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As grid outages hit the headlines recently, due to “over-demand” in India and wild weather in the United States, utilities began to look at microgrids not just as third-world or rural community infrastructure, but as a method of “islanding” electricity to prevent widespread blackouts.

Boulder, Colorado-based Pike Research (News - Alert) has just released a report that predicts that the total worldwide capacity of utility distribution microgrids (UDMs)—including investor-owned utility, public power grid-tied, and remote microgrids—will nearly triple within the next six years, reaching 1.2 gigawatts in 2018. What’s more, annual vendor revenue from utility distribution microgrids will reach almost $3.3 billion in 2018.

What exactly is a microgrid? It is an integrated energy network comprising distributed energy resources (DERs) and multiple electrical loads and or meters operating as a single, autonomous grid—either in parallel to or islanded from the existing utility power grid. Most commonly, several DERs are tied together on their own feeder, which is then linked to the larger utility grid at a single point of common coupling. 

The distinction between grid-tied microgrids and remote microgrids is that the latter are not connected to the larger grid. As a result, these networks operate in “island mode” around the clock.

While still adhering to the fundamental definition of what constitutes a microgrid, the new Pike report, “Utility Distribution Microgrids,” places UDMs within the context of ongoing utility deployments of smart grid technology designed to increase operational and reliability efficiencies, such as distribution automation (DA) and substation automation (SA).

A new microgrid paradigm

Some microgrids have been operating for decades, but these first-generation systems relied upon manual controls and typically were fueled by dirty, fossil fuel generation— diesel generators. Rarely were these systems developed, funded, or operated by utilities, except when government-owned utilities provided energy services to remote communities in regions such as Alaska, Canada, or island nations. A new microgrid paradigm relies on IT advances, sophisticated software, and new islanding inverters for (mostly) cleaner renewable generation to network resources, so that they harmonize as a system.

As of 2012, however, no national government has developed an integrated or comprehensive policy creating a viable, vibrant market for utility distribution microgrids. With the exception of Denmark, few countries are examining the complex policy issues involved when aggregating DERs that are not owned by utility companies on a broad scale within a microgrid controlled by a utility. The impetus to examine these issues in Denmark is driven by grid operators that are attempting to address the variability of distributed wind power due to penetration levels of over 25 percent.

Adding to the complexity of the issues in Denmark are distributed combined heat and power (CHP) units, which also are owned by non-utility entities. A very small country with a goal of 100 percent renewable generation by 2050, Denmark has become a laboratory of policy and technology reforms for microgrids (as well as related aggregation/optimization smart grid networks such as virtual power plants [VPPs]).

For a variety of reasons, however, North America—and especially, the United States—still represent the best overall market for all microgrid segments in terms of aggregate capacity, including UDM. Key factors include pockets of poor power quality scattered throughout the United States and the structure of behind-the-meter markets for DERs. The latter have stimulated creative aggregation possibilities at the retail level of power service.

Customer-driven programs

The U.S. microgrid market, instead of being driven by grid operators as it is in Europe, is customer-driven. Responding to tropical storm Irene in August 2011 and a rare blizzard in October 2011 (both of which led to massive power outages), Connecticut appears to be the first state moving forward with a policy program to promote microgrids. However, the focus of this effort— which already has identified more than 300 viable microgrid sites— is on the more traditional customer-driven microgrid model of development and is limited to a one-time $15 million grant and loan program for microgrids, primarily targeting police and hospital facilities.

Microgrids can offer a quality and diversity of services that incumbent utilities have yet to offer. Still, due in large part to the broad expected growth of renewable distributed energy generation (RDEG), and the interwoven relationships among municipal governments, state run grids and government-owned utilities, the Asia-Pacific region will likely lead the world in total UDM vendor revenue over the long term.

Pike Research remains committed to the expectation that the adoption rate of microgrids will grow exponentially during the forecast period. UDMs are not an exception. As with any innovation, microgrid adoption will increase more rapidly as awareness of, and confidence in, the technology’s capabilities grow. For UDMs, decades of institutional bias against the entire concept of a microgrid is a major barrier, as is the lack of a clear path forward on how to fund such UDMs within a regulated business model

“A handful of utility innovators are moving forward with microgrid projects, despite significant institutional bias and regulatory obstacles,” says Pike Senior Research Analyst, Peter Asmus. “These early adopters are heralding a future in which microgrids will become a more prevalent part of the distribution utility landscape.”

The report analyzes the global market opportunity for utility distribution microgrids, including applications for investor-owned utilities, public power entities, and remote utility networks.

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