How ‘Microgrids’ are Poised To Alter The Power Delivery Landscape

By Poonum Agrawal, U.S. Department of Energy; Mark Rawson, California Energy Commission; and Stan Blazewicz and Forrest Small, Navigant Consulting Inc.

The electric power industry is in the midst of a critical period in its evolution. The re-regulation of the industry has resulted in the creation of self-locating merchant generation and wholesale electric power markets that are using the transmission system in ways for which it was not designed. Furthermore, regulatory uncertainty has caused many T&D utilities to defer new construction, as well as the replacement and rehabilitation of existing infrastructure. Finally, retail customers have developed increasingly sophisticated energy service requirements, including enhanced power quality and the interconnection of distributed energy resources (DER).

At the same time, public policies involving global climate change initiatives, reductions in CO2 and other polluting emissions, and incentives for renewable energy will continue to put pressure on the energy industry. Advanced technologies are necessary to support these goals through end-to-end energy efficiency improvements to reduce our dependence on fossil fuels and to simplify the integration of non-polluting DER. Market mechanisms and business models must also evolve to facilitate the transition to these technologies.

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As part of their ongoing energy technology development programs, the Department of Energy-Office of Electricity Delivery and Energy Reliability (DOE-OE) and the California Energy Commission (Energy Commission) have invested in research, development and demonstration of an advanced energy delivery concept: the microgrid. Likewise, in recent years, a growing body of international research has developed around microgrids and their supporting technologies. Benefits to consumers and energy suppliers are also driving increased commercial interest in microgrids. Key among these benefits are energy service reliability and security, sustainability and environmental pressure, and the ability to support customized energy value propositions.

But What are Microgrids?

A microgrid is an integrated energy system consisting of interconnected loads and distributed energy resources that can operate in parallel with the grid or in an intentional island mode. The integrated distributed energy resources are capable of providing sufficient and continuous energy to a significant portion of the internal demand. The microgrid possesses independent controls and can island and reconnect with minimal service disruption. Configuring an energy delivery system in this manner provides flexibility in how the power delivery system is configured and operated and provides the ability to optimize a large network of load, local distributed energy resources and the broader power system. In understanding what a microgrid is, it is sometimes best to understand what it is not. A microgrid:

  • Is not one microturbine in a commercial building; that is not a microgrid, but DG;
  • Is not a group of individual generation sources that are not coordinated, but run optimally for a narrowly defined load;
  • Is not a load or group of loads that cannot be easily separated from the grid or controlled; and
  • Does not have to have thermal (whereas CHP by definition has thermal).

Microgrids can be characterized by their scope of service and ownership structure. Scope of service could range from small individual facilities that use microgrids to entire substations whose loads are met with microgrids. Microgrid ownership also varies from end-use customers, landlords, municipal utilities and investor-owned utilities. Each of these owners will be looking for different value from microgrids and have different “sweet spots” for the scope of service.

To better ensure the long-term success and sustainability of microgrids, DOE-OE and the Energy Commission have structured their research to understand if there are viable business cases for microgrids, assuming the technical and regulatory barriers are removed. The research finds that microgrids could provide six complementary value propositions:

  1. Reduced cost-reducing the cost of energy and managing price volatility;
  2. Reliability-improving customer and system reliability;
  3. Security-increasing the power delivery system’s resiliency and security by promoting the dispersal of power resources;
  4. Green power-helping to manage the intermittency of renewables and promoting the deployment and integration of energy-efficient and environmentally friendly technologies;
  5. Power system-assisting in optimizing the power delivery system, including the provision of services; and
  6. Service differentiation-providing different levels of service quality and value to customers segments at different price points.

What are the Benefits?

The concept of the “modern grid” varies among stakeholders depending on their circumstances and interests. However, there is general agreement that a modern grid is one that can provide energy suppliers and consumers with resource-efficient, reliable electric power delivery services. With recent developments in distribution system technologies and DER, it is expected that the modern grid will evolve to include increasing levels of distributed generation, energy storage, demand response and distribution automation. These technologies will improve the electric grid’s reliability, stability and security, while increasing the value and efficiency of energy services for suppliers and consumers.

