Microgrids -- self-contained islands of power generation and consumption -- are still an expensive and experimental alternative to tapping into the “macro-grid” they’re connected to. But what if the microgrid doesn’t have any other choice but to stand on its own?

That’s the conundrum facing small islands across the globe. Most islands rely on costly and polluting diesel or oil-fired generators for electricity, making them eager candidates for wind, solar and other renewables. But integrating lots of intermittent green power without introducing instability and uncertainty to island grids is a tricky proposition.

These factors have made islands a natural testing ground for microgrids, including a handful that have moved toward near-independence from fossil-fuel-fired generation. Now we’ve got two grid giants taking the next logical step: a commercial-scale, replicable model for island microgrids around the world.

That’s the goal of French grid giant Schneider Electric and Danish utility Dong Energy. The two announced this week that they’ve launched a commercial partnership to combine Dong’s Power Hub virtual power plant technology and Schneider’s distribution grid and building-side system management expertise into a unified system.

By mid-2014, the partners intend to have their first combined system up and running, Joe Andersen, Schneider’s offshore wind global business development director, said in a Wednesday interview. But Dong already has an island showcase for its Power Hub technology in the Faroe Islands, a North Atlantic archipelago.

This project, dubbed “Grani” (PDF), is balancing an increasing amount of wind power with pumped hydro storage, as well as two sets of variable loads on the island: heat pumps for a salmon-breeding facility and two cold-storage facilities for the island’s fishing industry. Adjusting the timing and intensity of heating and cooling to match wind power fluctuations is one example of how supply and demand can be matched, Andersen said. We’ve seen a number of projects around the world that are tying these two resources together in a similar manner, whether on a microgrid scale or across entire regions.

On the generation side, “In many of these islands, you have quite steady wind -- and therefore, wind power will play a major role in these islands,” Andersen said. But solar power is also a key renewable resource that can reduce islands’ dependency on oil and diesel-fired generators. On the demand side, the partners are looking at resources such as backup generators or combined heat and power (CHP) systems, to mitigate local grid instabilities, he said.

Schneider’s role includes its weather forecasting and renewable portfolio control systems, its advanced distribution grid management (ADMS) software and grid gear, and the fast-reacting load control capabilities from its building power controls portfolio, he said. The overarching goal is a big reduction in dependence on fossil fuels for island communities, he said. In the case of Faroe Islands utility SEV, it wants to get 75 percent of its power from renewables by 2020, up from 40 percent today.

“What we have see with different tests that have been done in other isolated grids -- not islands, but isolated grids -- is that you’re able to run a system with a very high penetration” of renewables, Andersen said -- “maybe up to 70 percent or 80 percent. Of course, it takes measures to do this: you need to have diesel backup; you need to have batteries. It’s not a question about one or the other today -- it’s all of them that you need to put in place.”

On the generation side, “We cannot rely on PV alone; we cannot rely on wind alone,” he said. But then again, “We cannot rely on very expensive diesel either, because the price is booming, and the islands are not able to pay.”

These fundamental factors can make islands the most economically viable candidates for microgrid projects, a fact that’s not been lost on the competition. Swiss grid giant ABB, for instance, announced Wednesday that it’s completed its own microgrid control system, built on technology from acquisition Powercorp, for the island of Faial in the Azores archipelago.

At the same time, ABB and Schneider are collaborating on the Swedish island of Gotland to combine wind and solar power, grid control systems and advanced load management. Likewise, on the South Korean island of Jeju, an international consortium is testing an extensive range of smart grid technologies, with an eye toward exporting them to markets worldwide.

Both Dong and Schneider have a lot more potential pieces to the island microgrid puzzle. Besides being a major provider of combined heat and power systems, and marketing its generation capacity as a large-scale virtual power plant for European transmission grids, Dong is also the lead on the EDISON project, a large-scale integration of wind power and electric-vehicle charging on the Danish island of Bornholm.

In Schneider’s case, it’s a majority owner of French demand response aggregator Energy Pool, which is experimenting with smaller-scale distribution-grid demand management. It’s also one of the partners in a consortium combining solar PV and lithium-ion batteries for French islands around the globe as part of the Milliner project, a €30 million ($41 million) smart grid program led by French utility EDF.