Microgrids Continue Their Growth
According to a new report from Wood Mackenzie’s Grid Edge Service, the U.S. microgrid market is continuing to develop so quickly that it already reached 10 GW in the third quarter of 2022. The continued growth is primarily the result of three factors: rising energy costs, policy support, and growing demand for uninterrupted service.
“Despite the global COVID-19 pandemic and associated macroeconomic challenges causing a 2-year slowdown in the U.S., the microgrid market is developing at a rapid pace, and 2022 is on track to be a record year for installations and scheduled pipelines,” said Elham Akhavan, senior research analyst.
In terms of customer segments, Commercial and Industrial (C&I) leads the way with significant project development in industries such as retail (department stores) and manufacturing, which indicates a rise in demand for an uninterrupted electricity service. The government sector is in second place, driven by the military’s resilience and decarbonization targets. Residential and education sectors are in third and fourth place.
Overall, the U.S. microgrid market has seen a 47 percent increase in solar and storage capacity in 2022 compared to 2017 levels. Moreover, Wood Mackenzie data shows that more than 175 solar- and solar-plus-storage microgrid projects have been in active development and were scheduled to come online by the end of 2022.
“There’s been a significant shift in technology type, in particular the rise of solar and storage demand among microgrid customers, largely driven by corporate ESG goals,” said Akhavan. This has triggered an uptake of multi-distributed energy resource (DER) microgrids, known as advanced microgrids, which are used in situations where solar and storage alone are insufficient to mitigate long-duration outages. “A fossil fuel generator, often sized to cover the entire site, acts as backup for the solar and storage to ensure uninterrupted service when the grid is down,” he added.
In terms of models, Wood Mackenzie reported that the turnkey microgrid-as-a-service (MaaS) business model is projected to experience continued growth across various non-utility customer segments. The influx of diverse investors eager to finance long-term projects, often with ESG attributes, has led to the dominance of the MaaS model. Simultaneously, the industry is seeing a gradual shift away from end-user ownership. According to Wood Mackenzie’s data, the percentage of microgrids owned by end-users dropped 31 percent from 2019 to Q3 2022, while the share of MaaS deals grew 25 percent over the same period.
“While third-party financing in general is not a new model, MaaS is evolving beyond PPA contracts, which often involves procurement from a single DER to an affordable solution for financing the construction, operation and maintenance of multiple DERs, tailored to the customer’s energy objectives,” said Akhavan.
Microgrids continue to gain popularity with utilities, too. For example, Wood Mackenzie data show that there are 28 states with utility microgrids, with approximately 35 megawatts (MW) expected to have come online in 2022. This implies total utility microgrid capacity of over 1.1 GW. “Although utilities typically look to rate base microgrids, some are partnering with developers to offer microgrids to their customers under MaaS agreements,” said Akhavan.
In terms of region, the West coast, led by California, is growing substantially, with a strong pipeline due to go into operation by 2024. This is followed closely by the Southwest market, which has expanded more than three times since 2019. Texas is the frontrunner there, with two of the leading developers in the region (PowerSecure and Enchanted Rock) having installed all capacity so far in 2022. The industry has also seen growth in the Northeast, where a number of competitive grant programs are supporting resilience projects for critical facilities.