The distribution system will continue to play a primary role in grid evolution due to its size, value, diversity and direct interface with the customer. Due to the size of this infrastructure, it will not be possible to implement the modern grid all at once. Indeed, due to resource constraints, this will be a gradual transformation where portions of the distribution system are reconfigured to deliver maximum value for stakeholders. The microgrid concept supports this model as it enables portions of the distribution system to deliver customized levels of service including reliability, efficiency, and use of distributed generation including renewable resources.

Over time, microgrids could operate in a coordinated fashion that could support higher-level grid reliability and bulk power system security objectives. The modern grid will evolve when the component technologies and operating concepts of the microgrid become ubiquitous. Seen in this light, microgrids become the foundation of a bridging strategy that can take us from today’s system to the modern grid. They present us with a means to protect the sanctity of today’s distribution system while facilitating the deployment of distributed generation, renewable resources and advanced operating platforms.

Market estimates made as part of recent DOE-OE/Energy Commission work indicate that, presuming regulatory and technical barriers can be overcome, microgrids could be applied to support between 1 GW and 13 GW of connected load by 2020 (5.5.GW under the base-case scenario; see Figure 2). For microgrids to capture this market, they must be able to deliver energy at favorable costs. The market opportunity is driven primarily by a microgrid’s ability to reduce energy cost and manage energy volatility. The “reduced cost” value proposition would generate 45 percent to 80 percent of the market. The primary drivers behind microgrid economics are the spark spread and the cost of the generation technology. Because microgrids can deliver many different value propositions, the market size and public benefits can be significant under many different market conditions and scenarios. The “reliability” and “green power” value propositions are likely to generate the largest markets after “reduced cost,” each accounting for up to 25 percent of the market.

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The benefits from microgrids could total almost a billion dollars a year by 2020 (see Figure 3). Reduced emissions is the largest benefit ($550 million/year by 2020) Microgrids would lead to a reduction of 17.4 million tons of CO2; 108,000 tons of SOx, and 18,000 tons of NOx. These emissions benefits are driven by the use of combined heat and power (CHP) and renewables. Approximately 200 MW of renewables would be deployed in microgrids under the base-case scenario. Energy efficiency is the next greatest benefit and would lead to $360 million in energy savings (this equates to 10 percent reduction in energy bills at ~0.5 percent of U.S. load).

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By 2020, there would be 550 microgrids of an average 10 MW serving primarily commercial and industrial markets with improved reliability and supporting grid stability. Microgrids could also be providing improved security to 40 or more communities by providing secure electricity during an energy disruption.

What are the Barriers?

To provide these benefits, microgrids must meet certain technical functional requirements (performance, design, protection, monitoring and control, operations, and infrastructure) that are unique to microgrids. There are currently many gaps in meeting these functional requirements. The greatest challenges exist in the monitoring and control and protection areas. Microgrids are likely to need three levels of control-internal, external and asset. If the microgrid is controlled via a central controller (as opposed to relying on local generation control) sophisticated algorithms would need to be developed to accommodate a wide range of load and generation output scenarios and power flow constraints created by line constraints and generation availability. For its external control system, the microgrid needs to integrate with the utility’s or ISO’s communications infrastructure. Generators in the microgrid must also be able to rapidly respond to changes in load to maintain voltage and frequency. Microgrid fault current interruption is particularly challenging as microgrids require an ability to provide coordination of protection devices in both standalone and grid parallel modes. As more inverter-based generation penetrates microgrids, this issue will be further exacerbated. Microgrids must be able to auto-synchronize with the grid; this is a complex problem for microgrids that contain numerous generators that all must be in phase for successful synchronization.

