Microgrid and Virtual Power Plant Trends and Deployment Update 2024: Toward a More Resilient Grid

Microgrids

     Microgrid deployments have been increasing for several years now. A microgrid can feature hybrid energy systems such as combined heat and power when there is waste heat available to utilize. They can also utilize renewable energy, fossil fuel energy, and battery storage. A microgrid can work in ‘island mode’ not connected to the grid or it may draw power from the grid or provide power to the grid. This flexibility gives microgrids the ability to act as distributed energy resources (DERs) that can help improve reliability and especially resiliency of bigger utility power grids. Microgrids can be valuable when utility power goes offline due to storms, wildfires, hurricanes, and other disruptions. Microgrids can be invaluable to facilities that require power at all times such as hospitals, military facilities, and industries that require refrigeration. They are useful in remote areas where a grid connection is not available. They are useful in natural disasters as natural gas microgrids showed during Hurricane Harvey. They are useful in extreme weather events such as heatwaves and to replace overhead power lines in fire-prone areas.

     The DOE’s Grid Deployment Office notes that under the Bipartisan Infrastructure Law, “the Grid Resilience State and Tribal Formula Grants program is designed to strengthen and modernize America’s power grid against wildfires, extreme weather, and other natural disasters that are exacerbated by the climate crisis. Grid resilience formula grants may be used for activities, technologies, equipment, and grid hardening measures to reduce the likelihood of and consequences of disruptive events.” DOE defines a microgrid as “a group of interconnected loads and distributed energy resources within clearly defined electrical boundaries that acts as a single controllable entity with respect to the grid.” A microgrid has the ability to function independent of the grid in “island mode” or as a producer and consumer of grid energy. A typical microgrid is comprised of energy generation sources, battery storage, and a central microgrid control system that can balance power loads and coordinate its function as a DER. One might call microgrids by a more fitting name: grid integrate-able independent grids.

 

 

2024 Microgrid Trends

 

     Bala Vinayagam, in a blog post for Schneider Electric in January 2024, wrote about 10 microgrid trends for 2024. I will summarize here:

 

1)        Battery Storage as an Enabler – the wide availability of battery electric storage systems (BESSs) is leading to much greater deployment. Battery storage gives microgrids more flexibility and capabilities, allowing them to sell power when it is most profitable and to keep power on when generation is offline. BESS can act as a buffer to grid disruptions. He sees more vehicle-to-grid (V2G) tech opportunities. I have never been a fan of V2G for one simple reason. It accelerates battery degradation which can result in a dead battery much sooner than anticipated. Typically, a battery has a finite number of charging/discharging cycles. If they are used up charging from the grid and discharging back to the grid, then that decreases the lifespans of their  intended use of powering the vehicle.

2)        Increased Focus on Grid Modernization - there will be increased focus on integrating demand-side flexibility and microgrids into grid modernization efforts which are focused heavily on grid integration of variable/intermittent wind and solar.

3)        Demand-Side Management Technology Advancements – managing demand through things like dynamic pricing will be enhanced by new technologies like blockchain which allows for secure and transparent transactions, and AI/machine learning which can identify, aggregate, and optimize demand-side resources in grid flexibility programs. The result is improved efficiency.

4)        Rise of Virtual Power Plants (VPPs) – I will discuss the differences between microgrids and VPPs later in this article. VPPs can better provide grid support services and better participate in wholesale power markets than microgrids. Thus, Vinayagam thinks that VPPs and microgrids will continue to merge synergistically to improve reliability and decrease carbon intensity.

5)        Building-to-Grid Integration & Regenerative Buildings – super-efficient buildings designed to be as sustainable as possible can act as ‘prosumer’ DERs that optimize dynamic pricing to operate economically.

6)        Unlocking Demand Response – it has been argued that the demand response benefits of microgrids, such as avoided capex for utilities, have been underestimated. He suggests microgrids will soon get higher valuation in terms of more favorable pricing due to their demand response capabilities.

7)        Standardization, and Interoperability – these are needed to make microgrids more “affordable, quick to deploy, and ultimately ubiquitous.” Modular designs with more plug-and-play type capabilities will aid those goals.

8)        Progress Toward Climate Goals – microgrid control systems can track system CO2 emissions and CO2 emissions avoidance very well and contribute to lowering overall emissions.

9)        Increased Investor Interest – he argues that the promise of cleaner and smarter energy lures investors.

10)   Integration of DC Architectures – an interesting new trend is DC power behind the meter. He writes:

 

“Ditching AC-DC conversions, DC boosts efficiency, simplifies design, and plays nice with renewables. Microgrids are embracing DC to become more independent, flexible, and cost-effective. Despite remaining challenges, such as standardization and training, continuous advancements pave the way for DC’s dominance, shaping a brighter and cleaner future for energy.”

