Navigant Research Blog

Data Centers Could Turn Microgrid Markets Upside Down

— March 2, 2012

After compiling numerous reports on the status of emerging markets for microgrids, I have concluded that not a single national government has developed an integrated or comprehensive policy creating a viable, vibrant market for customer-driven commercial sector microgrids.  In fact, according to the most recent Pike Research 2012 report on the global microgrid market, commercial/industrial applications (C/I) are lagging behind all other segments: campus environments, community/utility, military, and remote.  That could change within the next few years, if plans on the drawing boards for data centers in Singapore , India and other parts of the Asia Pacific region – and the United States – move forward.

Until recently, data centers largely relied on uninterruptible power supply (UPS) systems consisting of large banks of dirty diesel generators to maintain 99.999% reliability of power service.  As data centers begin to green their operations due to environmental pressures, air quality regulations and the increasing cost burdens of diesel fuel, though, the appeal of microgrids – along with the broader notion of aggregating distributed energy sources into virtual power plants – is looking more and more compelling.

The Asia Pacific region already is projected to lead the world in microgrid annual revenues, but this is due, in large, part to anticipated growth in the remote microgrid sector, especially in countries such as India, which recently deregulated its markets to accommodate remote microgrids of less than 1 megawatt (MW) in capacity.  Rumors are swirling about projects as large as 500 MW in one Asia Pacific country – and data center microgrids of similar scale in others – indicating that the C/I sector may be the sleeping giant. Due to low labor costs and lack of permit obstacles, the rapid construction of data center projects of this scale in Asia could blow Pike Research’s current market forecasts out of the water.

Today, the commercial and industrial segment represents the least developed market for microgrids worldwide.  Currently, it is illegal around the world for a residence or business to sell self-generated electricity to anyone apart from the local utility through net metering.  This makes the concept of creating and carrying out self-sustaining microgrids in multiple-owner C/I complexes extremely difficult in markets such as the United States.

On the other hand, microgrids may hold the most value for commercial and industrial users, since power outages kill productivity as well as revenues, especially at data centers.  The cost savings offered by microgrids to this sector is not limited to the free resources tapped by distributed renewables; they also include the reduction of downtime, as islanding capabilities allow microgrid-protected commercial data centers to maintain power when the larger grid fails.  Furthermore, the advantages of direct current (DC) microgrids for data centers are being extolled by a variety of companies, backed up by a recent study by EPRI showing a 15% efficiency gain at a data center in North Carolina.

Perhaps a sign of things to come is represented by the Niobrara Energy Park proposed near Loveland, Colorado.  Boasting a potential capacity of more than 200 MW of planned natural gas, solar and wind generation, Niobrara is still seeking an anchor data center tenant, but has cleared virtually all key regulatory hurdles.  This single microgrid – if successful – could dramatically transform this segment.  The logistics of managing and controlling a microgrid of this scale, though, are unprecedented.

Swiss industrial giant ABB is especially keen on the data center microgrid market, creating a new “best of breed” consortium that includes software innovator Ventyx, as well as less known firms such as Validus DC (for DC data center applications) and Power Assure (for data center smart grid energy management.)  Not only do these companies hold the potential to develop state-of-the-art microgrids, but they also have the capacity to do something much more radical: build out virtual power plants (VPPs) for far-flung data centers.

Imagine this: Data centers operating worldwide, but owned by a single enterprise, leveraging smart grid intelligence and their sizable loads to engage in demand response arbitrage, shutting down centers where prices are high during the day, and shifting loads to markets where prices are low at night.  These enterprise level VPPs could also become a microgrid, islanding in times of emergency or peak demand.

The team and tools that ABB has assembled – most recently the smart switches of Thomas & Betts, LLC — could transform electricity management for commercial operations at the distribution level.  Throw in some storage, and data centers not only help back-up variable renewables, but when not used for that purpose, sell ancillary services to grid operators.

This kind of fun is what the smart grid is supposed to be about!


Hawaii Becoming a Test Bed for Clean Technology

— March 1, 2012

Earlier this month, the government of Hawaii and Korean partners (the Republic of Korea Ministry of Knowledge Economy and the Korea Smart Grid Institute) signed a letter of intent to pursue mutual interests in smart grid development in the Hawaiian Islands.  While the project scope and specific practices for the Hawaii project are not clearly defined in the announcement, it’s safe to assume that projects included in the Jeju Island smart energy program, including smart meters, renewable energy development, and electric vehicles, would be implemented in Hawaii.

Hawaii comprises more than 120 scattered islands and is far from the nearest mainland (1,860 miles).  Electricity is expensive, and Hawaii is the most fossil fuel-dependent state in the nation.  Thus, the need for switching to renewable sources of energy is as much an economical imperative as it is an environmental one for the islanders.

With regards to policy, Hawaii is deeply committed to developing a clean-energy economy.  The island state has made great progress in aligning regulatory policies with clean energy goals; encouraging development of next generation, clean energy technologies; and deploying renewable generation and grid infrastructure.  As a result, the state has been building energy efficiency, increasing photovoltaic capacity, and creating green jobs.  The following figures show how much Hawaii has been deploying clean-energy technologies relative to the other 49 states.

