Navigant Research Blog

Five Bold Predictions on the Frontier of Energy for 2018

— January 11, 2018

It is that time of the year again, when pundits pontificate about what the future holds, and citizens and corporations alike set goals for the coming year. I’d like to make five predictions for 2018 that underscore why a forecast increase in distributed energy resources (DER) over centralized generation will transform the global economy in sometimes surprising ways.

1. DER Innovation Will Abound

The spotlight continues to shine brightly on solar and energy storage technologies. Yet other forms of DER, especially generators driven by fossil fuels, will push the envelope on new business models in surprising ways. For example, Fairbanks Morse recently announced a new offering it is calling power reliability as a service, allowing remote villages in Latin America to access reliable electricity in locations not accessible by road or even airplane. These generators are forging new partnerships/acquisitions while also integrating upgrades revolving around novel hardware designs: Innovus Power (featuring variable speed generators) and the 360 Power Group (extensively patented modular generators that dramatically reduce fuel consumption and improve reliability), are just two examples.

2. One Microgrid Vendor to Lead Them

A US company will emerge as the leading microgrids controls vendor based on validated performance, offering a controls solution priced below $2,000 for a kilowatt-scale microgrid. The company has wowed US government officials with the performance of its controls solution. The question is: can it effectively market its solution as the go-to platform in a market not quite mature enough for a true plug-and-play solution?

3. Policies to Net Positive Results for DER

Trump administration tax reform and new policy directives at the US Environmental Protection Agency will accelerate smart energy investments by a factor of three. While some of these regulatory tweaks will reduce public government support for renewables such as solar PV, the net results will be positive for DER. A combination of public policy reforms at the state level in the US and actions by the private sector will demonstrate that the transition to key elements included under the Energy Cloud future is unstoppable.

4. Asia Pacific Takes Over Innovation

The center of innovation on the DER front will shift away from North America and toward Asia Pacific, focusing on four countries: Australia, China, India, and Japan. Each of these countries offers a landscape fostering DER opportunities. One could argue that Australia is where the most diverse opportunity exists in terms of DER integration with microgrids and virtual power plants. Australia is also home to Power Ledger experiments with transactive energy.

5. Energy-Water Connection Creates Opportunities

New solution offerings focused on the energy-water nexus will come to the fore in 2018. In California, Advanced Microgrid Solutions is one company to recognize this linkage with innovative grid-connected battery systems supporting public water agencies: Inland Empire Utility Agency, Irvine Ranch Water District, and the Long Beach Water Department. Of course, water is a necessity for life. An even more urgent need for energy-water nexus solutions is in developing world locations such as India, where 1 billion people need access to safe and clean drinking water (and as many as 300 million lack access to electricity). Linking solutions for both water and power through DER-based solutions creates synergy and opportunities, both for do-gooders and for entrepreneurs seeking profit.

A Distributed and Resilient Future

These five trends are not the only things I see in my crystal ball. Yet I believe they will help define 2018 as the world makes the transition from costly centralized power infrastructure to a nimble, flexible, and more resilient paradigm. We are in a historic transformation toward a clean, distributed, intelligent, and mobile grid. Do you agree?


What Falls Under the Broad Microgrid Umbrella?

— January 9, 2018

There is arguably one question that needs to be answered by the customer thinking about microgrids: What do they really want in terms of a power supply solution? If the customer can quantify what they are seeking in terms of dollars saved, efficiency gains, or perhaps a reduction in downtime, then the solutions provider can design a system to meet those goals (whether that system meets the definition of a microgrid or not).

The question of whether you need a microgrid will be determined by different ownership models, geographies, and regulatory systems. Take the case of Duke Energy, a large vertically integrated utility serving customers in multiple US states. It views microgrids very differently than a third-party vendor focused on off-grid applications in the developing world.

Grid or No Grid?

Duke Energy jumped into the microgrid market seeking to build a system with off-the-shelf parts. It succeeded, but learned quite a bit about integration challenges, which led to its efforts promoting interoperability standards. It has since followed a dual path on microgrids, leveraging both its unregulated businesses in partnership with Schneider Electric for a community microgrid under a microgrids as a service business model, but also rate-basing a new microgrid at a National Guard facility in Indiana. For Duke Energy, microgrids are about enhancing traditional grid infrastructure. They can serve as a vehicle to integrate diverse distributed energy resources into its own power grid under a “do no harm” paradigm.

