by Emma Foehringer Merchant
December 06, 2017

A confluence of macrotrends is fueling a rise in microgrids. 

Wildfires in California. Hurricanes in the Caribbean. Massive flooding in the Southeast and Texas. This is the new normal. And it's putting the concept of resilience front and center.

Microgrids, which are one pillar of a resilient power sector, are increasing in number as a result.

A new report from GTM Research shows that microgrid projects increased by 76 percent this year. Capacity decreased year-over-year from 2016 (there were more small commercial microgrids), but the 2018 project pipeline of 289 megawatts is already closing in on the 2017 expected capacity of 352 megawatts. 

Much of the growth is in commercial applications, as niche uses like military operations become overshadowed by utility and multi-investor projects that focus on “resilience-as-a-service." Government and community-led projects are also gaining ground in the expanding market, with a renewed focus on resilience enticing more public dollars.

“Microgrids are hugely valuable, not just in the commercial sense," said Colleen Metelitsa, a GTM Research analyst and author of the report. "But also in being able to get help to community members faster, being able to be a node both where operations centers can be set up to help restore power for utilities, and where emergency first response can go and have power."

Historically, microgrids have relied on fossil fuels -- diesel in particular. Currently about 82 percent of installed capacity is run by fossil fuels, with 60 percent coming from diesel and 40 percent from natural gas. 

But solar-plus-storage is starting to creep up on traditional diesel microgrids. According to Metelitsa, though, the integration of renewables has “followed an arbitrary deployment trajectory with minimal annual growth consistency.” Last year saw a strong increase in solar PV deployments, which has not been replicated in 2017.

Renewables and storage now only account for 12 and 3 percent of cumulative operational capacity, respectively. But solar and storage will consistently account for added megawatts in coming years. As prices continue to drop for both, an October Navigant forecast projected 14.85 gigawatts of batteries would be connected to microgrids by 2026, spurring global investment of $22.3 billion.

Looking ahead, fossil fuels will continue to play a central role in microgrid deployments through 2022, the final year in GTM Research’s forecast. But moving from 2017 to 2018 in a base-case forecast, renewable resources will jump from about 100 megawatts to over 200 megawatts. 

For resiliency applications, which remain the main focus of the microgrid market, renewables alone are still too variable to guarantee power for several days when a microgrid is islanded. However, connecting microgrids to renewables offers more flexibility when fuel is not immediately accessible after a disaster. That's especially true in remote areas where travel and logistics are complicated by infrastructure damage.

Post-Hurricane Maria, Puerto Rico became even more reliant on fossil fuels due to the use of diesel generators. With a normally functioning grid, the island gets 47 percent of its electricity from petroleum and 34 percent from natural gas. All of those fuels must be imported, a difficult task when negotiating battered ports and restrictions imposed by federal laws like the Jones Act.

After Harvey and Maria ripped through the Caribbean, islands have become a more attractive target for developers. According to GTM Research’s report, island applications also represent the cheapest kilowatt price for the end user, at $1,091.  

That relatively low cost will be important to Puerto Rico, which is in a dire financial position. GTM Research expects that utility and municipal deployments will continue, especially in remote areas that use non-wires alternatives (NWAs) to circumvent bigger investments in transmission and distribution.

In Puerto Rico, the island’s government and utility PREPA have begun considering resilience plans that include microgrids. But private companies, such as sonnen, have also installed projects on the island. A Department of Energy analysis identified 200 potential microgrid sites on the island.

On the mainland U.S., the three regions that rank at the top for microgrid capacity have all weathered hurricanes in the past five years. The threat of storms will continue to be a driver for projects.

The Southeast is a consistent leader, with 1,226 microgrids at a capacity of 1,074 megawatts. Many of these, though, are basic microgrids, which have just one distributed energy resource technology that can island and reconnect back to the grid. 

Looking ahead, advanced microgrids will account for a larger portion of the market. This year brought a 15 percent increase in the proportion of advanced microgrids from 2016 -- the highest year over year growth ever recorded.

As communities, governments and commercial owners expect more reliability from projects, advanced grids will likely grow in popularity. They offer more control over resources and islanding capabilities. The Southwest and Northeast currently have the highest advanced capacity and projects, specifically due to initiatives to increase reliability. 

The landlocked Midwest currently lags behind all other regions in microgrid capacity. But that could change as microgrids become more economic.

“The microgrid market is undergoing a transformation from basic systems focused on reliability and resilience to advanced systems that provide multiple value streams,” writes Metelitsa in the report. 

Commercial applications will continue to dominate the market going forward. However, community and public microgrids will start to gain market share. 

“Municipality and community-owned microgrids are more prevalent in the advanced market, which aligns with the increased complexity of community microgrids serving multiple stakeholders and often trying to incorporate renewables as part of local government sustainability plans,” writes Metelitsa. “The recent wave of state-level resilience and grid modernization programs will help fuel this growth in the community and public institutional microgrid markets.”

Puerto Rico in particular may act as a microcosm of the future market. At the end of November, AES, which provides some of the island's power, offered up a plan to the Puerto Rico Energy Commission for “a network of connected mini-grids” reinforced by transmission and distribution lines, 10,000 megawatts of solar and 2,500 megawatts of 10-hour battery storage. 

“This combination will provide more low-cost power to Puerto Rican homes and businesses, enable communities to recover faster from extreme weather and reduce overall reliance on expensive imported fuel,” the report reads.