Further, the state has bold goals: to achieve 70% of its energy from renewable sources by 2030.  Hawaii aims to serve as a clean energy model for the U.S. and for the world. As the graph below indicates, 66 renewable energy projects are currently in progress and more are in development in bio-energy, geothermal, hydro, solar, and wind, etc.

I’ve written several blogs about the Jeju projects.  As of now, over 170 Korean companies are engaging in specific projects, including advanced metering infrastructure (AMI), electric vehicles, solar and renewable generation, and energy storage test beds.  In the case of AMI, 6,000 household are participating in a smart meter test. The Ministry of Knowledge and the Smart Grid Institute are leading the project with investments totaling more than $240 million between 2009 and 2013.

In fact, South Korea is an exceptional country. With a sole utility service provider – KEPCO – and its current advanced electricity grid capabilities, South Korean camps are targeting oversea markets, rather than domestic markets, from the first phase.  Focusing on overseas smart grids markets will help Korean players find more lucrative opportunities.  Thus the partnerships with Hawaii should help Korean providers gauge their current capabilities by applying Jeju’s outcomes in a similar environment in the United States.  Jeju and Hawaii both have clean, year-round, and renewable energy resources, including abundant sun and wind.  Tourism is the major industry in both places, and Hawaii and Jeju both hope to maintain their unique ecosystems with clean energy sources.

Japanese partners already initiated a joint U.S.-Japanese smart grid demonstration project in November, 2011 on Maui. Those two projects with Asian players could make progress to achieve Hawaii’s goals.


New Opportunities for Microgrids in 2012

— January 3, 2012

The global market for microgrids, and other forms of aggregation and optimization for distributed energy resources, made some major leaps forward during 2011. While not the commercial opportunity being hyped by some organizations such as the Galvin Electricity Initiative, this smart grid network platform is coming of age, especially in the U.S., due to two major developments.

The first was the adoption of standards for safe islanding by the Institute of Electrical Energy Engineers (IEEE) in July 2011, which should accelerate the shift from pilot validation projects to fully commercial microgrid ventures. Since 2009, a handful of large projects have come on line, especially in California – as platforms for aggregation of distributed renewable resources – and in New York, with combined heat and power (CHP) units as anchor technologies.

Second, a series of Federal Energy Regulatory Commission (FERC) orders – 719, 745, and 1000 – takes steps toward harmonizing innovation occurring independently at the wholesale and retail market levels. Demand response (DR) is seen as a stop-gap resource whose role will expand in markets characterized by volatility, high demand peaks, and lack of new transmission level generation capacity. Microgrids are now being viewed as the ultimately reliable DR resource, since islanding securely takes load off of the utility grid.

The recently updated Pike Research Microgrid Deployment Tracker 4Q 2011 identified over 100 more microgrids than previously highlighted, representing more than 300 megawatts of planned or operating additional capacity, primarily in the remote microgrid segment.

Pike Research’s new report, Remote Microgrids, highlights the fact that this remote sector represents the largest potential investment and revenue, a market currently valued at $3 billion and projected to grow to over $10 billion in the average scenario forecast by 2017. These figures reflect the fact that remote microgrids require the build-out of new renewable distributed energy generation facilities, whereas many of the grid-tied microgrids previously profiled by Pike Research only derive revenues from networking and optimization of existing generation assets.
Pike Research has also identified four sub-segments of the remote microgrid market, which is further commercialized than other segments, but heretofore sorely lacking in available data:

  • Village Power Systems: Perhaps the largest number of remote microgrids operating today would fall into this category, though data is extremely scarce due to the small scale of such projects and to the fact that most installations are located in Asia. According to leading purveyors of this remote microgrid sub-segment, the average village power system has a capacity of 10 kW. It typically provides power to a medical clinic, school, and/or community center in the center of the village.
  • Weak Grid Island Systems: To a purist, microgrids that have any linkage to a larger grid would not be considered “remote.” From the Pike Research perspective, these systems belong in the remote microgrid camp since the underlying assumption is to design and operate a power system as if the larger grid is not there. Weak grid island systems could represent an even bigger opportunity than the campus environment and military microgrid sectors that have been featured by Pike Research in previous microgrid segment reports.
  • Industrial Remote Mine Systems: This sub-segment of the remote microgrid market is the least mature, but also boasts the highest growth rates due to a groundswell of interest in shifting to more sustainable energy strategies for sites controlled by large multinationals. Globally, nearly 75% of existing mines are remote operations, though very few deploy renewable energy generation.
  • U.S. Mobile Military Microgrids: This last category of remote microgrids is the least developed, but has the most policy and financial support from the U.S. Department of Defense. At present, these systems are being deployed in pilot projects in combat missions at FOBs in Afghanistan and other remote DOD sites. They are included in this report because many mobile systems will likely become village power systems to serve humanitarian services once U.S. troops pull back from combat zones such as Afghanistan.

And while Africa and the rest of the developing world are ideal markets for remote microgrids, Comverge, the struggling demand response provider, ended 2011 with a bang when it announced a major deal with South African provider Eskom, one of the largest utilities on the continent. With DR technology now spreading more rapidly throughout the world, new synergies between microgrids, DR and virtual power plants will certainly emerge.


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