 

     The DOE has stated goals of promoting the development of microgrids for improved reliability and resilience, the use of microgrids as aggregation points for DERs, to decrease capital costs by 15% by 2031, and 20% faster deployment times.

     As I pointed out in my 2022 book Natural Gas and Decarbonization, while solar-plus-storage is an emerging microgrid model, most microgrids are powered with hydrocarbons like natural gas, propane, and diesel. Many newer ones are hybrid systems combining renewables and fossil fuels. Fossil fuel-powered systems have the additional advantage of providing heat in combined-heat-and-power (CHP), or cogeneration systems which also provide heat for space heat and hot water. Small natural gas turbine or reciprocating engine generator sets can provide the power. There are also natural gas microturbines with outputs from about 30kW to 500kW. These evolved from automotive engine turbochargers. These have the best turbine efficiency. They can also provide spinning reserve for microgrids and VPPs. They are even more efficient when in a CHP system. Microturbines are very small, very dispatchable, require little maintenance, and do not have very many moving parts. Military facilities, schools, hospitals and industries requiring process heat are often outfitted with CHP plants.

     According to a 2018 NREL study microgrids cost between $2 million and $5 million per MW. Those are capital costs. Flexibility ain’t cheap. Capital costs for a centralized natural gas power plant in contrast average about $0.55 million per MW, or 4 to 9 times less. They also have to purchase fuel for the years ahead but that will likely add less than 10% to the total cost (if my calculations are correct). This means that the fuel cost added in a microgrid is still at a minimum triple the cost of a comparable combined cycle gas plant. This means that solar-plus-storage microgrids are especially uneconomic compared to gas plants even though they do have more capabilities with storage. They can, however, compete well with gas peaking plants which are compelled to be underutilized and run inefficiently. Some natural gas plants also integrate battery storage to add black start capabilities. The first of these digitalized gas plants were small peaking plants in California deployed about five years ago if I recall correctly. Thus, bringing the costs of microgrids down is paramount.

     DOE provides ‘Grid Resilience Formula Grants for Microgrid Components’ among other incentives for solar generation and battery deployment. Components covered in the grants include batteries, inverters, microgrid controllers, electric cables, and distribution equipment like transformers. Incentives help offset the higher capital costs but not nearly enough to compete with centralized natural gas. DOE mentions three downsides of microgrids: high upfront capital costs, system complexity that requires specialized skills to operate and maintain, and cybersecurity risks.

     PG&E plans to have a dozen remote microgrids deployed in 2024. Their goal in California is to reduce the need for overhead power lines in wildfire-prone areas to prevent sparking fires. By the end of the year, they expect the twelve deployed microgrids will eliminate a total of 13 miles of overhead power distribution lines in fire-prone areas.  

 

 

 

 

What is Energy Resilience?

 

     According to the FERC energy resilience is defined as a system’s “ability to

withstand and reduce the magnitude and/or duration of disruptive events, which includes the capability to anticipate, absorb, adapt to, and/or rapidly recover from such an event.” A resilient energy system is “one that can endure or recover over an acceptable timeframe from large-scale events that impact electricity service to customers.” Thus, the ability of a microgrid to operate independently of the grid increases its resilience.

 

 

A Microgrid vs. a Virtual Power Plant: What are the Similarities, Differences, and Synergies?

 

     Microgrids and VPPs have similarities and differences. Both can integrate demand response, generate distributed renewable energy, and store energy at the distribution level. Veckta in a 2021 blog post says this about VPPs:

 

“VPPs can be considered a cloud-based distributed power plant that brings together heterogeneous DER in order to enhance electrical power generation, as well as trade it in the electricity market.”

    

According to Bala Vinayagam in another Schneider Electric blog post:

 

“VPPs “are a temporary aggregation of DERs that can help balance the larger grid through demand response or frequency regulation.”

 

     Again, Vinayagam emphasizes the complementary nature of microgrids and VPPs working synergistically for emissions reduction and flexibility. Combined they can leverage tech like AI/machine learning. Vinayagam writes:

 

“This is a fairly complex undertaking. Yet digital software, with the assistance of advanced analytics and AI technology, can compute and dispatch DERs by factoring in as many as 5,000 variables and 10,000 constraints. Among the thousands of data points used to optimize DER fleets are the following examples:”

 

1) Wholesale market prices

2) Wholesale market rules

3) Tariffs and DER asset export limits

4) Specific DER site constraints

5) Round trip efficiency of a specific battery chemistry

6) Battery life (number of cycles charged and discharged)

7) Solar resource forecasts

8) Customer load forecasts

9) Future wholesale price forecasts

 

     New business models such as energy-as-a-service can be used for smart buildings combined with the local power grid. VPPs can aggregate multiple microgrids that can be tapped as DERs. Common microgrid business models are shown below.

