State Policy Innovations Crucial to Adoption of Microgrid Technology

Microgrids can improve resilience, decarbonization and affordability of the electric grid, according to the U.S. Department of Energy. However, legacy state energy policies remain a barrier to timely development. In collaboration with the research group Wood Mackenzie, the industry trade group Think Microgrid has developed a road map for new approaches designed to promote microgrid commercialization across the United States.

Despite the backdrop of a promising global surge in renewable energy deployment, the United States (U.S.) is struggling to implement a paradigm-shifting energy transition in the context of an aging electric infrastructure. Most of the electric grid in the U.S. dates from the 1960s and 1970s; 70% of the transmission lines are more than 25 years old and 90% of the transformers exceed 40 years in age. The U.S. has experienced 70% more power outages since 2010 than during previous decades, partially due to failures in an aging grid and partially because of increasingly frequent extreme weather events. 

Distributed energy can bolster the power grid and supply clean energy

Growing power demands from a burgeoning electric vehicle (EV) industry and the new challenges of managing intermittent renewable energy resources are expected to stress the U.S. electric grid even more. A decentralized energy infrastructure poses further demands since the original grid was designed to accommodate centralized power plants in a hub and spoke configuration.

Distributed energy — or decentralized, dispersed and onsite power generation — can provide solutions through important services that support the grid while supplying clean, renewable power to the overall mix. Generated locally, distributed energy resources (DER) can inject new electrical capacity without further stressing transmission and distribution systems. Additionally, DERs can supply renewable energy during peak periods of power usage, helping to save customers on electricity costs, balancing electric loads, smoothing demand curves and reducing the need for costly new generation resources.

U.S. microgrids demonstrate multiple benefits

Microgrids are an essential subset of distributed energy technologies but have more sophisticated capabilities. Unlike a simple solar array, which is defined as a DER system, microgrids can operate either in “island” mode — independently from the grid — or tied to the grid, providing greater flexibility and potentially even more valuable grid services. The new 2023 Think Microgrid report ranking state policy support for microgrid technology explained that because of a microgrid’s ability to deliver improved resiliency in the face of extreme weather events and accelerate the integration of clean energy into the national electric grid, these systems have a unique role to play in the transition to a cleaner, more electrified grid.

Based on early demonstrations of the benefits of microgrids, the trade group reports, “The U.S. Department of Energy (DOE) has advanced a vision that by 2035, microgrids will be the core building block of the transformed grid where 30%-50% of electricity generation comes from distributed resources.”

The report states that the U.S. has over 1,000 microgrids with various configurations, business models and use cases. Though the microgrid market is only just emerging, existing microgrids are already enabling decarbonization of the electric grid, increasing grid reliability and providing resilience in the face of increasing extreme weather events. They are also improving affordability, where fossil fuels are costlier than renewable energy, and suggesting a pathway to more equitable and affordable energy access.

“We believe that microgrids are a foundational component of a new grid powered by renewable energy, and that’s the larger vision we want people to be thinking about,” said Cameron Brooks, executive director of Think Microgrid.

Reform state energy policy to help advance microgrid development

Policy, not technology, is the critical factor in the deployment and scalability of microgrids, Brooks explained. Despite the promise microgrids hold in the transition to a clean energy future, legacy policies that date back to the origins of the current electric grid are preventing the market from developing. He added that some regulations prevent new financing and ownership models, including private capital, while others make the new technology illegal. According to Brooks, the most important laws to change are those prohibiting private or community-owned electric infrastructure from crossing property lines and failing to provide tariffs or market pathways for projects that aggregate multiple independent customers, which microgrids frequently do.

He emphasized that states must identify unnecessary or obsolete legal obstacles that prevent microgrid development and devise strategies to incorporate this technology into the electrical infrastructure.

The 2023 Think Microgrid scorecard

The Think Microgrid 2023 scorecard grades states according to five factors that affect policy and market conditions for microgrid development, including deployment, regulation, resilience, market access and equity. While few states even received a “B” grade, Think Microgrid says the results provide a valuable guide for constructive policy reforms.

Currently, the incentives for developing pro-microgrid policies at the state level appear to be mainly driven by urgent needs for greater resiliency.

Two significant use cases — the need for resilience in the face of unreliable grids during extreme weather events and high electricity prices — indicate why Texas, Florida, California and Alaska are among the top microgrid developers. While Texas and Florida face increasing power outages from hurricanes, California is developing microgrids because of wildfire risks. Alaska has long been a leader in microgrid development aimed at curbing outlays for expensive diesel fuel in remote, off-grid native villages. Nonetheless, the Think Microgrid scorecard points out that Alaska has few state resilience plans specifically promoting microgrids as a solution.

Colorado and Connecticut received relatively high scores when Think Microgrid weighed other factors, such as the level of microgrid deployment, prioritization of resilience and pro-microgrid policies. These two states are noted for developing state road maps for microgrid development and using metrics for equity to plan future microgrids.

However, the Think Microgrid report concludes that the current level of deployment across the U.S. is not close to establishing microgrids as the building blocks of a new, improved electric grid where DERs represent a significant resource for grid operations.

Looking to the future of microgrid technology

The report points to various ways state policies can help advance microgrid technology. While a few states have focused on advancing the definition of new tariff structures that recognize the value of microgrids and financially reward their owners, others have implemented new regulations and tried to drive deployment through grant programs.

According to Think Microgrid, the most essential action for states is to initiate a microgrid policy road map through legislation or public utility commission directives. Having such a plan can help effectively identify the barriers to microgrid development and develop strategies to commercialize the technology.

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