Microgrids Looking for Right Model
Wednesday, December 15, 2010 @ 06:12 PM gHale
Microgrids offer a compelling alternative to traditional energy generation and distribution, utilizing smart grid technologies to enable integrated control of distributed power generation assets either in parallel to or “islanded” from the utility power grid. However, with this promise also comes a dilemma: What is the business model?
Pike Research said there are more than 140 microgrid projects totaling over 1.1 gigawatts (GW) of capacity worldwide. The current mix of microgrids utilizes a wide variety of renewable and fossil fuel-based power sources in addition across all types of operating segments, including commercial and industrial sites, university campuses, remote off-grid communities, and military microgrids.
Industry leaders continue to hunt for the proper business model and regulatory structures for decentralizing the power distribution infrastructure to integrate renewable energy while adding greater reliability, security, and self-healing capabilities to electricity distribution.
Microgrids may be a hot topic among those forecasting key future trends shaping the world’s energy infrastructure, but few fully commercialized state-of-the-art microgrids with significant generation capacity are actually up and running in North America, the world’s leading market for microgrids. On the surface, the lack of progress in fully commercializing the microgrid model might appear to be a symptom of the lack of clarity and long-term thinking in designing the overarching smart grid. Upon deeper analysis by Pike Research, we find that the issues involved are a bit more complicated.
A “microgrid” is an integrated energy system consisting of distributed energy resources (DERs) and multiple electrical loads operating as a single, autonomous grid either in parallel to or “islanded” from the existing utility power grid. In the most common configuration, DERs tie together on their own feeder, which then links to the larger grid at a single point of common coupling.
Pike Research developed a database that identified 1.3 gigawatts (GW) of existing or planned microgrids, which served as the foundation for a 2009 market forecast.
Since last year, Pike Research has learned of more than 50 microgrid projects operating in some capacity or are in development. All told, the database now includes more than 140 microgrid projects totaling over 1.1 GW in capacity.
If you add in the “first generation” microgrids that have been operating at industrial sites and college campuses in the United States, the total capacity of microgrids currently operating, or in the development phase, globally, climbs to more than 1.8 GW.
After reviewing the 2009 forecast and assessing market movement over the past year, Pike Research has incorporated some significant changes to the 2010 forecast for global microgrid capacity. The 2010 forecast is rooted in a more granular assessment of each segment within each country. In addition, three different scenarios acknowledge the future microgrid market still faces great uncertainty.
A clear market niche exists for cleaner, more reliable energy services tailored to the precise needs of underserved utility customers, both in the industrialized world as well as emerging markets for energy services in developing nations. Pike Research’s 2010 market forecast shows microgrid capacity could reach up to 4.5 GW by 2016. The new forecast recognizes the cultural and financial shift necessary to enable this business platform tends to take longer than visionaries and venture capitalists have the patience for, but that potential exists for rapid growth toward the end of the market forecast period. And yet, Pike Research does see evidence that innovative firms can create viable value propositions even with today’s less than ideal market conditions.
In contrast to the flat growth rates used in the 2009 forecast, Pike Research expects the adoption rate of microgrids to follow a trend more analogous to exponential growth during the forecast period. As with any new innovation, the adoption of microgrids will increase as awareness of, and confidence in, the technology’s capabilities grow. The earlier years of the forecast period should bolster the microgrid business case as increasing numbers of “plug-and-play” components and control systems turn into pilot projects and commercial installations. Since 2009, there has been progress on the security, safety, and engineering standards supporting commercial microgrid deployments, which should drive technology cost cuts over the next five years. These milestones will set the stage for greater growth in the later years of the forecast period, an exponential growth trend that will continue to explode beyond 2016.
Total microgrid revenues for all five segments in 2011 are $200 million. By 2016, however, the market should hit $2.3 billion, and, under the best of circumstances under the aggressive scenario, exceed $3 billion.
• Institutional/Campus: This segment enjoys the largest cumulative capacity over the forecast period, with 1,298 MW coming online by 2016, representing a 20.3% compound annual growth rate (CAGR). That capacity figure represents an $833 million market for this leading market segment.
• Military: This market segment is an early adopter, but is restricted to the United States, at least within the market forecast timeframe. Pike Research forecasts cumulative capacity will reach 455 MW by 2016, a 35.4% CAGR. We anticipate that revenues will reach $364 million by that same date.
• Remote “Off-Grid” Systems: Though this segment only reaches 357 MW in total capacity by 2016, the average size of these remote systems will always be smaller than other segments. The average remote microgrid in Canada, for example, should be 100 kW, but many systems in the developing world could be much smaller. The CAGR by 2016 is 15.9% with revenues reaching just beyond $200 million.
• Community/Utility: Europe leads this segment to date, with Denmark’s 132 MW of community/utility microgrids representing 86% of all of Europe’s current microgrid capacity in all five segments. This segment ranks behind the institutional segment with 1,163 MW online by 2016, representing a 19.4% CAGR. Revenues, by that date, total $732 million.
• Commercial/Industrial: This sector should be robust over the long term, given the need for key private sector segments to have reliable power supplies. However, the lack of well-known standards limits near-term commercial projects. This sector registers the lowest amount of capacity by 2016 at 133 MW, but boasts the highest CAGR at 36.4%, due, in part, to the current small base of only 21 MW of current projects. Total revenues add up to approximately $108 million.