New Microgrid Tracker Identifies 575 More Projects; Rise of Asia Pacific Market

Shayne Willette, research analyst, energy, Navigant Research

In step with the decarbonization, decentralization, and digitization adage, microgrids are increasingly being recognized as viable alternative solutions for companies, governments, military installations, and other critical institutions like hospitals as reliable and resilient power sources. As such, the market is constantly growing and evolving, sometimes reinforcing old trends and at other times creating new ones.

In our most recent Microgrid Deployment Tracker, the 16th edition of one of the most comprehensive databases for tracking microgrids in the world, several notable trends stood out across our 4,475 identified projects, representing 26,965 MW of planned and installed power capacity. This edition of the Tracker includes 575 new entries, a total of 2,915.3 MW.The two most distinct trends from this edition are the Asia Pacific’s region rise as a market ripe for microgrid implementation and the advancement of the Energy-as-a-Service (EaaS) business model.

Regional disparities

Perhaps the most notable takeaway from the microgrid tracker is the Asia Pacific’s emergence as a global microgrid leader in terms of number of projects and overall power capacity, standing alongside the United States. What’s more interesting is the divergent paths the two regions have taken to become the global market leaders.

On one hand, North America’s tracked microgrids have a far more even distribution of customer applications (military, commercial/industrial, etc.). No single application in North America accounts for more than 25% of the regional market. This is in stark contrast to the Asia Pacific market where the ‘remote’ segment, defined as microgrids that are not connected to a grid, accounts for nearly 91% of the regional market. Additionally, these remote systems tend to be much smaller in scale as well, leading to the Asia Pacific being home to roughly twice as many microgrids, but almost equal levels of total capacity.

These regional differences further highlight the uniqueness of microgrids themselves. There is no one ideal configuration, or even a concrete definition of a microgrid for that matter. The desired mix of distributed energy resources, the appropriate business model, and to be grid-connected or not are just some of the few questions that must be asked prior to developing a microgrid based on a confluence of factors like the regulatory environment, location, and reliability concerns.

Business models — energy-as-a-service paving the way

Navigant Research began tracking business models for microgrid projects back in 2015. While business models vary in difficulty to track due to proprietary concerns and sometimes just simply a lack of available information, we’ve put our best foot forward as we believe business models are a crucial facet in understanding the overall market. Navigant Research breaks down business models into the following categories: government funded, owner financed, EaaS, and other.

Even though resiliency has not been adequately captured, U.S. states like Connecticut, California, Alaska, Maryland, Massachusetts, and Hawaii have developed microgrid-friendly policies to further catalyse integration.

Since the onset of tracking microgrid business models, EaaS has emerged as the most common financial mechanism for bringing projects online. While definitions may vary, Navigant Research defines the term as, “projects financed through power purchase agreements and other service-based cost recovery mechanisms, including pay-as-you-go microgrids in the developing world.” EaaS also isn’t strictly limited to microgrid financing either. It’s emerged as a viable business model in other energy-related aspects such as energy efficiency, building optimization, and residential solar.

Of projects in which Navigant has business model data, EaaS constitutes roughly 81% of the market share in terms of number of projects, with owner financing in a distant second at 11% — although if measured by capacity, each business model accounts for roughly 20%, indicating how small EaaS projects tend to be. The discrepancy between number of microgrids using EaaS models compared to others begs the question of why EaaS has emerged as the preferred business model. The short answer is that it gives the consumer more flexibility and less risk. EaaS offers consumers more predictable energy prices, shifts capital ownership to a third-party, and allows for a more customized energy strategy to best-fit a consumer’s needs.

Similar to the microgrid market, the EaaS business model is a disruptive and growing force across the industry, as described in this recent Navigant Research white paper. It will be interesting to monitor how utilities continue to adapt to the ongoing decentralization of the power market.

Microgrid market advancement

The value propositions that microgrids provide compared to centralized power are increasingly receiving acknowledgement by different stakeholders across the industry. This recognition is growing despite the greatest attribute of microgrid technology not even being adequately captured in terms of monetary value: resiliency. In the face of climate change and increasingly potent extreme weather events that are liable to cause power failures, mission critical facilities like hospitals, military installations, and data centers are turning to microgrids as a solution for continuous power flow.

Even though resiliency has not been adequately captured, U.S. states like Connecticut, California, Alaska, Maryland, Massachusetts, and Hawaii have developed microgrid-friendly policies to further catalyse integration. Globally, areas with poor and failing power infrastructure and remote business operations like mining pits are expected to drive the microgrid market forward. Ultimately, microgrids offer value that centralized power cannot. As such, they will be a fundamental aspect of the energy sector as the challenges of today are faced and challenges of tomorrow arise.

Shayne Willette, research analyst, energy, at Navigant Research,