Microgrids: The Business Case

Anyone following SFIP’s Microgrid Systems Lab (MSL) knows how many good reasons there are to move toward this highly decentralized architecture in terms of efficiency, reduced greenhouse emissions, community engagement, and alleviating energy poverty in un-wired portions of the planet.

Now, a number of recent research reports and presentations have added impetus to the microgrid trend by addressing various aspects of the business case: the economics of microgrid deployment, the pace of development, the societal value of conversion, and the cost of inaction. We’ve summarized some of the most interesting below, beginning with the “big picture” of current grid costs and potential, and then moving on to microgrids’ role and value.

Economic benefit of Smart Grid efficiencies by 2030: $2 trillion

Estimated cost: $338 billion. Courtesy of George Arnold, national coordinator for smart grid interoperability at the National Institute for Standards and Technology. Given the role that microgrids can and will play as enabling infrastructure for many of the most valuable aspects of the smart grid revolution, we can can assign some meaningful portion of this projected $2 trillion efficiency to them, going forward.

Source: SmartGridNews.com

Current losses due to power outages: $80 billion annually

“Currently we experience outages that in a slow year cause about $80 billion a year in economic losses, and that doesn’t include infrastructure destruction. All in all, the benefits of reduced outages and increased efficiency amounts to [a smart grid savings of] $70 billion per year.” Hurricane Sandy raised the profile of microgrids (and other grid improvements) substantially, including the dissemination of statistics like this. There will be more storms, and a growing appreciation of the value of modernizing the grid.

Source: IEEE

Microgrid Deployment Revenue 2020 Forecast: $40 billion

Average projection scenario, up from $8.3 billion in 2013. North America holds the majority of current and projected market share. If Navigant is right about this, microgrids represent a fast-growing segment in which big money can be made at the level of deployments and vendors (operations are another question, to be examined at a later date). MSL is a pre-competitive consortium, that aims to increase the competitiveness of all vendors and participants in this sector.

Source: Navigant Research

Worldwide Microgrid capacity under development: 3.2 gigawatts

As of 4Q 2012. This represents ~12.5% of 2012 installed wind capacity, and is up from 2.6 GW in 2Q 2012. Total numbers of new project entries was 67, representing an increase of 571 MW or an 22% increase in identified capacity within a 6 month period. Again, this shows an impressive growth curve, which supports the Navigant revenue forecast.

Source: Pike Research

Includes efficiency products and equipment for the electricity grid; accounted for 38% of VC/PE 2012 funding for clean energy, up from 15 percent in 2008. In comparison, solar investments were $1.58 billion last year. This is a fascinating leading indicator: evidently, risk capital can no longer find the returns it needs from the rapidly maturing renewables generation sector, and is turning its focus to network efficiencies and intelligence.

Source: Bloomberg

Utility 2012 spending on Smart Grid capabilities: $23.68 billion

Represents 48% of Smart Grid spending to date. During the year, spending on transmission and distribution capabilities surpassed smart meter investments as utilities increasingly looked to improve their core networks. Another intriguing indicator: with the low-hanging fruit of smart meters becoming saturated, progressive utilities are now investing in other (potentially more significant) aspects of modernizing the network, and in a big way.

Source: BusinessWire

All in all, we think this starts to paint a compelling economic picture that can attract the required level of R&D and investment capital to move things forward. And not a moment too soon.