For Optimal Power Solutions, an Australian-based firm active in overseas developing economy markets such as India, Indonesia, and Malaysia, the perspective on microgrids is vastly different. “The term microgrid may be the broadest church of all,” commented Stephen J. Phillips, company founder and a 20-year veteran of deploying off-grid solutions for village and remote commercial customers. He observed that the majority of the 1,800 systems Optimal Power Solutions has deployed were designed to displace diesel burning in remote parts of the world. Today, however, much of its work revolves around “essentially installing an off-grid system that is connected to a standard utility grid.” Case in point are several grid-connected solar PV plus energy storage projects in Japan, including the Nagoya landfill project, designed to make such hybrid systems dispatchable and time-shift stored solar energy after the sun sets.

Latest Regional Trends

The US is the top country in the world in terms of total identified capacity according to Navigant Research’s newly published 13th edition of the Microgrid Deployment Tracker. The US has 6,213.1 MW of capacity across 853 projects. China comes in second place, a country where verifying project data is the most difficult of all countries. Perhaps the biggest surprise, however, is that Saudi Arabia jumps in at 3rd place with the addition of the Saudi Aramco microgrid cluster, a 2.2 GW project at the Saudi Aramco gas-oil separation plant in Shaybah, Saudi Arabia from Schweitzer Engineering Laboratories. This microgrid (technically eight interconnected microgrids operated by a single controller) is likely the largest group of nested microgrids in the world and the largest single entry in the Tracker.

India and Australia round out the top five countries in terms of capacity (see Top 10 figure). Is the Saudi Aramco project really a microgrid? From a controls perspective, the answer is yes. I’ll leave it to others to debate whether there should be a size limit on microgrids.

Top 10 Countries by Total Microgrid Power Capacity, World Markets: 4Q 2017

(Source: Navigant Research)


Is Finland Europe’s Best Hope for Microgrids?

— December 7, 2017

While Europe is considered a global leader in moving toward a low carbon energy future, the tightly regulated EU markets have several features that severely limit the development of microgrids:

  • The focus has been on large-scale renewable energy development such as offshore wind, which requires massive investment in transmission infrastructure.
  • Deployment of distributed energy resources such as rooftop solar PV has primarily been based on feed-in tariffs, a business model precluding the key defining feature of a microgrid—the ability to seal off resources from the larger grid via islanding.
  • EU markets are tightly interwoven and methods to address the variability of renewables such as wind and solar lean toward cross-border trading, not localized microgrids.

As the forthcoming update to Navigant Research’s Microgrid Deployment Tracker demonstrates, Europe represents approximately 9% of the global microgrid market. The vast majority of microgrids deployed in Europe are actually on islands in the Mediterranean, the Canary Islands off the coast of Spain, or projects such as Bornholm or the Faroe Islands of Denmark.

I recently attended the International Symposium on Microgrids in Newcastle, Australia at the CSIRO Energy Centre. One could argue that Australia is the current global hotspot for commercialization of the Energy Cloud ecosystem. I have certainly made that argument in the past.

Fortune in Finland?

Perhaps the most surprising revelation at the conference was this: a unique confluence of factors make Finland the best opportunity for microgrids in Europe. Finland is not only the global leader on smart meter deployments, with 99% of its 3.5 million customers having access to this technology, but it also has a deregulated wholesale and retail market that features 83 distribution system operators (DSOs), with the largest distribution networks composed of 200,000 customers.

Unlike its neighbors Sweden and Norway, Finland lacks massive hydroelectric resources. What hydro it has tends to be run-of-the-river systems, and some of the smaller scale systems are microgrid-friendly. Most importantly, Finland is a country that does not fully share the stellar reliability associated with the EU grid. During blackouts in 2011 and 2012, as many as 570,000 customers lost power for an extended period of time. This outage raised the issue of the vulnerability of the Finland grid to winter storms due to overhead lines running through the country’s deeply forested regions that can sag from snow.

