“The North American microgrid market is small, rapidly growing, highly fragmented, and driven by different factors in different regions and jurisdictions,” according to “Microgrid Multi-Client Study,” a recent public report prepared by Navigant Consulting, Inc. (Navigant).
In recent years, microgrids have evolved from a nascent concept to a significant source of both opportunity and concern to players across the electric power industry. Nonetheless, this budding industry is marked by complexity and uncertainty, leading many industry players to adopt a wait-and-see approach. Others are more active, such as suppliers seeking to lead a growing market or utilities expecting growth of microgrids in their territory, and are exploring new business models as a result.
Introduction to the Study
Navigant assembled a diverse group of 12 sponsors from across the industry: Commonwealth Edison, Duke Energy, Energizing Company, Energy Systems Group, Eversource Energy, Hawaiian Electric Companies, PowerStream, Schneider Electric, Southern California Edison, United Illuminating, Vectren, and Win Inertia. Schneider Electric is a member of the International District Energy Association (IDEA). The goal for these eight utilities, two developers/financiers, and two technology vendors was to leverage their collective knowledge and experience to reveal key opportunities, barriers, and strategic approaches for microgrids.
Navigant subject matter experts led three in-person workshops to facilitate the study. The workshops defined the study’s scope and provided a unique forum for sharing knowledge and developing ideas. Outside of the workshops, Navigant performed detailed research and analysis across five key scope areas:
- Introduction to Microgrids
- Market and Drivers
- Business Modeling
The Navigant team coordinated with the sponsors to develop the scope, which placed the greatest emphasis on strategy. The results of each section of the report informed the development of a flexible strategy framework. The framework consists of tools and processes that enable organizations to develop customized strategic approaches to capturing value in the emerging microgrid market.
Insights in this report (see illustration above) were the result of a collaborative effort between Navigant’s consulting and research (under the Navigant Research name) teams. The following brief summary provides an overview of the key content and takeaways from each of the report sections.
The North American microgrid market is small, rapidly growing, highly fragmented, and driven by different factors in different regions and jurisdictions. There are many challenges to entering and thriving in the North American microgrid market. The market is small but growing quickly with expected annual growth in capacity through 2020.2 This market is also highly fragmented and opportunities to create value depend upon a multitude of factors including one’s organization type, where one operates in the value chain, jurisdictional factors, regional drivers or barriers, and distributed energy technology trends. While campus/institutional microgrids are the largest segment and are expected to remain so, the market for utility distribution microgrids is expected to grow as utilities use them to adapt to market and regulatory changes and to more cost-effectively address aging infrastructure challenges.
Community microgrids are also growing rapidly in response to climate change-driven demand for greater service resiliency and the desire to invest in energy infrastructure in order to realize social and economic benefits. Drivers for the North American market growth include weather, technology, state initiatives, and desires to capitalize on microgrid functions. Combined heat and power (CHP), solar PV, and energy storage are emerging as the technologies of choice for microgrid design. Long-term market success is expected to depend on the abilities of control systems to not only functionally integrate these DER technologies but also do so safely and reliably.
Microgrid business models are not well-established, resulting in significant financial risk—and opportunity. Bankability and replicability remain among the biggest challenges for microgrid projects, businesses, and markets. These challenges stem from the lack of clear, identifiable business models that will be profitable.
Because the market is in such an early stage of development, technical and legal execution of demonstration projects can eclipse profitability concerns. The market is currently missing a deep-dive exploration of and plan for addressing so-called commercial considerations, including relationships that must be established and maintained to profit from microgrid development. First movers to establish winning business models may, therefore, have an unfair competitive advantage within the market segments they choose to serve.
However, the Navigant team concluded that pursuing microgrid business opportunities using a go-it-alone approach is a dead end. Partnership and collaboration are essential, as the skills and capabilities needed are too broad, and the multitude of risks too wide-ranging and significant for a single organization to effectively bear and manage. Furthermore, project development cycles are inherently long and complex, requiring persistence, significant investment, and the ability to navigate complex stakeholder relationships.