Why Microgrids are at an Inflection Point

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Microgrid growth appears to have reached an inflection point, driven by demand for reliable energy, especially in California, as well as economic, environmental and societal factors. This excerpt from a new special report by Microgrid Knowledge and AlphaStruxure explores the growth stimuli.

Energy-as-a-Service

Download the full report.

Microgrid installations are accelerating in a range of settings, including communities, industrial operations, ports and airports, business parks, fire and police stations, schools, data centers, water treatment facilities, military bases and other operations.  

North America is on track to see the microgrid market grow to $10 billion in the next seven years, according to Navigant Research, a Guidehouse company. Worldwide the market is expected to grow from roughly $3 billion to $30 billion over that time frame. 

As aggressive as that forecast sounds, it may underestimate microgrid penetration, given recent events. Since Navigant published its forecast in 2018, activity has picked up dramatically, with California appearing to bring the microgrid market to an inflection point. 

For example, Pacific Gas & Electric intends to rely on microgrids to power a significant number of its customers during future public power safety shutoffs. The utility is planning to add 522 MW of microgrids in 2020. To put that in perspective, that’s nearly as much microgrid capacity as the entire US added in 2019, according to a Wood Mackenzie report. On top of that, businesses, cities, schools, additional utilities, and others in California have been issuing plans to build microgrid projects of their own since the wildfire shutoffs, making the state an epicenter of development.

But the shutoffs are not the only impetus. Nationwide a confluence of market and societal shifts are heightening interest in microgrids, especially among corporate C-suite executives who seek not only electric reliability, but also stable energy costs and a sustainable power supply. 

Four our main stimuli for microgrid growth

1. Microgrid economics are now compelling 

Navigant identified a 30% drop in microgrid costs from 2014 to 2018. A microgrid’s generation and storage assets contribute the most to its costs, so not surprisingly, the cost decline is linked to a corresponding drop in the price tag for solar and batteries. 

Batteries have experienced an 87% drop in price since 2010 according to Bloomberg New Energy Finance. Meanwhile, the Solar Energy Industries Association has documented a 70% decline in the cost of solar photovoltaic systems over the last decade. Tax incentives and grants can further improve a microgrid’s economics, where they are available. 

A microgrid is characterized by its software and control systems, which can be highly sophisticated and allow for advanced energy management. Photo: AlphaStruxure

With any discussion of microgrid economics, it’s important to consider not only cost, but also the savings and revenue a microgrid can offer. Large energy customers often grapple with utility demand charges, which their microgrid can help them manage. Microgrids also are often used to leverage grid pricing, or they may earn revenue for their owners by selling services to the grid or participating in utility demand response programs. 

2. Increased need for reliable electricity 

Power is the lifeblood of a digital economy. In a world where almost all business is web-enabled, a power outage virtually shuts down society. Consider that: 

  • The Berkeley Lab estimates annual power outage costs at $44 billion, up 25% since 2006 
  • Eight key U.S. market segments studied by energy consultant E Source lose about $27 billion per year due to power outages. 
  • Power outages are the primary cause of data center downtime at a cost that can exceed $1 million per incident — and in one case reached $50 million, according to a survey by the Uptime Institute. 

These studies were done prior to the California power shutoffs of 2019, which are likely to recast some of the numbers dramatically. 

While it’s a relatively straightforward calculation to determine economic losses for most businesses—perished goods, lost sales, diminished worker hours—the calculation becomes more complex when considering societal impacts. When the value of life is considered, whether in medically vulnerable populations or power outage-induced accidents, the figure becomes incalculable. 

3. Sustainability as a core C-Level goal 

Sustainability has become increasingly important to the corporate world. While in 2011 only 20% of Fortune 500 companies engaged in sustainability reporting, by 2018 the number had reached 86%, according to the Governance & Accountability Institute (G&A). With this trend the C-Suite has become increasingly involved in making energy decisions. 

Still, 80% of CEOs believe corporate efforts on the environment fall short, according to a survey of 1,000 chief executives by Accenture and the United Nations Global Compact. 

By installing microgrids, executives take control of their organization’s energy supply, which can help them fulfil a range of environmental, societal and economic responsibilities. 

By better integrating clean sources of energy and improving energy efficiency, a microgrid can also help the corporation improve its Environmental, Social and Governance (ESG) scores, a metric increasingly used by analysts and investors in evaluating a company’s performance.

For example, a company that installs a clean energy microgrid shows itself to be a good corporate citizen. Green energy used by the microgrid may even help the company’s city or state reach clean energy or climate goals. Some companies take their societal contribution a step further by opening their doors to the community to charge phones and get a hot meal during an extended power outage. 

By better integrating clean sources of energy and improving energy efficiency, a microgrid can also help the corporation improve its Environmental, Social and Governance (ESG) scores, a metric increasingly used by analysts and investors in evaluating a company’s performance. It’s also important to remember that a large swath of consumers — particularly Millennials and GenXers — support clean energy and gravitate toward companies that show climate stewardship. Showing support for sustainable energy, particularly technology geared for an era of climate change, can help differentiate your company from those yet to catch on. 

4. Desire for local control of energy 

Communities, too, are seeking more control over their energy production and use. In seven states, including California, this trend has led to a rise in community choice aggregators (CCAs), entities formed to secure power on behalf of the residents, businesses and public accounts in a municipality or county. California’s first CCAs appeared in 2011 and the state now has nearly 30 operating or in planning. 

CCAs attempt to use their collective buying power to drive down energy costs for the community. CCAs attempt to use their collective buying power to drive down energy costs for the community. They also work to reflect community values. So in green-leaning California., the CCAs offer customers the choice of using power that comes at least partially from renewable sources. California’s CCAs also focus on electric reliability, so several are exploring microgrids. Redwood Coast Energy Authority in Humboldt County already has a microgrid under development. Monterey Bay Community Power has released an application seeking customers to host microgrid projects. 

Alphastruxure

Microgrids are clearly on the rise with
several factors responsible: technology
advancements, reliability needs,
C-suite leadership and the local energy
movement. Image courtesy of Christos Georghiou/Shutterstock.com.

CCAs and microgrids are a natural fit: both champion local energy that can reduce costs, accelerate sustainability, and improve reliability. As a result, adoption of CCAs is likely to foster more microgrid installations. 

Microgrid growth is clearly on the rise with several factors responsible: technology advancements, reliability needs, C-suite leadership and the local energy movement. But one of the biggest drivers came with the introduction of an innovative financing model, energy-as-a-service, which makes microgrids easy and affordable for the customer. We’ll explain how it works in the next chapter. 

See the first entry in this article series that covers whether energy-as-a-service microgrids are the next logical step for California, and for the rest of the country as well.

And stay tuned. This special report series will also explore in the coming weeks:

  • What businesses and institutions need to consider as they make decisions about energy costs, reliability and sustainability
  • How energy-as-a-service contracts work and real-world examples

We invite you to download, “Why Energy-as-a-Service Microgrids are the Logical Next Step for California…and the Rest of the U.S,” free of charge, courtesy of AlphaStruxure. And we encourage you to share this link widely to help educate California — and the rest of the U.S. — about energy-as-a-service microgrids.

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