How Microgrids are Reducing Energy Costs and Increasing Reliability

The American energy grid is, without a doubt, one of the most ambitious and impressive engineering feats in history. Never before has so much energy been immediately available and transmissible, and it operates on a scale that is difficult to properly imagine.

Fair praise out of the way, there is a small but growing trend that is pushing in the opposite direction: Instead of expanding or connecting to the national energy grid, some companies, municipalities, and individuals are creating miniature grids of their own that can operate independently. These “microgrids” provide options for groups that want lower energy bills, more control over where their energy comes from, or a level of reliability that the grid cannot provide.

The up-front costs for creating what most people in the industry consider a microgrid are still very high, and as a result, they remain economically viable for only a limited set of situations. As Karlee Weinmann, the Energy Democracy Initiative Research Associate at the Institute for Local Self-Reliance (ILSR) pointed out, however, the cost of new technology invariably falls as it is adopted.

“The cost of materials, installation, and maintenance for the components that make up a microgrid are going down, so the value proposition for a microgrid increases in turn,” Weinmann told Aquicore. “The general viability of microgrid projects is also reinforced through replication, like anything else, so the more that various stakeholders test the technology, prove its value, and improve upon it, the easier it is to justify buying in.”


Where are microgrids most effective?

The most important benefit that a microgrid can currently convey to a business is reliability. Microgrids have the ability to operate in “island mode,” in which they are independent from the larger grid.

Organizations that demand a high level of energy reliability, like hospitals, research facilities, military bases, and essential data centers, this is invaluable. So far, these have been the first adopters of microgrids. It is also not uncommon for commercial real estate leases to include penalty clauses for downtime that make an investment in a microgrid financially viable on this basis alone.

Investments in community microgrids are also justified on this basis. The ILSR report Mighty Microgrids cites Hurricane Sandy, which cut power to 8.5 million people, one million of whom went without power for a week, as one of the key motivators of regional investment in microgrids. While up to 60 percent of backup diesel generators failed in medical centers and other essential facilities, Princeton University’s 20 MW microgrid kept the campus operational in island mode for three days while a connection to the grid was being restored.

The Northeastern states recently provided a combined $400 million in funding for the development of resiliency infrastructure, resulting in more than 40 municipal microgrids to be finished this year.


A kWh saved is a dollar earned

In some applications, microgrids can be used strategically to dramatically reduce energy costs. There are several mechanisms behind these savings that work together to cut consumption or spread it out across more favorable demand times.

“The first thing you do is look at opportunities to improve the efficiency of the system and to get energy use under control,” said Michael Burr, Director at the Microgrid Institute.

Burr explained that peak load is one of the most important factors in determining the upfront cost of a microgrid because it sets the total capacity that the grid must be able to produce. If the microgrid doesn’t have enough capacity to handle the system’s peak load, it won’t be able to operate in island mode.

“If you can reduce energy consumption and get control over when the energy is being used, then you can optimize resources for a number of purposes,” Burr said. “And one purpose is to reduce energy costs.”

A building or system of buildings linked under a microgrid can be automated to minimize costs by prioritizing different energy sources based on various criteria. Energy utilities raise prices during periods of high demand to try and spread out consumption, yielding opportunities for optimization. For example, the system might prioritize built-in solar and wind capacity during the day, when the sun is shining, the wind is blowing, and grid demand is high. At night, it would then prioritize taking power from the grid, when demand is low and local renewable generation is minimal. A microgrid with built-in energy storage might even draw extra power from the grid at night to store and use during peak demand periods.

There are also efficiency gains to be considered. Local generation cuts down on transmission losses, which account for losses of 2%-13% of the energy released in a power plant. Properly configured, a microgrid can optimize its power generation even further to cut down on costs using a variety of methods. This is in addition to the overhead that is eliminated by generating power on site with existing staff.

The University of California, San Diego implemented a microgrid for this reason and now saves more than $8 million annually in energy costs, Weinmann told us. The University of Texas, Austin has an even larger microgrid that generates 100 percent of its electricity and a significant portion of its heating with a combined heat and power generator.

Finally, there are communities that exist beyond the reach of the grid that are using microgrids to generate their own power. In hostile or remote environments like Alaska, communities that would be unable to maintain a modern existence otherwise are using microgrid technology to thrive. ILSR estimates that between 100 and 200 remote microgrids were functioning in 2015.


Looking to the future

Microgrids are still a relatively new technology for something of their size and scale. While they are slowly catching on in clear use cases, they accounted for only about 0.1 percent of all installed capacity in the United States in 2015 – about 1.3 gigawatts.

While that capacity is expected to continue its rapid increase, several policy factors hinder development and adoption. One issue is that there is no clear definition on what a microgrid is, leading to an uncertain regulatory environment. While most experts in the industry consider a microgrid to be a small network of buildings that can operate in isolation from the grid, there are some who consider a building with a backup generator to be a microgrid. This is sometimes also called a “nanogrid.” Some people would even consider an RV, which can store energy in its battery and operate independently, to be a microgrid. While the term isn’t common, this can be referred to as a “picogrid.”

Regulations governing interconnection processes can also hinder microgrid adoption, particularly because these regulations vary from state to state. In an ideal world, a national standard would be adopted.

Finally, opposition from utility companies is often a factor that makes the regulatory environment hostile or resistant to positive change.

“As we see it, the future of the grid will be far more decentralized than the system we have now,” said Weinmann. “Rather than paying a far off utility for electricity, which in many cases comes from problematic, dirty sources, customers’ money can stay closer to home.”

Perhaps in the future, microgrids will be a common feature of communities throughout the U.S., connected by the larger grid and selling electricity to each other as necessary. For now, they represent a useful tool for businesses and communities that need reliability that the grid can’t offer or that can leverage scale to reduce energy costs. As Burr put it, “electrons are just electrons unless you need them here and now.”

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