Pro-Consumer Policy Changes

In a quick response to these power outages, new regulations have been put in place that limit power outages to 6 hours annually for urban residents and 36 hours for rural customers by 2028. In a policy that would likely scare utilities in the US, DSOs are required to compensate customers for power outages. If a power outage lasts longer than 12 hours, the DSO must pay the customer 10% of its annual distribution fee, and compensation goes up gradually to a maximum of 200% with interruptions longer than 288 hours.

The first option of most DSOs to respond to these new reliability regulations is to place distribution lines underground. However, that can be expensive, especially given the low density of some DSO customer bases. According to research performed by Lappeeranta University of Technology (LUT), the lowest cost option for 10%‒40% of the medium voltage branch lines would be low voltage direct current microgrids. One such LVDC microgrid project, developed by LUT in collaboration with DSO Suur-Savon Sähkö, was developed in 2012, incorporating solar PV and batteries. Though only one other microgrid currently is operating, Finland represents an ideal market for utility distribution microgrids.


Thinking Outside the Box about Microgrid Technology

— November 28, 2017

When one hears the word technology, most think of a hardware gadget, something tangible that can be touched and is a literal tool. However, some prominent thought leaders take a much broader view.

Jayant Kumar, global digital grids director for GE Grid Solutions, points to better microgrid master planning tools as a technology vital to bringing the microgrid platform into full commercial viability. In a recent interview, he asked “What we are trying to do is to create a utility in a box. But how do you do that at the right economic scale? What is the right business case?” He explained that with sophisticated planning tools, the assets can be matched up with the right market landscape to reach necessary internal rate of returns to make projects pencil out.

Investments in Microgrid Tech to Rise

Navigant Research will soon be publishing a report on the topic of microgrid enabling technologies (MET). The focus will be on the distributed energy resources—hardware assets—that get wrapped into microgrids. Preliminary findings show combined heat and power (CHP) capturing the largest market share today, but by 2026, the leader is solar PV (with energy storage coming in second place). All told, the hardware assets (biomass, CHP, diesel, energy storage, fuel cells, hydro, solar PV, and wind) will represent approximately $90 billion in cumulative investment over the next decade.

While these numbers are staggering and may make certain investors drool, the key to unlocking the value sometimes hidden in these hardware assets is more nebulous since they delve into the realms of telecommunications, finance, and software technologies—the value of which is more difficult to count and quantify.

Mobile Phones as a Microgrid Enabling Technology

In the developing world, there is an acute need for financial products to pave the way for microgrids linked to energy access initiatives. In these markets, it is the proliferation of mobile phones—and the infrastructure required to enable communications (i.e., cell phone towers)—that could also be considered MET. Mobile phones create the infrastructure to enable payment for energy services on an as used incremental basis that is driving growth in smaller scale microgrid systems.

For example, Simpa Networks is one of many innovators bringing energy access through microgrids to developing world markets via the pay-as-you-go model. It installs solar PV systems in households or small businesses and customers pay for the electricity consumed, like prepaid mobile phone plans. The payments count toward the purchase price of the solar PV system so customers will eventually own the system.

Controllers: The Magic Sauce

The other MET to be sized in my forthcoming report is microgrid controls spending. This is the linchpin software enabling technology that remains the bottleneck to full-scale commercial viability (just ask Duke Energy). The US Department of Energy (DOE) and the Institute of Electrical Energy Engineers (IEEE) are playing critical roles in taking a bit of the mystery out of what is now the magic sauce that makes a microgrid work (or not.)

Perhaps the most interesting initiative was launched by the National Renewable Energy Laboratory (NREL) in what is being described as a shootout under a controller-in-the-loop test pitting controller against controller. Stage 1 involved five vendors in a Microgrid Innovation Challenge where all five vendors competed in managing a simulated highly complex microgrid. The companies competed for 100 minutes on seven performance parameters. Next, NREL will pit two finalists in a real-world hardware environment in December 2017. The winner will be selected as the controller to be used at NREL’s microgrid testing facility.


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