 

 

    VPPs are integrated into the main power grid and are better able to trade in power markets. They are strictly grid-tied systems while microgrids can run independently. VPPs don’t operate when the grid is down. Microgrids often require some battery storage but VPPs do not. Microgrids rely on controllers, smart inverters, and switches while VPPs utilize smart meters and information technology (IT). Microgrids involve a fixed set of resources within a limited geographical area while VPPs can link together a wide variety of resources in larger geographical areas. Microgrid energy is typically only traded in retail markets while VPPs can trade in wholesale markets. Microgrids have more legal and political challenges than VPPs. According to DOE’s Pathways to Commercial Liftoff: Advanced Grid Deployment report, VPPs can also be integrated with other grid modernization technologies like dynamic line ratings (DLRs)which can lead to avoided costs on new transmission which is typically four times the cost of DLRs. Thus, VPPs can contribute to avoided costs for both generation and transmission.

 

 

 

Future Effects of Microgrids and Virtual Power Plants and Market Forecast

 

     Doug McIntyre and David Callaway in a video short for Climate 247 suggested that as more and more microgrids are built they will create more energy choices for consumers that could affect some of the utility monopoly power with lower consumer prices being a possible result.

     Technavio forecasted in June 2024 that the energy storage-for-microgrids market is set to grow by $2.09 billion from 2024-2028. Technavio writes:

 

“Hybrid microgrids, combining renewables, fossil fuels, and energy storage, are a major advancement. The US DOE's R&D program aims to make microgrids an integral part of the future electricity delivery system by 2035, focusing on reliability, resilience, decarbonization, and affordability. Expect new technologies to enable microgrids to work in tandem with the power utility distribution grid and transition seamlessly to autonomous power system mode.”

 

     They also mention challenges for microgrids. Most revolve around costs, such as higher deployment costs due to the need for smart meter installation, communication system deployment, and microgrid control systems. Integration of multi-component hybrid systems can also add to costs. Compliance with mandatory utility grid connection standards also adds to costs. Larger power systems can leverage their larger power volumes for lower costs per unit of energy produced. The high cost of battery energy storage is a big part of the high costs.

     A January 2024 paper by Sandia National Labs explores the idea of self-healing power grids that can quickly restore critical power loads post-outage to critical facilities such as hospitals by coding a cutting-edge library of algorithms into grid relays. This will require more connections between microgrids that are optimized for grid balancing. The algorithms can prevent problems such as the formation of unintentional loops in a circuit. The formation of these unstable loops can be a vulnerability of microgrids. Self-healing can bypass the need for expensive high-speed communications that can be affected by outages. The self-healing capability can reassemble power to bypass damaged areas. It can also change voltage capacity for temporarily overloaded power lines. The researchers indicated that they “would like to work with manufacturers of line and load relays to incorporate their library of algorithms into the companies' products, first to test them in a hardware-in-the-loop testbed and then possibly in real life at test facilities such as Sandia's Distributed Energy Technologies Laboratory or at a similar medium-voltage facility at New Mexico State University.”

     Rocky Mountain Institute issued a report on VPPs in July 2024 that opined that the 500 VPPs in the U.S. could be very useful for summer demand peaks around the country. They can be planned and deployed in 6 to 12 months. They noted that grid planners forecast 38MW of peak demand growth through 2028, mainly from manufacturing, industry, and data centers. Since VPPs can be deployed much faster than transmission upgrades they can be a good near-term solution for demand response and provide resource adequacy. The report highlighted VPP projects in Ontario, California, and Texas that are fully expected to meet or help meet significant summer demand peaks. VPPs can integrate DERs such as smart thermostats as well as commercial demand response. Summer evening duck curve peaks can be addressed with VPPs as California is showing. Summer peaks are one of the biggest seasonal challenges for utilities. IRA spending is expected to continue to support microgrid and VPP development in the coming years. DOE notes that there are currently 30-60 GW of VPP capacity on the grid. DOE explains VPPs as an opportunity:

 

“Tripling the current capacity of VPPs—to 80-160 GW—by 2030 could address 10-20% of peak load and save on the order of $10B in annual grid costs through avoided generation buildout, delayed power infrastructure investments, and reduced operation of expensive peaker plants. Deployment at this scale is possible within the decade.”

 

They also think VPPs could end up saving consumers/ratepayers money compared to traditional alternatives like gas peaking plants.

