You can’t throw a stone at smart grid conference these days and not hit a panel talking about microgrids.

The chatter is incessant, but the actual work done to date has been far more limited. Deep-pocketed players, like the U.S. Department of Defense, universities and large corporations, are all investigating microgrids, but only a few -- mostly universities -- are pulling the trigger on building them out.

In the U.S., the price of power is relatively cheap compared to the cost of building and maintaining your own mini-grid. But other factors are starting to come into play. Resiliency, the buzzword of 2013, is making people take another look at the microgrid concept.

As with smart grid, everyone has their own definition of a microgrid. While some would argue that putting in a cogen plant constitutes a microgrid, others envision an advanced, self-healing smart grid that ties together generation and storage and can operate completely independent of the grid.

It is the latter that is particularly expensive. The cost of some renewable energy options is coming down, making the economics more attractive. But for microgrids to truly take off, the way that the true cost of power is calculated might have to change.

“It depends on how you value power,” said Gary Wetzel, director of C&I business development for S&C. “The military wants reliability, self-healing and renewables, but they struggle with how to value that.”

If the well-funded DOD struggles to find the economic rationale, it raises questions about who else can afford this. For the Illinois Institute of Technology (IIT), the need for reliable power for critical research projects was enough to work with S&C to build a $14 million microgrid, including renewables and flow batteries. The university is also using what it calls “perfect power” as a marketing tool to bring in top researchers.

IIT was in a unique position, however, because it already owned its own distribution grid. For large organizations that do, the decision to build a microgrid, which can island from the larger grid, could make more sense.

Wetzel noted that during storms, military bases or campuses might not have people with the significant experience needed to deal with medium-voltage equipment. In those situations, “self-healing gives a tremendous advantage,” he noted. It’s hard to get the right electrical engineers onto your campus when other critical facilities need to first be addressed. “If it’s a military base doing mission-critical work, it could be priceless.”

The buzz about microgrids is in part due to the fact that the IEEE issued a standard in 2011, IEEE 1547.4, which covers the design and integration of microgrids into electrical power systems. The standard has allowed companies like S&C to start designing and selling the systems, which incorporate renewables, storage and self-healing capabilities on a distribution network.

Nearly every large player in the smart grid space claims to have a stake in the game, including ABB, S&C, IBM, Kema, Schneider Electric, GE and BPL; smaller players such as Balance Energy and Viridity Energy are also leveraging virtual power plants into energy markets. The potential value of the microgrid market is all over the place, with analysts forecasting anywhere from $19 billion to $40 billion by 2020. Pike Research estimates there are 400 projects globally, but that includes plans that are still only on paper at this point. 

Making Microgrids Pay

The technology is there, but the markets to support advanced microgrids are only now beginning to emerge. One way to see a little payback from these pricey systems is to use them to make a few bucks on the side in wholesale energy or demand response markets.

Mid-Atlantic grid operator PJM is working with potential microgrid owners to understand what their energy plans are. PJM isn’t as concerned about the specific technologies that will be deployed as it is about the assets that could support -- or strain -- the system.

“It’s usually the cost of going toward a microgrid that piques their interest in the fact that there are markets that will pay them for being a good citizen,” said Chantal Hendrzak, general manager of Operations Support for PJM. “They’re really trying to make the economics work.”

PJM is a particularly attractive market for potential microgrids. Last year, the system operator started using demand response in regulation markets, and this year, it will use DR in spinning markets. Because advanced microgrids need storage, there could be an opportunity to play in both of those markets.

Hendrzak said that while the utility holds regular meetings with the DOD, universities, and even community groups, “They’re not coming to us in droves.” She said that microgrids could start to change PJM’s long-term load forecast if they could shed hundreds of megawatts.

If advanced microgrids on naval bases are still in their infancy, the concept is probably even further off for the average community. But Mike Gordon, CEO of Joule Assets, thinks it’s coming sooner than later. “The multi-stakeholder microgrid is going to take off,” he said.

He noted that community choice aggregators are the ideal player to offer enhanced products to homeowners that leverage energy markets. Hendrzak said a few developers had approached PJM about microgrid communities. “The technology capabilities are there,” argued Gordon. “The only barrier is that no one has asked yet.”

In most regions, distributed generation will come first and an advanced microgrid might follow later. Even after events like Hurricane Sandy, however, the conversation is still centered on backup generation and not sophisticated microgrids.

But beyond the shores of the continental 48 states, the picture is very different. In regions where electricity is spotty, or absent, simple microgrids can change lives. S&C is working actively in Africa and remote regions of Australia on microgrid planning. “It can be expensive, but expensive relative to what?” asks Wetzel. Many communities without electricity rely heavily on diesel or kerosene, which is often far more expensive than what other communities in the region pay for electricity.

In India, telecoms could get into the microgrid business. In parts of Africa, utilities are already looking at ways they can install and manage simple microgrids that run on renewables.

As developed countries struggle with how to value microgrids, the developing world has a very different set of needs. “There’s simply no other way to get reliable power there,” said Wetzel.