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Why microgrids will make the energy transition cheaper

Microgrids – local power grids that can operate independently of the larger grid – are becoming an indispensable tool in building a clean, flexible, secure and cheaper energy system.

Isolated from the rest of northern California by the “Redwood Curtain,” a fog-shrouded, forested string of coastal mountains, Humboldt County is a remote and vulnerable endpoint on California’s power grid. A few low-capacity transmission lines tie the county to the state’s main electrical grid.

Humboldt has been left without power for hours or even days multiple times in recent years when the local utility, Pacific Gas and Electric Company (PG&E), shut down transmission lines to prevent wildfires in the region. The waters of Humboldt Bay beckon as one of the US’s most promising offshore wind power development zones, but, if approved, electricity from floating wind farms located offshore Humboldt County may not come online before the end of the decade.

Confronted with this energy insecurity, PG&E and several partners have teamed up to develop a microgrid at one of the region’s most critical sites, the Arcata-Eureka Airport. The microgrid – a local electrical grid with its own power supply and the ability to operate independently of the larger grid – will provide dependable, carbon-free electricity to the commercial airport and an adjacent US Coast Guard Air Station.

Clean energy microgrid at City of Fremont fire station.
The microgrid at Fremont Fire Station #6 in Fremont, California, is equipped with 95 kilowatt-hours of energy storage and a 40kW solar PV canopy. (Photo courtesy of the City of Fremont)

The project includes a 2.2MW solar photovoltaic array coupled with a 2MW/8MWh Tesla battery energy storage system. A smaller 320kW solar PV installation will offset electricity costs for the airport. A microgrid controller will enable the system to disconnect and reconnect to the main power grid. Four electric vehicle charging stations will be capable of providing demand response. The microgrid is under construction and scheduled to be fully operational in December 2021.

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What are the challenges of a microgrid?

However, for all the project’s attributes – renewable power, zero emissions, flexibility and energy security – it also highlights the challenges to be overcome for microgrids to become commonplace.

For multi-customer microgrids in particular, there is added regulatory and legal complexity. In addition to PG&E, the airport and Coast Guard, project partners include the county, a research centre at Humboldt State University and the Redwood Coast Energy Authority. In all, the microgrid will deliver renewable electricity to 18 customers.

The precipitous decline in prices for commonly used microgrid components, especially solar panels and lithium-ion batteries, over the past decade makes projects like the Humboldt airport microgrid more attractive. Going forward, projects are increasingly expected to run on solar PV paired with energy storage, rather than diesel-powered generators, but policymakers must still remove the regulatory and policy barriers that are slowing down microgrid development.

Expect more utilities and energy users to turn to microgrids as a reliable source of clean power and a hedge against uncertainty on a warming planet. For utilities and grid operators, microgrids can help preserve system stability when wildfires, heat waves or other emergencies threaten the grid. For local governments, microgrids can ensure that schools, police and fire stations, and other critical sites do not lose power when the main grid goes down. For businesses, microgrids can maintain power 24/7 at data centres and other critical facilities.

Growing microgrid markets

In front runner markets like the US, these forces are boosting microgrid adoption. The US microgrid market saw strong growth for three consecutive years before the pandemic slowed project development in the first half of 2020, says Wood Mackenzie. The research company tracked a record 551 microgrids installed in the US in 2019.

In the US, the trend is towards smaller microgrids that can be built faster and at less cost.

“Increasing system standardisation and decreasing costs of energy resources has reduced development costs and boosted small microgrid growth,” says Wood Mackenzie research analyst Isaac Maze-Rothstein. The cost of commercial solar PV systems and behind-the-meter energy storage declined by 36% and 25%, respectively, from 2014 to the first half of 2020, he states.

Cheaper components and increased standardisation have created a market for project developers like Engie, Schneider Electric and Siemens to offer customers turnkey 'energy as a service' microgrid solutions.

Solar mini-grids for energy access

A transition is also under way from fossil fuel to renewable microgrids. As recently as 2019, distributed fossil fuel generation accounted for 86% of annual installed microgrid capacity in the US, but renewables are expected to power a larger share of future projects.

“We believe microgrids in the US will become increasingly reliant on renewable technologies,” says Maze-Rothstein. “Through our five-year forecast we are optimistic solar, wind, hydropower and energy storage will grow to account for 35% of annually installed capacity by 2025.”

Outside the US, the deployment of renewable mini-grids can help deliver power to the hundreds of millions of people worldwide lacking energy access. While not 'microgrids' as commonly defined, mini-grids without a connection to the main power grid serve much the same purpose of providing reliable power to a defined geographic area.

Nearly 240 million households in sub-Saharan Africa, Asia and island nations must gain electricity access to achieve universal access by 2030. Solar mini-grids can serve 111 million of those households, finds a report published last year by BloombergNEF and Sustainable Energy for All.

Governments still focus on grid extension to deliver power to remote, off-grid areas, but solar mini-grids can provide energy access at lower cost.

“Given that many state-owned utilities are debt-ridden and the need for electricity access is urgent, it is critical for government and utilities to take a least-cost approach that takes advantage of the breadth of technology options,” say the report's authors. The least-cost option is often a solar mini-grid. “Installing PV modules in mini-grids improves their economics as compared to just using diesel,” finds the report.

Removing barriers to microgrids

The airport microgrid in Humboldt County is the first multi-customer microgrid in northern California as well as the first developed under PG&E’s Community Microgrid Enablement Program. Recently approved by Californian regulators, the programme aims to provide energy resilience to vulnerable communities and areas threatened by wildfires.

With much of the western US experiencing severe drought and expected to see more frequent heatwaves, PG&E’s community microgrid programme could be a model for other utilities and electricity providers as rising temperatures continue to disrupt the region’s climate. The challenge for policymakers is to figure out how to enable microgrids to reach wide-scale deployment.

In the developing world, the expansion of mini-grids is hindered by a lack of supportive policies and capital. “The mini-grid market is nascent, despite it being the least-cost option for electricity access in many areas,” write the authors of the BloombergNEF/Sustainable Energy for All report. The lack of scale in turn makes it difficult to attract commercial financing to grow the market.

In mature markets like California, the challenge involves integrating microgrids into existing regulatory frameworks. Legislation enacted in 2018 directed the California Public Utilities Commission to develop rules to facilitate the commercialisation of microgrids.

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Various issues still need resolving, not least how to pay microgrid owners and customers for services provided to the larger grid, and how to account for a utility’s electricity sales lost to a microgrid or capital investments required to interconnect with and service them. There is also the question of how to reduce the complexity of multi-customer projects like the Humboldt County airport microgrid, and whether legal hurdles restricting a microgrid’s ability to serve customers outside its boundary can be overcome.

Finding answers to these questions is important for the energy transition. The cheapest carbon-free US grid includes both greatly expanded, centralised, utility-scale renewable energy and local distributed solar and energy storage, finds modelling by researchers at Vibrant Clean Energy (VCE), a consultancy based in Boulder, Colorado. Distributed energy resources – the heart of any microgrid – complement utility-scale renewables and help smooth electricity demand across the system. Doing so limits the need for the most expensive power generation at demand peaks and reduces congestion on transmission and distribution grids.

“A local and clean electric grid is a lot less expensive than you think," writes the VCE research team. "In fact, it is the most cost-effective option. The savings and additional benefits would be enormous." The team estimates that expanding local solar and energy storage under a national 95% clean electricity standard would save consumers up to $473bn by 2050.

Justin Gerdes

Senior correspondent, US, Justin Gerdes is an experienced energy journalist based in the San Francisco Bay Area.