Distributed energy resources make up the bulk of any microgrid. So incentives for DERs will mean more microgrids, right? Not necessarily, says Peter Asmus, research director at Guidehouse, who explains his new research on DERs in microgrids. As a bonus, Asmus also offers insight into Covid-19’s impact on the microgrid market in this interview with Elisa Wood, editor-in-chief of Microgrid Knowledge.
Peter Asmus, research director, Guidehouse
Your new report DER Deployments in Microgrids finds significant growth in distributed energy resources (DERs) that are part of microgrids — from $6.3 billion in 2020 to $27.7 billion annually by 2029, at a compound annual growth rate (CAGR) of 18%. How much of the overall value of microgrids do DERs represent?
PA: All of it. This is a forecast focused exclusively on the total value of DER assets deployed in microgrids. It differs from some of our other forecasts in that it does not de-rate the value of DER assets based on the ratio of new versus legacy assets for specific market segments. This forecast also does not include microgrid control costs or other balance of system costs. DER assets comprise the largest component of microgrid costs — well over 50% and probably 75% or more, depending on the scale of the system, its application, and the vendors involved.
What DERs are used most commonly in microgrids and how is that likely to change in the future?
PA: The two most common DER choices are solar PV and forms of energy storage. In 2020, Guidehouse Insights forecasts that solar PV will make up 37% of new DER microgrid capacity while energy storage captures 19%. By 2029, these two most popular DER options are expected to increase their market share. Solar PV is anticipated to increase modestly to 43% while energy storage jumps to 38% DER microgrid capacity market share. We expect the relative market shares of most fossil generation resources to decline and to see greater diversity of renewables such as wind and hydro in remote microgrids.
What DER incentives are particularly important to microgrid development?
PA: Tax credits for the DER assets themselves and reduced or removed government support for diesel fuels in developing world markets are two major incentives. Beyond these incentives, focus has increased on regulatory barriers.
For example, interconnection study requirements that may be based on outmoded technologies or biased assumptions that microgrids may have a negative impact on the larger grid. In reality, microgrids can bolster grid reliability — if allowed to do so. A promising trend being driven by growing acceptance of energy storage by regulators is the ability of microgrids to provide grid services upstream. This is where microgrids dovetail with demand response and virtual power plant concepts. The challenge is that these rules vary by grid operator control area and even utility by utility. If these regulations are streamlined, microgrids could be seen as less of a threat to incumbents and perhaps more of a partner in resolving grid reliability issues.
I was intrigued by your statement about the counterintuitive impact government support can have on DERs — that some forms of support actually may limit microgrid applications and a decline in subsidies at times can spur microgrids. How does that work?
PA: The best example is a feed-in tariff, a standard tool for solar PV. These tariffs assume that all of the energy produced by these DER assets flow into wholesale markets. The solar PV system captures more revenue the more it contributes to the overall supply. These resources are basically precluded from being included in a microgrid. Islanding violates these contracts.
Another aspect related to this is declining government support for solar PV, or the elimination of net metering. Taking away these traditional support mechanisms for renewable distributed generation, such as solar or wind, provides incentives to add energy storage; adding energy storage allows those assets to be maximized through value stacking, including providing energy services when the larger grid goes down. This hybrid solar PV-energy storage system brings these DER pairings one step closer to becoming a microgrid — if islanding capability is also integrated into the controls platform.
You’ve also recently released a report on COVID-19 and microgrids. What is the pandemic’s short- and long-term impact on microgrid growth? Why are microgrids expected to experience double-digit growth despite a severe global recession?
PA: In the short term, we see some disruption such as longer timeframes for bringing projects online in 2020 and stretching into 2021. We have de-rated our microgrid forecasts accordingly. But vendors report that their project pipelines remain intact, for the most part. The chief challenges stem from uncertainty on social distancing, designations as essential business enterprises, and the like. Vendors also had to figure out new ways to commission projects, leading to some innovations. COVID-19 only amplified some trends toward fine-tuning systems up in the cloud and placing greater emphasis on modular systems that require less onsite engineering.
Over the long run, we see the coronavirus outbreak as accelerating microgrid growth. A pandemic is just another disruption to society. Add it to the list of contingencies that need to be accounted for in infrastructure planning, which include global climate change, terrorist threats, wildfires, etc.
But the growth isn’t even. What microgrid segments may benefit from COVID-19 and which segments will likely suffer?
PA: It is true the effects of COVID-19 are uneven. Some microgrid segments will benefit such as healthcare. Others will suffer. One emerging trend is premium real estate developers in the hospitality space seeking resiliency and onsite DER optimization – they are now suffering because of restricted travel and worries about exposure to COVID-19. We expect them to be less interested in forging ahead with these longer-term investments.
Another segment likely to suffer is community microgrids. Already the most difficult due to regulatory challenges and diverse stakeholders, the inability to meet in-person in public forums to negotiate and compromise between idealistic notions and practical reality of grid physics and utility protocols will make these microgrids even more difficult to move forward in the very near term.
Any last insights for the microgrid industry based on your recent research?
PA: One interesting thing to watch is the convergence of different DER-related platforms. Microgrids are merging with virtual power plants and DER management systems. I’m authoring some forthcoming white papers on these topics.
I also see increased traction in home-based nanogrids revolving around solar PV and energy storage because of social distancing and shelter-in-place requirements. Some citizens may be leery of gathering in public spaces during power outages. These home-based nanogrids could become assets for VPP aggregations; they could also be rolled into future community microgrids if some of the over the fence restrictions and prohibitions on transferring electricity over public rights-of-way are loosened.
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