Technology + Data

The Microgrids are Coming: Are Utilities Ready?


As dynamic systems drawing upon a variety of resources, microgrids can provide significant benefits for host facilities and grid operators. At the most basic level, a microgrid is an energy load that uses distributed energy resources (DERs) located onsite. Further, microgrids allow islanding from the traditional grid, and they continue operating at full or reduced capacities in the grid’s absence.

Common technologies used to configure microgrids include (but are not limited to): solar photovoltaic (PV); combined heat and power; energy storage; and diesel, natural gas, or propane generators. This wide range of technologies could provide end users and grid operators with the flexibility to disperse certain resources based on their availability, and the needs of the site or grid.

Notably, microgrids also can become income-generating assets that provide revenue streams as their dynamic capabilities are recognized and captured.

Benefits Microgrids Provide to the Grid

Microgrids offer substantial benefits to their hosts — primarily energy independence and resilience from grid events. They also offer less-apparent benefits to the grid as well.

For example, microgrid investments can alleviate demand on the grid by reducing or shifting peak demand on equipment — hence avoiding or deferring the need to make costly upgrades to substation feeders and other equipment. In a constrained region, customers can disperse generation and storage resources incorporated into locally sited microgrids during peak demand. This reduces demand on a central generation facility.

Microgrids can make the grid more resilient in other ways. Most obviously, they can island from the grid during a disruption or event, allowing facilities interconnected to the microgrid to remain operational, though likely at a reduced capacity. If critical community infrastructure such as an emergency shelter used a microgrid, it could perform its critical functions if power from the grid became unavailable. From the utilities’ perspective, keeping some critical facilities operational using a microgrid can allow the utilities’ limited resources to focus elsewhere, by returning power to other, less-resilient infrastructure.

The Massachusetts Department of Energy Resources currently is supporting the development of microgrid systems through its Community Clean Energy Resiliency Initiative.1 The Commonwealth is providing grants to public entities seeking to harden critical infrastructure through the addition of clean energy technologies.

Utilities should seize this opportunity, before widespread implementation takes place, to plan and implement clear interconnection standards for microgrids, and to develop protocols for their interactions with the grid.

One participating community explored interconnecting three critical community resources and creating a microgrid. They leveraged existing generation capacity with the addition of battery storage, solar PV, biomass and natural gas generators. The three facilities, located on both contiguous and adjacent properties, included a regional hospital, a department of public works facility and a school serving as an emergency shelter. The community is pursuing an engineering study to better understand which equipment would most cost-effectively meet the facilities’ needs. A preliminary design estimate indicates that the facilities’ critical load needs can be met with resources sited locally.

The community faces some challenges, however, such as crossing a public right-of-way to interconnect facilities and determining how systems will be treated for net metering. It also needs to establish a system configuration that ensures that the hospital is not compromising its ability to meet its energy needs when sending power to other facilities during a grid event.

The grid, particularly in areas with high-penetration rates of intermittent, renewable energy production, could benefit from microgrids capable of providing ancillary services. It could leverage DERs to manage the grid’s needs when other, intermittent resources are unavailable. Unsurprisingly, microgrid owners and operators likely will seek compensation for any services provided to the grid. To encourage development, utilities can open ancillary service markets, allowing microgrids to access revenues streams for the dynamic benefits they provide. This could include peak shaving, frequency regulation and synchronized reserves.

Without access to these revenue streams, microgrid owners essentially pay a premium for the added resilience they provide. While energy resilience can be a valuable asset, microgrids will need to generate additional income to make the return on investment more attractive to investors — hence making widespread deployment possible.

Utilities need to consider the value of these benefits and, through regulation, create markets for customers to tap into and receive compensation for providing them. Unlocking and correctly valuing these ancillary services will efficiently drive the industry to develop microgrids.

PJM, the independent system operator (ISO) serving a number of Mid-Atlantic States, is one of the only ISOs in the United States to maintain a robust ancillary service market.2 PJM customers can participate in the following ancillary services:

  • Synchronized reserve
  • Non-synchronized reserve
  • Day-ahead locational margin pricing (LMP)
  • Real-time energy market LMP
  • Curtailment
  • Congestion pricing
  • Frequency regulation

Allowing DERs to participate in these markets has drawn an influx of energy storage and microgrids to the region; to the degree that the New Jersey Clean Energy program’s energy storage competitive solicitation has reached its program funding limits and has closed for the fiscal year. While these added resources have been providing ancillary service benefits during normal operations, they also will likely pay dividends during the next natural disaster or grid event.

Preparing Utilities for Large-Scale Deployment

A variety of industries have expressed interest in using microgrids to aid end users and grid operators in meeting their energy needs. With resources allocated to develop these technologies from the public and private sectors, larger-scale deployment appears imminent.

Utilities should seize this opportunity, before widespread implementation takes place, to plan and implement clear interconnection standards for microgrids, and to develop protocols for their interactions with the grid. Clear interconnection guidelines will ensure that parties consider these aspects early when evaluating a proposed project. It is more difficult to develop standards while implementing a project. In addition, if project developers understand the standards required at the outset of project design, the process is more streamlined and lowers overall project approval costs. Removing other barriers, such as reducing capacity limits for systems to participate in capacity markets and grid support markets, will open more opportunities for microgrids to assist grid operators.

Utilities taking a proactive approach to understanding the benefits of microgrids can begin developing rules and regulations for those looking to provide ancillary services. As with interconnection standards, clear guidelines for ancillary services will allow project developers to plan system configurations accordingly. If microgrids will interact with the grid during normal operations, clear guidelines of when a resource is available to the grid or the end user should be established. This is likely to happen on a case-by-case basis.

Establishing potential revenue streams for developers and project investors will result in better revenue planning, lower financing costs and increased project development. Maximizing microgrids’ benefits will require identifying existing, constrained infrastructure and developing mechanisms to prioritize development in those areas, which again, can defer or eliminate the need to upgrade costly utility equipment.

Those who develop market participation guidelines should consider the flexibility and diversity of technologies that can be incorporated into a microgrid. Allowing facilities to participate in a variety of markets, depending on the grid’s needs at a given time, will ultimately lead to an efficient use of deployed technologies.

With proper planning, targeted deployment, and clear, established guidelines, these dynamic systems may cost-effectively be deployed on a larger scale. They may serve as transformative technologies, capable of providing enormous benefits to end users and grid operators. A proactive approach to answering some of these outstanding questions ultimately can result in beneficial outcomes for all.


Microgrid equipment at the National Wind Technology Center in Colorado. Photo courtesy of the National Renewable Energy Lab (Connie Komomua)

About the Author

Ryan Fahey, Cadmus
Ryan Fahey is an energy and environmental policy professional with expertise in renewable energy consulting. He supported more than 20 communities implementing renewable energy projects in Massachusetts, and was a key member of the team providing technical assistance to 27 municipalities under the Massachusetts Department of Energy Resources’ Community Clean Energy Resiliency Initiative. There, he assisted in the preliminary design of microgrids and islandable renewable energy facilities. Ryan also administers and evaluates renewable energy programs for state agencies nationwide.