By Lisa Sundeen.
You know something’s a good idea if Thomas Edison thinks it’s a good idea. In the late 1800s, when some of the world’s greatest innovators were still fleshing out the model for the North American electricity system, Thomas Edison promoted the idea of a microgrid. A microgrid is an independent electrical grid composed of a variety of distributed energy resources. (Department of Energy). Given that direct current (DC) can only be converted at low voltages and is therefore not ideal for long distance transmission, Edison argued that small generators located within a neighborhood should produce local power. However, Nikolas Tesla promoted the benefits of alternating current (AC), which was more suitable than DC for long distance transmission. Unfortunately for microgrid development, George Westinghouse won several large contracts that used Tesla’s AC infrastructure and set the country on a path to centralized power generation.
What if there was a better business case for microgrids? Could microgrids replace the current utility network that relies on investor-owned utilities and massive power plants? Although an out-and-out overhaul of the electricity sector is unlikely, there may now be a better business case for microgrids both in the United States and abroad.
The key to developing a successful business case for microgrids is understanding the customer. For remote off-grid communities, finding $150 million of funding to build a 40-megawatt microgrid might not only be overwhelmingly challenging but also unnecessary (Scientific American). Some of the most effective microgrid projects are those which are designed to meet the needs of the community. If project developers thoroughly understand the electrical load of a community, they can design the microgrid to exactly meet that load with perhaps an option to increase load based on repayment history. This could mean developing a business model for a less expensive micro microgrid if the end-users on the circuit only need power for basic residential uses. Furthermore, the economic efficacy of a microgrid will depend on the incumbent energy source. If the combination of technologies forming the microgrid cannot produce electricity more cheaply than the pre-existing alternative, customers will have little incentive to switch. Microgrid developers must complete their due diligence when designing a microgrid.
The practice of due diligence is already underway in the distributed solar industry. Solar systems are sized to meet 100% of a consumer’s historical production, ensuring that the system will not be producing superfluous electricity. Also, the cost of building and selling distributed generation solar must be less than the price of electricity from a customer’s local utility. Fortunately, solar has already reached grid parity in 20 states. (Greentech Media) Solar not only serves as an affordable microgrid technology but also provides some helpful business insights for the microgrid industry.
Of course, the microgrid industry still faces numerous policy, finance, and technology challenges. On the policy front, many laws still cater to the centralized electric grid, making it difficult for microgrids to connect and disconnect from the grid. Furthermore, policy in many regions doesn’t address microgrids at all, making standardization difficult. This lack of standardization, in turn, can cause investors to question the viability of the industry. Without much of a track record and an unclear policy environment, microgrid projects often have a hard time securing the necessary upfront investment. Lastly, even though the cost of solar has fallen year-over-year in recent history, other more complex technologies that make up microgrids have not followed quite the same trajectory. (Greentech Media) For example, the value of batteries, critical components of most microgrids, remains hard to quantify given the irregular timing of battery use. (GreenBiz) Nonetheless, as more consumers desire reliable electricity access and as policymakers continue to promote a clean energy agenda, microgrids will continue to spark interest, and Edison’s idea just might find its way into the limelight once again.