The old definition of a microgrid was usually an electricity source, often a combined heat and power natural gas plant or a reciprocating engine generator, that provided fulltime or backup power for an industrial site, military installation, university, or remote location.

Today’s definition is much broader, incorporating cleaner technologies and more diverse customers, establishing microgrids as a key component of tomorrow’s more resilient, efficient and low-emissions electricity system.

A new brief, Microgrid Momentum: Building Efficient, Resilient Power, by the Center for Climate and Energy Solutions (C2ES) and The George Washington University (GWU) outlines microgrids’ benefits and examines what is standing in the way of accelerating their deployment.

Microgrids currently provide a tiny fraction of U.S. electricity (about 1.6 gigawatts, or less than 0.2 percent), but their capacity is expected to more than double in the next three years.

Three examples of the growing interest:

• Montgomery County, Maryland, recently entered a public-private partnership to develop two microgrids to power county facilities. Ratepayers won’t have to foot the bill, and the government will get more resilient and affordable power with environmental benefits.
• In the Denver suburbs at Peña Station Next, a “smart” city is taking shape that will test LED lighting, autonomous vehicles, and a microgrid that uses solar panels and battery storage.
• In Alaska, the state with the most microgrids, the city of Anchorage is about to deploy a project that will make use of two energy storage technologies and help the area integrate more wind power.

Microgrids not only improve reliability and resilience – keeping the lights on during a widespread disaster that affects the main grid — but also increase efficiency, better manage electricity supply and demand, and help integrate renewables, creating opportunities to reduce greenhouse gas emissions and save energy.

But financial and legal hurdles stand in the way of accelerating their deployment.

Each microgrid’s unique combination of power source, customer, geography, and market can be confusing for investors. Microgrids can run on renewables, natural gas-fueled turbines, or emerging sources such as fuel cells or even small modular nuclear reactors. They can power city facilities, city neighborhoods, or communities in remote areas. As we heard during our research, “If you’ve seen one microgrid, you’ve seen one microgrid.”

The legal framework can be confusing, too. Most states lack even a legal definition of a microgrid, and regulatory and legal challenges can differ between and within states. Issues include microgrid developers’ access to reasonably priced backup power and to wholesale power markets to sell excess electricity or other services. Also, franchise rights granted to utilities may limit microgrid developers’ access to customers.

The report identifies tools that can help address these challenges.

• Public-private partnerships could play a growing role in overcoming financial hurdles. Mixed ownership microgrid projects, which can include money from public institutions, utilities, and private entities, have increased from nearly zero in 2013, to a projected 38 percent of the market in 2016. Recent examples include microgrid partnerships at Peña Station Next in Denver, Colorado, and two government facility microgrids in Montgomery County, Maryland.
• States can also play a key role in facilitating microgrid development. Most existing microgrid projects are concentrated in seven states: Alaska, California, Georgia, Maryland, New York, Oklahoma, and Texas. Some states, including California, Connecticut, Massachusetts, New Jersey, and New York, have created clean energy banks, grants, or other funding opportunities for microgrids. For example, New York established a $40 million grant program (i.e., NY Prize) to create community microgrid projects that can serve as templates for other communities. More state grants or low-cost loans could help launch more microgrids.
• Linear programming models like the one outlined in the report can help focus a proposed project on cost savings, emissions reductions, or independence from the larger grid; forecast or estimate cash flows and financing needs; and manage power supply and demand.

Microgrids are not a traditional or typical infrastructure investment for utilities, nor has the existing electric power industry been structured to facilitate development of microgrids by non-utilities. We’ll need more dialogue among the finance community, service providers and implementers, and government and regulatory agencies to develop the frameworks and policies needed to foster microgrid development.