This is why microgrids are becoming popular: Jigar Shah

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Jigar Shah, a well-known energy entrepreneur who now serves as director of the Department of Energy’s (DOE) loan programs, posted on LinkedIn last week: “This is why #microgrids and #distributedgeneration are becoming so popular.”

Shah was referring to a US Energy Information Administration (EIA) graphic that shows power production costs falling and delivery prices rising over the last decade. In other words, if you’re wondering why your power bill went up, look to the grid of transmission and distribution wires, not the power plants, solar and wind farms, and hydroelectric facilities that make the energy.



The EIA found that the cost of delivering power was 65% higher in 2020 than 2010. Meanwhile, utility spending on power production fell from 6.8 cents/kWh in 2010 (using 2020 dollars) to 4.6 cents/kWh in 2020.

How to bypass the delivery system

Because microgrids produce power on-site, or at least near the site they serve, they don’t require the 700,000 circuit miles of transmission lines and millions of miles of distribution lines used to move power around in the US.

The cost of building, operating and maintaining the lines isn’t the only thing microgrids can bypass. Another is line loss, the amount of power inserted into the grid at point A that never makes it to point B. The DOE estimates line loss at about 5%. How much power is that? The Natural Resource Defense Council says it’s enough to power all seven Central American countries four times. That’s money that disappears into the ether when we send electricity long distances, something microgrids have no need to do.

The financial benefit of avoiding delivery costs stack on top of other benefits microgrids and on-site energy offer, most notably the electric reliability provided when the transmission and distribution system fails, such as during hurricanes and wild fires.

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All this isn’t to say that microgrids don’t use the grid. Most in the US do, at least when it’s to their host’s advantage to do so. When it’s not — say at times of day when grid prices are higher than the cost to use on-site generators — the microgrid can disconnect from the grid and rely on its own energy sources to save money.

Going completely off grid

Sometimes microgrid owners don’t bother ever connecting to the grid. Usually, these “remote” microgrids are on islands or other places far from the grid. But not always. We’re beginning to see microgrid owners in places like California and New York City choosing not to connect at all to save money and avoid the hassle of the interconnection approval process.

The past doesn’t always foretell the future and predicting energy prices is a tricky business. So we can’t say for sure that this financial edge for microgrids will continue forever — that power delivery costs will rise as generation costs fall. 

Questioning the status quo

But we do know that strong lobbying is underway to pour more money into the electric delivery system. To be fair, there are good reasons for this. The US transmission and distribution grid is old and needs upgrades. On top of that, the US needs more transmission wire to move energy from large-scale wind and solar farms to population centers and to accommodate electric vehicles.

But how much wire does it actually need? Where can microgrids and on-site energy offer “non-wires alternatives” that are less expensive? Where can they serve electric vehicles, avert grid congestion, replace aging equipment, accommodate renewable energy — and do this while improving electric reliability for a business, organization or community? And are public utilities commissions asking these questions enough?

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About Elisa Wood

Elisa Wood is the chief editor of She has been writing about energy for more than three decades for top industry publications. Her work also has been picked up by CNN, the New York Times, Reuters, the Wall Street Journal Online and the Washington Post.


  1. “The DOE estimates line loss at about 5%.”
    I believe this to be off quite a bit in a true “end to end” system. The utility power is generated in a “centralized” plant. That generation must be matched to the transmission grid and for that (alone) a step-up transformer would lose about 3% of the power at the plant. In the 1950’s Consolidated Edison calculated one will lose about 1% of the power transmitted over 1,000 kilometers. Where the grid gets intrinsically more inefficient is when one hits a city or town and then the first switching station where voltage is “stepped down”, another 3% power loss. Then again into a housing tract another 3%, then again when the voltage is stepped down to feed your home with 240VAC another 3% power loss. That’s clearly 12%. IF you dive deeply into the design of a particular grid system, you can find rural feeders that lose up to 20% to 25% power from generation to house feed. That 5% quoted may be good for the transmission line from generation plant but is not true from generation to end user. The wholesale electricity market is vastly different from the retail energy market. I live in the retail electricity market and a microgrid on my home would do much more than help eliminate a 20% power loss and cost increase paid for by the bundled retail electricity rates. The rote IOU electric utilities push energy efficiency on the homeowners with threats of needing “more power plants” and increasing electricity rates. When the fact that IOU electric utilities are allowed to act as regulated monopolies that are “assured” returns on investments. When ratepayers DO install LED lighting, replace old appliances with new Energy Star appliances, replace doors and windows with Energy Star replacements and their energy use goes down. The electric utility will file a rate case with the SCC, PUC or other agency to increase electric rates for “lost revenues” when the utility doesn’t sell a much energy as it used to. When the electric utility decommissions an old generation asset before it’s amortization period, a rate case for an electricity rate increase will be filed for “stranded assets”. These rote electric utilities need to find a better business model or step aside in BK court and allow a new more sustainable business model to take over. Microgrids on homes and small businesses would go a long way to making this happen.

    • ghotifish says:

      Any chance you could support your statements about rural losses by directing the reader to some pertinent literature on that? I always see loss numbers for the Canadian grid in the 9% range, but it only seems to cover losses from source to cities. Hence my interest.

  2. Climate chanfe, covid19, extreme weather events, supply chain issues, oil and gas company and states’ counter lobbyies, economic distruptions aee some of those experiences our world has went through in the past five years. Electrifixation, DERs may be a part of the solution. However, a solution which is uncordinated wirh other diciplines may not get us to our targets reach.

  3. @ghotifish: At one time the DOE had a graphic showing BTU in, to energy out at end user’s facilities. Siemens has done such a study in the U.S. and says the average is 12% loss, end to end. Unfortunately, I believe Siemans has stopped at the commercial or industrial level of energy conveyance. After one hits a switching station there may be several transformer step down nodes on the way to one’s residence at 3% power loss per step. These are also considered “overhead” that the residential ratepayers get tacked onto each kWh of electricity they use in TD&D, interstate transmission fees, fuel fees, emergency standby fees bundled nice and cozy into each kWh of residential electricity used. When basic wholesale energy cost is 5 or 6 cents per kWh, but the residential ratepayer is paying $0.20 to $0.30/kWh, there’s a LOT of inefficiency burden on the retail electricity ratepayer.

  4. Of course, Microgrids are promptly becoming popular and they are in great demand, but it is really important to realize their key advantages. I would like to highlight that microgrids offer benefits for many businesses, ranging from sustainable development to economics, but it is really difficult to make predictions regarding them. From my point of view, the most important advantage of microgrids is that they provide their owners with greater flexibility, optimizing energy costs. But, of course, we can’t assert that the financial edge for microgrids will continue forever because everything is not stable and every sphere is not stable. I would like to say that everything has a temporary effect and even if many factors indicates that it will be in the long run, everything can change dramatically, but I hope that we will not observe such state of affairs in the near future.