away from the main grid and stay capable of operating in a self-sufficient manner for extended periods of time at least until the main grid can be brought back into a viable state. We call this the “Dynamic Microgrid.”  In this situation, the grid, under normal circumstance, functions as it does today — as a single monolithic entity but with sources of supply at both ends. However, during emergency situations, it has the ability to split itself into multiple microgrids depending upon where the source of supply are and continue operation in an independent manner until everything is back to normal.

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