 

     A PV Magazine article from 2023 pointed out some analysis from the Brattle Group showing that aggregated DER-powered VPP peaker usage would be 40% to 60% cheaper than alternatives, including gas peakers and grid-scale batteries. I think the study is ignoring capital costs and just talking about cost to run but I am not sure.

     To recap, VPPs provide grid services, decarbonization services, and services in the form of avoided costs of higher capex generation and transmission projects. Microgrids have high upfront capex. VPPs can be deployed quickly. Thus, both of these have important niche uses. VPPs can also address interconnection backlogs, demand peaks, and distribution system congestion.

 

 

 

References:

Microgrid Overview: Grid Deployment Office. U.S. Department of Energy. January 2024. Microgrid Overview (energy.gov)

A Win for Consumers? Emergence of Electricity Microgrids in the US. Climate Crisis. A Win for Consumers? Emergence of Electricity Microgrids in the US | Watch (msn.com)

Unveiling 10 game-changing microgrid trends shaping 2024 and beyond. Bala Vinayagam. Schneider Electric Blog. January 9, 2024. Ten Microgrid Trends That Will Shape 2024 (se.com)

The Revolution in Energy is at Hand: Microgrid 2024 Happens Now. Microgrid Knowledge. April 22, 2024. The Revolution in Energy is Close: Microgrid 2024 Happens Next Week | Microgrid Knowledge

Energy Department Announces $10.5M for Microgrid Solution Projects in Underserved and Indigenous Communities. May 20, 2024. DOE. Office of Electricity. Energy Department Announces $10.5M for Microgrid Solution Projects in Underserved and Indigenous Communities | Department of Energy

Microgrids 2025: Local Grid-Tied, Remote, and Community Integrated Energy Systems. Applied Energy. Applied Energy | Microgrids 2025: Local Grid-Tied, Remote, and Community Integrated Energy Systems | ScienceDirect.com by Elsevier

Energy Storage for Microgrids Market size is set to grow by USD 2.09 billion from 2024-2028, Increasing government support and microgrid energy storage installation projects to boost the market growth, Technavio. Technavio. June 27, 2024. Energy Storage for Microgrids Market size is set to grow by USD 2.09 billion from 2024-2028, Increasing government support and microgrid energy storage installation projects to boost the market growth, Technavio (prnewswire.com)

Here's how 'microgrids' are empowering regional and remote communities across Australia. Simon Wright. The Conversation. July 4, 2024. Here's how 'microgrids' are empowering regional and remote communities across Australia (techxplore.com)

Developing algorithms for self-healing microgrids of the future. Sandia National Laboratories. Tech Explore. January 23, 2024. Developing algorithms for self-healing microgrids of the future (techxplore.com)

PG&E Announces 6 New Remote Microgrids Coming in 2024. Kathy Hitchens. Microgrid Knowledge. May 14, 2024. PG&E Announces 6 New Remote Microgrids Coming in 2024 | Microgrid Knowledge

Microgrid Conceptual Design Guidebook. 2022. Robert Broderick, Brooke Marshall Garcia, Samantha E. Horn, and Matthew S. Lave, Sandia National Laboratories. U.S. DOE. Microgrid Guidebook 2022 (sandia.gov)

The Future of Energy is Distributed: An Increased Role for Microgrids and Virtual Power Plants. Bala Vinayagam & Peter Asmus. Schneider Electric Blog. June 14, 2024. Microgrids and Virtual Power Plants (se.com)

How To Choose Between A Microgrid And A Virtual Power Plant. Veckta. Blog. May 20, 2021. How To Choose Between A Microgrid And A Virtual Power Plant (veckta.com)

US VPPs can meet summer demand peaks faster, cheaper than new generation and transmission: RMI. Brian Martucci. Utility Dive. July 10, 2024. US VPPs can meet summer demand peaks faster, cheaper than new generation and transmission: RMI | Utility Dive

Virtual power plants roll out across the U.S. Ryan Kennedy. PV Magazine. June 19, 2023. Virtual power plants roll out across the U.S. – pv magazine International (pv-magazine.com)

Virtual Power Plants Projects. U.S. Dept. of Energy. Loan Programs Office. VIRTUAL POWER PLANTS PROJECTS | Department of Energy

VPPs, other advanced technologies could each expand existing US grid capacity 20-100 GW: DOE. Ethan Howland. Utility Dive. April 16, 2024.  VPPs, other advanced technologies could each expand existing US grid capacity 20-100 GW: DOE | Utility Dive

Natural Gas and Decarbonization: Key Component and Enabler of the Lower Carbon, Reasonable Cost Energy Systems of the Future: Strategies for the 2020s and Beyond. Kent C. Stewart, Amazon Publishing. 2022.