Navigant Research Blog

Defining the New Smart Grid: From Nanogrids to Virtual Power Plants

Peter Asmus — July 7, 2014

Nanogrids and microgrids are building blocks that, like Legos, can be stacked into modular structures: in this case, distribution networks that tailor energy services to the precise needs of end-users.  This customization of energy services is clearly the wave of the future; but determining where to draw the line between these two business models can be challenging.

In many ways, nanogrids are just small microgrids that typically serve a single load or building.  They thereby represent a less complex way to manage on-site distributed energy resources (DER).  Ideally, microgrids would be able to serve entire communities, but utility regulations often stand in the way.  These same regulations make nanogrids larger business opportunity today than microgrids, despite their smaller size.

The series of storms and extreme weather that have attacked East Coast grids in recent years has sparked interest in community resiliency initiatives.  New York’s Reform the Energy Vision (REV) initiative is designed to explore how multi-stakeholder community microgrids might provide emergency power to end-users ranging from a private gas station to a municipal fire station (and perhaps a community center emergency shelter).  Connecticut has been struggling with this issue of how best to include both public and private sector end-users, bumping up against the long-standing prohibition of transferring power among non-utilities over public rights-of-way.  To date, only one of the 9 projects approved for funding under Connecticut’s DEEP program is actually up and running, at Wesleyan University.

The Virtual Option

The third smart grid business model that can help build resiliency into power grids is described in Navigant Research’s report, Virtual Power Plants.  A virtual power plant (VPP) is a platform that shares many attributes with the microgrid (and the nanogrid).  In North America, the most common resources integrated into VPPs are demand response systems.  Though VPPs cannot guard against power outages at the customer site, they can play a key role in lowering overall demand on the larger utility grid, thereby stretching scarce resources, directing them to mission critical loads.

The lexicon of organizing structures required to handle the increasing complexity of energy supply and demand is growing.  In order to make sense of this brave, new world in energy, Navigant Research has come up with the following chart highlighting key attributes of three different business models.

 Comparing Nanogrids, Microgrids, and VPPS

(Source: Navigant Research)

Regulators clearly need to revisit regulations standing in the way of community microgrids.  It appears that New York is pioneering this debate, allowing it to surpass California’s position as the leading microgrid market in the country in terms of sheer numbers of projects in the works.  Moving downstream again, it is also important to remember that nanogrids help create smart buildings that, in turn, can also be integrated into VPPs.  These combinations are vital to efforts to harness greater value from DER, thereby increasing energy security.

In the end, it’s not nanogrids, or microgrids, or VPPs, but the deployment of all three in flexible and dynamic configurations that is revolutionizing what was once the staid world of top-down, command-and-control monopoly utilities.

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