These challenges, and others, are primarily due to system integration/design issues, gaps in technologies, high costs and lack of standards. The gaps and level of technical challenges increase as the microgrid delivers more complex value propositions (e.g. service differentiation and green power). As value propositions become more complex (e.g. move from reduce cost to managing the intermittency of renewables and helping optimize the power system), there are increased requirements to interact with the grid, and more complex optimization and control algorithms.

These challenges can be met through a coordinated program of pilots, focused technology development and standards development. Integration/design issues are best addressed through pilot demonstrations, which will also lead to lower costs for subsequent installations. Focused technology platforms would close technology gaps, reduce costs and create additional functionality needed for more complex value propositions. Standard setting in design, interconnection, open architecture and interoperability are also required for microgrids to be a commercial success.

In addition to the technical barriers, regulatory barriers need to be resolved. These barriers vary by value proposition. Microgrids could be owned and operated by utilities, new investors or customers under various arrangements which include:

  • Utility-owned generation and wires,
  • Privately owned generation and wires, or
  • Hybrid ownership and operational structures.

To allow for these ownership and operation arrangements and to deliver some of the value propositions listed above, regulations would need to change to:

  • Allow competition, while maintaining an obligation to serve;
  • Fairly compensate utilities for services provided and investments made;
  • Provide transparent compensation for environmental, system reliability and homeland security benefits;
  • Permit customers to see the real cost of electricity, including real-time, locational and environmental attributes;
  • Remove barriers for utility deployment of DER;
  • Adopt nationally recognized interconnection standards, and
  • Resolve security investment cost recovery.


An integrated program of microgrid pilots, technology platforms and regulatory support would overcome the barriers to microgrids and unlock the benefits. The pilots would test different value propositions, scope and ownership options, and regulatory issues. The pilots would also test the technology required to support the microgrid value propositions.

Phase 1

This first phase of pilots should examine the ability of microgrids to reduce energy costs and improve reliability for end-use customers. Programs would be aimed at single- or multi-facility installations owned by a landlord (facility owner) or utility. These pilots would focus primarily on the internal operating and performance requirements of a microgrid including monitoring, control and system protection.

Technology Focus: A “fast switch” whose function is to seamlessly connect/disconnect the microgrid to the utility grid, possibly implemented using power electronics.

Regulatory Focus: Facilitate retail competition, while maintaining obligation to serve; and fairly compensate utilities for services provided and investments made.

Phase 2

Phase 2 pilots will seek to increase the resilience and security of the power delivery system by enabling higher penetration of distributed energy resources. Phase 2 installations may be with multi-facilities, feeders and substations owned by utilities (including municipals). These pilots will examine the microgrid designs that can provide highly reliable service to critical loads during normal grid conditions, and after major outage events. The control focus during Phase 2 will begin an outward shift so that the microgrid can become part of a broader utility/community operating strategy.

Technology Focus: Fast switch and power electronics, black start capability.

Regulatory Focus: Cost recovery of security investments.

Phase 3

By Phase 3, the microgrid’s ability to export grid benefits will be explored. This activity will focus on optimizing the broader power delivery system by providing ancillary services, and by supporting the integration of larger amounts of intermittent renewable energy and efficiency technologies. These microgrids will be of a feeder and substation scope owned by utilities (and municipals).

Technology Focus: Load and generation transfer, advanced control and communications including auto-synchronization with the grid. Component technologies will include energy storage, demand response, and advanced sensing of microgrid/grid conditions.

Regulatory Focus: Transparent compensation for environmental, system reliability and homeland security benefits; permit customers to see the real cost of electricity, which include real-time, location, and environmental attributes.

Poonum Agrawal is manager of markets and technical integration at the U.S. Department of Energy’s Office of Electricity Delivery and Energy Reliability.

Mark Rawson is the energy systems integration R&D program team lead at the California Energy Commission.

Stan Blazewicz is director and Forrest Small is associate director at Navigant Consulting Inc.

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The Clarion Energy Content Team is made up of editors from various publications, including POWERGRID International, Power Engineering, Renewable Energy World, Hydro Review, Smart Energy International, and Power Engineering International. Contact the content lead for this publication at

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