Economic trends converge to make microgrids more attractive

May 25, 2022
Demand for microgrids is accelerating as a convergence of market and government trends work in the technology’s favor. In fact, some of today’s economic headwinds act as taillwinds for microgrids.

Demand for microgrids is accelerating as a convergence of industry, government and economic trends work in the technology’s favor, according to industry experts recently interviewed by Microgrid Knowledge.

These price-dampening trends come at a fortuitous time, given the impact of inflation and supply chain disruptions on the wider energy market. In fact, some of these headwinds are acting as tailwinds for the microgrid industry.

Growth drivers

Government incentives and regulatory efforts, shorter implementation times, economies of scale and a decrease in solar and storage costs over the last several years are helping the industry grow. In addition, unfriendly utility policies, such as grid participation charges for solar, make microgrids more attractive, these experts said.

Microgrids also are benefitting from the transition to a more decentralized and decarbonized energy system. These trends are spurring incentives that favor microgrids, said Greta Foster, product line manager, DER/microgrids at Eaton.

Solar and storage incentives are now available in certain areas, including California and the Northeast, along with pending federal stimulus funding focused on resilience and clean energy, Foster said. At the same time, she noted, Federal Energy Regulatory Commission (FERC) Orders 2222 and 841 are helping open up wholesale markets and creating new revenue streams for microgrids.

Jason Marenda, project manager for DER and renewables at Power Engineers, agreed that the industry will see more government incentives. These could include public utility commissions authorizing utilities to provide microgrids to their customers in the form of resiliency-as-a-service or creating reliability-based rates, he said.

Not only are FERC and regulators issuing decisions that support microgrids, but utilities are becoming more familiar with the technologies involved in microgrids and have begun to address some of the barriers to their deployment. Utilities have begun streamlining their processes as they gain experience dealing with developers and owners, said Mike Byrnes, senior vice president at Veolia North America.

“This has shortened the time frame for interconnections and lowered the soft costs of microgrid projects,” he said.

Shorter implementation times are also the result of microgrid partners decreasing the amount of work done on-site, which helps lower costs, said Mike Norelli, vice president of sales and business development at Northeast-Western Energy Systems.

“Specifically for complex equipment like natural gas generator sets and associated balance of plant systems, the more of the integration work that can be done off-site, the more ability there is to lower the microgrid’s capex costs, reduce the construction time at the site and minimize execution risks,” Norelli said.

And customers are choosing integrated power module approaches in which power systems are delivered to the site in prepiped and prewired containers designed by the original equipment manufacturers, Norelli said.

“This approach allows for the integration of the equipment to be done in a more controlled and lower cost environment than an active construction site,” said Norelli. It also creates a single point of responsibility for the design of the power system that provides the firm power to a microgrid, he added.

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Rising demand

Rostislav Slovák, business development manager at Gentec, sees increased demand putting downward pressure on prices.

“We can observe it is happening right now, the growing trend of microgrid and off-grid solutions,” he said. Around the world, homeowners and businesses are looking at sustainable and self-sufficient buildings, said Slovak.

The uptick in demand also brings new players to the market; competition can lower the cost, increase the quality of and pave the way for new product development, said Slovák.

Along with rising demand come economies of scale.

In fact, economies of scale — and the experience it brings — play the biggest role in dampening costs, said Meranda of Power Engineers. The economies of scale for different technologies will result in many different technologies — like controllers and equipment — being less expensive, he said.

And common distributed energy resources — solar and storage — have declined in cost over the past several years, the experts said.

Javier Gonzalez, senior manager of sales, Power Gen Americas at Rolls-Royce Solutions America, explained that the price of storage is dropping because of its increased use in utility-scale applications and electric vehicles. This has led to an expansion of global manufacturing and economies of scale.

Headwinds become tailwinds

Meanwhile, rising energy prices and utility disincentives will boost the attractiveness of microgrids, said Tim McDuffie, senior business development engineer at Smarter Grid Solutions.

Programs such as utility grid participation charges — charging home solar system owners a flat fee to access the grid, for example — will make microgrids more attractive than conventional means of procuring energy. In fact, McDuffie predicts that such fees might push communities and subdivision members to band together and form community microgrids.

“Every nickel the IOUs [investor-owned utilities] add to make solar less valuable makes 24/7 islanded microgrids more financially plausible,” McDuffie said. This will increase the size of the microgrid market and lower prices to consumers through competition, he added.

Others point out that because microgrids can use multiple energy resources, they can manage costs better than an energy plant beholden to one resource, such as natural gas.

Take the long view

It’s important to look at costs from a lifetime — not just a capital cost — perspective, said Alex Marshall, group business development and marketing director-US at Clarke Energy.

Costs can be reduced if microgrid owners have a single point of contact for design, engineering, installation and maintenance of the microgrid, said Marshall. It’s also a good idea to have service teams with long-term track records of delivery, he said.

A final factor to consider when evaluating microgrid costs is the value of resilience, said Marenda. The industry needs to establish a way to place a value on resilience, based on the monetary, health and physical losses that occur as the result of outages.

“Except for rare occasions where microgrids may be used to offset demand or buy into the wholesale market, the value of a microgrid is more than just normal power supply,” Marenda said.

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About the Author

Lisa Cohn | Contributing Editor

I focus on the West Coast and Midwest. Email me at [email protected]

I’ve been writing about energy for more than 20 years, and my stories have appeared in EnergyBiz, SNL Financial, Mother Earth News, Natural Home Magazine, Horizon Air Magazine, Oregon Business, Open Spaces, the Portland Tribune, The Oregonian, Renewable Energy World, Windpower Monthly and other publications. I’m also a former stringer for the Platts/McGraw-Hill energy publications. I began my career covering energy and environment for The Cape Cod Times, where Elisa Wood also was a reporter. I’ve received numerous writing awards from national, regional and local organizations, including Pacific Northwest Writers Association, Willamette Writers, Associated Oregon Industries, and the Voice of Youth Advocates. I first became interested in energy as a student at Wesleyan University, Middletown, Connecticut, where I helped design and build a solar house.

Twitter: @LisaECohn

Linkedin: LisaEllenCohn

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