Credit: K. D. Schroeder
Two respected research firms regularly analyze and forecast market growth for microgrids. Both agree that microgrids will grow at a rapid clip over the next five years. But how rapid?
If you try to compare the findings from the two firms — GTM Research and Navigant Research — you might end up scratching your head. It’s a bit of an apples and oranges task since they use different definitions of ‘microgrid’ and delve into different geographic terrain.
Navigant Research forecasts that by 2020 microgrid vendor revenue will be $19.9 billion globally with $8.7 billion attributed to North America. GTM Research finds a cumulative U.S. investment of $3.5 billion from 2015 to 2020. (The U.S. is the focal point of North American microgrid development.)
At first look, the market appears smaller in GTM’s assessment. Should the industry be jubilant about the Navigant figures? More sober if GTM is correct?
Data Influences Business Strategy
The question is important because energy companies allocate resources based on work by forecasters like Navigant and GTM Research.
David Chiesa, S&C Electric’s director of commercial & industrial and microgrid market segment, said his company relies on the findings to indicate market direction and size. The data guides decision-making about product innovation, advertising, and personnel.
“We can afford only so many marketing research resources. So as a rule, like a lot of other companies this size, we pool those resources into an organization like GTM or Navigant,” Chiesa said.
But S&C does some slicing and dicing of the figures before taking action. Chiesa believes if researchers are going to err, it will be on the side of too much optimism.
“What we really do is try to take multiple data points, pool them together and figure out what’s the directional indication for the market and then try to formulate from that what’s an approximate size, conservatively. We’ll take the smallest of all of those estimates and make it a little bit smaller,” he said.
What’s Counted
So what exactly do the numbers from Navigant Research and GTM Research tell us?
It’s important to consider how each defines ‘microgrid.’ Within the energy industry, the term is murky at best.
“Understanding what a microgrid means today versus what it meant by the strict academic definition a few years ago would alter people’s forecasts at the end of the day,” said Omar Saadeh, senior grid analyst at GTM Research. “You really have to look under a microscope into what are the capabilities of the project.”
While some energy companies adhere to strict academic definitions, others use the term microgrid for energy projects that are virtual power plants, community solar and even utility distributed energy management systems. These are related concepts and technologies, but not the real thing.
“People have projects that they never called microgrids, but now they want to call them microgrids because it’s a hot topic,” said Peter Asmus, principal research analyst for Navigant Research.
The Department of Energy definition, which is what Navigant uses, seems to be most widely accepted as a true microgrid:
A microgrid is a group of interconnected loads and distributed energy resources within clearly defined electrical boundaries that acts as a single controllable entity with respect to the grid. A microgrid can connect and disconnect from the grid to enable it to operate in both grid-connected or island-mode.
GTM Research’s definition is similar although the company qualifies projects further based on the technology they use to island from the main grid.
“It can’t just be a manual switch to island a hospital, which you do see in many cases. We had to disqualify a few of the projects that we thought initially were microgrids. Essentially they were large CHP (combined heat and power) deployments at hospitals,” Saadeh said.
In other words, islanding must occur autonomously and seamlessly, “not with an engineer flipping a switch,” he said.
Navigant tries to cast a wider net. Asmus said he avoids the more nitty-gritty engineering debates, as long as the microgrid meets the DOE definition.
“The problem is, if you try to make judgments about controls, there are huge debates about what is and what is not a microgrid. No one can agree. Is it CHP that can island? Is there is a size restriction? Does it require smart meters or can just an inverter serve as the basis of optimization through power electronics?”
Asmus also pointed out that the location studied influences capacity estimates which then boost revenue figures.
Navigant, for example, has given Alaska a lot of attention due to a client inquiry. It found the state to be the world leader in microgrid deployment, if one includes remote systems. This plays into overall revenue figures, since revenues for remote microgrids can be double or more that of their grid-tied counterparts.
Insight into Microgrid Market
Navigant frames the microgrid market in different ways and publishes specialty reports on topics like community microgrids, utility distribution microgrids and, soon to be released, solar PV plus energy storage nanogrids.
The company also offers two major data sets — a microgrid deployment tracker and then a variety of forecasts — which each look at the market in different ways.
The Navigant deployment tracker considers actual identified projects or portfolios of projects that are either operational, under development or proposed, and includes available data on capacity, resources, companies involved, and similar information.
In contrast, the forecast report provides anticipated growth figures. The overall Navigant market forecast, last published in 4Q 2013 and now undergoing an update, is based on the tracker and other assumptions about projects that vendors don’t want to disclose, but which shape the size of the market. For example, one vendor notes a portfolio of 1,000 MW of microgrid capacity in the U.S. alone, yet has failed to provide project details. The forward looking forecast factors that somewhat anonymous data into the working model, whereas the tracker data does not, Asmus said.
Asmus noted that, ironically, the more commercially mature the microgrid market becomes, the less data on specific projects will be available, since there will be less public funding involved. Vendors are becoming very guarded, he said.
Both companies talk directly with companies to gather data.
In its most recent report, GTM looked at a more narrow universe than did Navigant, focusing on the U.S. The company analyzed 216 operational and planned projects. It released data on such segments as state and region, type of microgrid users, and the vendor ecosystem.
Among other things, GTM found that 49 percent of operational capacity has less than 1 MW of generation (not including energy storage). This is in line with the idea that so far the US has been building microgrids for critical facilities, Saadeh said.
“We do expect the size of microgrids to gradually increase as we move toward larger communities, especially city-wide microgrid projects,” Saadeh said.
Regional Total Microgrid Generation Capacities by End-User Type (Planned and Operational)
Credit: GTM Research
GTM sees particular growth ahead for cities, public facilities and microgrids built on islands.
Some interesting findings by GTM include:
- Generation accounts for about 40 percent of the money spent on a microgrid
- Over 80 percent of operational microgrid generation capacity is distributed among just seven states
- 44 percent of operational microgrids integrate battery storage
Brace Yourself
If you’re still confused about microgrid growth, brace yourself — it may soon get more perplexing. Here’s the problem. Prices are dropping for certain components of microgrids, Asmus said.
Yes, that’s a good thing. If microgrids become less expensive, more companies and communities are likely to install them. However, from purely a topline numbers perspective, it could look bad. If microgrids cost less, the revenue forecast may fall. It would look like the market for microgrids is declining, when it is in fact growing. More capacity is likely to come on line since microgrids will be more cost effective.
In particular, costs are falling for energy storage (especially lithium ion batteries) and solar PV. “Those costs are declining much more quickly than we assumed in 2013,” Asmus said. “In more recent bids, the deployment cost for your average scale microgrid is dropping basically $1 million per MW, if it includes those two technologies, which are both emerging as preferred resources.”
So, the bottom line? Sift through the various reports, and you will see that the microgrid market is healthy and growing. Be wary of topline revenue forecasts. Or at least dig deep into what’s being measured. It’s not a simple market, not one easily encapsulated into a sound bite.
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