Microgrids: The Power of Micro
Contents
Introduction
The problem we must address
Market forces
Facts and Figures
Investment Opportunities and Market Segments
Impact
Emissions and resiliency
Market movers
Leaders & fast followers
Investors
VC / PE / Funds
Final Thoughts
Regulatory and business model hurdles
Getting Off the Grid
Microgrids are changing the way we think about energy delivery
Imagine, if you can, a life with no electricity.
While most of us today take electricity for granted, nearly 10% of the world’s 7.53 billion have no access to electrical power. Although that figure has declined sharply over the past decade, rapid population growth in places such as Sub-Saharan Africa is causing the number of individuals with no electricity access to actually increase in certain areas—namely remote, rural areas and regions that are particularly vulnerable to climate change. This apparent inequality in electricity access poses a major challenge for policymakers, utility companies, and grid operators alike.
At the same time, poor access to electricity is not an isolated issue, as even the most developed power grids are faced with challenges concerning resiliency and distribution due to the pervasiveness of climate change and the high demand for renewable energy and electric vehicles.
A potential solution to these challenges is microgrids, which are also known as mini-grids. These small-scale, self-sustaining grid systems generate and distribute electricity. Despite their small scale, microgrids can use renewable energy for generation and incorporate energy storage. Microgrids are an inexpensive and adaptable alternative to the current system in place that allow underserved regions to upgrade their utility services at a comparatively reasonable price. As for flexibility, microgrids can be enlarged with no interruption in service and can function either connected to the traditional power grid or independently.
Market Trends: Facts, Figures, Forces
Market Facts
According to the World Bank, as of 2019, there were 19,000 microgrids serving 47 million people globally, representing a total investment of $28 billion.
The top three countries in the world with the most installed microgrids are Afghanistan, Myanmar, and India, which are all developing countries.
Currently, microgrids provide less than 0.2% of U.S. electricity, but that figure is expected to double in the next three years.
According to the US Energy Information Administration, on-site electricity generation in the United States will nearly double by 2050 although still accounting for only 6%-to-8% of total generation.
Market Figures
The World Bank’s goal is to get electricity to another half-billion people by 2030. This will require building 210,000 microgrids at a cost of $220 billion.
A study by the National Renewable Energy Laboratory shows that the cost for a commercial or industrial microgrid system is around $4 million per megawatt (MW), while a community or utility microgrid system costs $2.1 million to $2.5 million per MW.
Market Forces
Countries have begun to shift their energy policies to adopt the following objectives: sound Utility infrastructure, energy efficiency, and renewable energy are the main objectives in the energy policies of many countries. To that end, microgrids are crucial to improving the reliability and resiliency of aging electricity infrastructure and integrating renewable energy into the more extensive energy network.
Biden’s Bipartisan Infrastructure Law calls for investments in power infrastructure upgrades and resiliency.
Microgrids have become an increasingly popular solution to electricity security in developing countries within Africa and South Asia, where, as ofBy 2019, most planned microgrids were located.
Investment Opportunities and Market Segments
According to Asian Development Bank (ADB), the microgrids industry can be classified into five segments according to their different usage scenarios: Commercial and Industrial; Community, City, Utility; Campus and Public Institutional; Mission-Critical; and Rural and Remote.
Commercial and Industrial Microgrids
Commercial and industrial microgrids are mostly owned and invested in by corporate owners interested in transitioning to a more environmentally conscious business model. The main objective of commercial and industrial microgrids is to hedge power prices, as they can be programmed to optimize energy prices for companies by using either utility power or their own energy generation. The microgrid systems also ensure the energy security by providing backup power when local utilities break down. Notable commercial and industrial microgrid technologies include the Distributed Energy Resources Management System (DERMS) and energy storage.
Community, City, Utility Microgrids
These microgrids serve mainly residential customers with the aim of providing affordable and secure access to energy. Due to the lack of regulation over these particular microgrids, information regarding their commercial value is limited. Among community, city, utility microgrid technologies is the Central Management Controller (CMC), which enables the charge and discharge of batteries using renewable energy.
Campus and Public Institutional Microgrids
Educational institutions were among the first to embrace microgrid technology. This may be due to their common ownership structure and needs for reliable electricity power supply. For instance, New York University, among the largest universities in the United States, has generated electricity on site since the 1960s. The microgrid system passed the test of Hurricane Sandy, and was able to provide backup power for the campus during the power outage.
