A forecast issued this week by Navigant Research identifies several new trends emerging in the global microgrid market as it moves toward becoming a $30.9 billion industry by 2027.
The number of vendors in the arena has increased dramatically. Utilities, once seen as obstructers to microgrids, are now building their own. Microgrid growth is trending up, but Europe is likely to ebb near the end of the 10-year forecast as it reaches buildout for remote systems, according to the report, “Market Data: Microgrids.”
The report also shows that North America remains a vibrant market but is eclipsed by Asia Pacific over time due to sheer population growth and lack of traditional grid infrastructure, creating opportunities for remote microgrids in particular.
Among customer types, commercial & industrial (C&I) companies are adopting microgrids most quickly.
Peter Asmus, research director with Navigant, has been tracking the microgrid market for nine years. In a Q&A with Microgrid Knowledge he offers insight into the new findings.
How does microgrid market growth differ geographically?
Asia Pacific already shows more capacity under development, but it is concentrated in remote systems in developing world nations. If one focuses on grid-tied systems, North America – primarily the US – is still in the lead and will remain so for quite some time. Hot spots in Asia Pacific region are Australia, India, Japan and China.
Your 2014 report identified a $20 billion microgrid market by 2020. What’s changed about the industry since then? Is it moving faster, slower, the same as then?
Over the years, Navigant Research has continually adjusted our market forecasts essentially every two years, and then we align all of our subsequent forecasts for specific segments or enabling technologies — such as distributed energy resources (DERs) — to those biennial forecasts. The base data for our forecasts is our Microgrid Deployment Tracker, which is essentially a list of specific projects and their capacity in various regions and market segments.
So the top-line trends are that overall costs of microgrids continues to drop, and some segments are growing more rapidly than forecasted in 2014, while others more slowly. I would sum up by saying overall growth in capacity is basically in line with the 2014 forecast, but the overall spend is declining.
In addition, growth is not spread evenly along all market segments. Remote microgrids, the most mature market globally, increased roughly 30 percent if compared to previous market forecasts.
How does growth for grid-connected microgrids compare to remote microgrids?
Remote microgrids as a single segment remains the market leader, as has been historically the case. However, if one bundles all of the grid-connected segments (campus/institutional, commercial/industrial, community, military and utility distribution), the grid-tied market is larger today and much larger by the end of the forecast period. In 2018, remote microgrid annual capacity is 1,231 MW compared to 1,463 MW for all grid-tied systems. By 2027, the gap grows to 4,230 MW for remote and 11,576 MW for all grid-tied systems combined.
What’s changed in terms of microgrid costs?
I would estimate that overall costs for microgrids have declined by 25-30 percent since 2014.
The cost declines are focused on solar, wind and battery storage technologies. But it is difficult to specify any precise reduction since there is a range depending upon size of the system, manufacturer and even application.
Controls, for example, show the widest variance in cost. Some microgrids just run off of a smart inverter. There are direct current options. And for large microgrids, a much more sophisticated controls scheme may be employed, especially if the microgrid is deployed by a utility.
You mention a dramatic increase in the number of vendors. Who’s entering the microgrid market? What kind of companies and why?
We have profiled something like 100 different microgrid vendors worldwide, and there are new ones popping up if not weekly, perhaps monthly. Of course, there have also been casualties, among them Boeing, Hitachi and Bosch.
Perhaps the biggest surge has been in battery storage vendors seeking opportunities within the microgrid space. In addition, controls specialists have also increased in number, some of which are also battery providers.
How is microgrid technology changing?
The primary thrust of innovation since 2014 has been in software controls, particularly in the ability to provide grid services. This means that microgrids are overlapping with other DER management concepts such as virtual power plants and distributed energy resource management systems. Microgrids are morphing into these other DER management systems as they increasingly are viewed as contributors to grid stability, instead of threats to market incumbents, such as utilities.
Which microgrid business models — energy as a service (EaaS), government funding, owner financing, utility rate base — seem to be driving growth?
What we see from the data is that EaaS leads today globally, but just barely. Over the next 10 years, however, it emerges as the leading business model. Keep in mind this is a broad category and includes not only power purchase agreements, but also pay-as-you go business models, the latter emerging as the primary approach for smaller, remote off-grid systems in the developing world.
The EaaS model is particularly well-suited to grid-tied C&I projects since it converts a capital expense into an operating cost. Just as the solar lease model spurred on the rooftop solar PV market, EaaS can do the same for microgrids. Of course, a microgrid is more complicated than a solar system. So the vendors deploying various EaaS do take on some risk. Since controls determines performance, the key technology to make EaaS models work is the ability of controls to deliver both internal and external value.
Is there anything else you’d like to convey to the Microgrid Knowledge audience?
One thing to highlight about this new report is a new wrinkle to the market forecast — and that is the incorporation of data regarding the average percentage of new versus existing DER assets. In the Microgrid Enabling Technologies report published in early 2018, forecasts on solar, wind, diesel, combined heat and power, etc. reflected the full value of each of these assets being deployed in microgrids. In this new report, each market segment was analyzed on the basis of new data on the ratio of new versus legacy assets.
In the case of C&I, this segment initially rolls in the largest percentage of legacy assets into microgrids, but over time, the portion of new assets increases as these microgrids turn to newer and cleaner sources of generation.
Over the course of the microgrid market forecast, a key assumption is that the entire market wraps in a greater percentage of legacy assets that are no longer dominated by diesel generation, but solar photovoltaics (PV). This, in turn, lowers overall microgrid costs.
The key question for the industry is how much do these lower costs accelerate new growth? — Peter Asmus
The key question for the industry is how much do these lower costs accelerate new growth? In other words, while the revenue per each microgrid may decline, does the lower cost of microgrids compensate for this since lower costs increase market penetration?
Because of this uncertainty, Navigant also created a conservative and an aggressive scenario for the total global market. Note that under the aggressive scenario, total annual spend on microgrids reaches over $46 billion annually by 2027 (whereas the conservative scenario shows $13 billion annually be that same date.)
An executive summary of “Market Data: Microgrids” is available for free download on the Navigant Research website.