Mission-Critical Microgrids
This is the segment that is best poised to thrive, according to ADB. Mission-critical microgrids serve organizations such as data centers, hospitals, and military bases with the overarching goal of ensuring energy dependability. This segment also requires technologies to integrate renewable energy so as to avoid the system having to depend on other, potentially costlier fuel supplies.
Rural and Remote Microgrids
Most operating microgrids fall into this category, which also have the lowest average costs among microgrids. This segment serves off-grid areas and is particularly popular in developing countries in sub-Saharan Africa, South Asia, and Southeast Asia. Investments will continue to be particularly active in these regions.
A blockchain-enabled solar energy marketplace, where residents can purchase and sell solar energy.
Impact
The World Bank estimates that 10–15 gigawatts of solar photovoltaic will be installed by microgrids by 2030.
In the same report, the World Bank projects that microgrids will cut 1.5 billion tons of carbon dioxide emissions.
Microgrids can increase the resiliency of communities to natural disasters, which is a rising threat to the traditional power grid due to climate change.
Microgrids enable cheap and flexible access to electricity in remote and rural areas.
Market Movers: Current and Future Heavy Hitters
Market Leaders:
ABB is a world-leading technology company based in Zurich, Switzerland. It offers microgrid solutions for campus, commercial, and community uses with a focus on virtual power plant technology.
Schneider Electric is a world leader in energy management and automation. The company offers microgrid solutions including software services and inverters. The company also has a joint venture with Huck Capital, and established GreenStruxure to provide energy-as-a-service microgrids.
Bloom Energy is a public company based in California whose main product is a steel box that can generate electricity using natural gas. The product has served companies including Apple, AT&T, and PayPal to secure the power of their data centers.
OMC Power is a company based in India that focuses on mini-grid renewable energy plants. The company has commissioned 270 power plants in India, with a particular focus on rural areas.
Husk Power is an India-based company that provides low-cost hybrid power microgrid plants in India and Africa. The company has a smart metering system that enables a “pay-as-you-go” energy service, which further lowers energy costs.
Future Heavy Hitters
Scale Microgrid Solutions is a US-based startup that focuses on modular microgrids for commercial and industrial customers. The company’s product combines solar, energy storage, gas generation, and controls in one modular block. The company raised $300 million in January 2020 from private equity firm Warburg Pincus.
Canopy Power is a Singapore-based startup that focuses on microgrids as a product. The company has served industries such as tourism, agriculture, mining, and fishing in Southeast Asia and India.
Powerhive is a company based in Nairobi, Kenya, that provides a microgrid platform that includes smart meters and web-based software applications. Powerhive currently operates 25 village-level solar microgrids in Kenya.
CleanSpark is a company that focuses on energy software and control technology that can scale the use of microgrids. Using its energy background, the firm has recently become a sustainable bitcoin mining company..
Advanced Microgrid Solutions is an Ohio-based firm that provides tailored microgrids for companies in various sectors. It has raised over $70 million through two series of investments.
Venture Capital/PE and Other Fund Investors
Climate Impact Capital is an impact investing fund that covers utility and power. Last year, the fund invested in 60Hertz Energy, which is a women-led company focusing on microgrids.
SUSI Partners is a Swiss-based infrastructure fund that has partnered with ABB to develop microgrid and energy storage projects with an investment of around $107 million.
Bedford Funds is a private equity investment vehicle that focuses on ESG investments. In April 2020, the fund raised $2 billion for microgrids and urban farms.
Innosphere Ventures is a VC fund that focuses on science and technology. In 2021, it invested in Microgrid Labs, a software and consulting firm in the microgrids industry.
Ecosystem Integrity Fund is a sustainability-focused venture capital fund that, in 2021, raised $250 million for microgrids and coolers in Africa.
Final Thoughts
There are several potential drawbacks to microgrids that need to be considered, including:
Currently, microgrids still face barriers in legal regulations and industry standards that will need to be resolved before the industry can become more standardized and thereby attract more participants.
As most advanced microgrid technology of late has been laboratory derived, the profit model for such microgrids has yet to be established.
Ownership and business models also remain uncertain, which limits the current amount of investment.