Microgrids are really just miniature versions of the larger utility grid, except for one defining feature: when necessary, they can disconnect from the macrogrid and can continue to operate in what is known as “island mode.”  Because of this distinguishing feature, microgrids can offer a higher degree of reliability for facilities such as military bases, hospitals and data centers, which all have “mission critical” functions that need to continue to operate no matter what.

Along with enhancing reliability, microgrids serve another useful function: they can help the larger grid stay in balance.  As the world moves toward an energy system that looks more and more like the Internet, with two-way power flows thanks to growing reliance upon on-site sources of distributed generation (DG), this increasingly dynamic complexity requires new technology.  But some forms of DG – especially variable renewable resources such as solar or wind — create a greater need for smart grid solutions, such as microgrids.  For example, recent trends in declining prices for solar photovoltaic (PV) systems certainly increase the need for aggregation and optimization technologies.  Why? Distributed solar PV systems can create frequency, voltage, and other power-quality challenges to overall grid operations.

But how much solar PV will actually be deployed within microgrids over the next 6 years all around the world? This is one of the questions addressed in my latest report, Microgrid Enabling Technologies.

Anchor Resource

In order for a microgrid to continue operating in island mode, it has to include some form of on-site power generation.  Without DG, a microgrid could not exist, so these DG assets are the foundation of any such localized smart grid network.

The ideal anchor resource for any microgrid is actually combined heat and power (CHP); a total of 518 megawatts (MW) of CHP capacity that will be deployed in microgrids this year.  This technology leads all forms of microgrid DG deployments today and will continue to hold the edge by 2018 (with 1,897 MW, representing more than $7 billion in annual revenues)  Given that it is a base load electricity resource that also provides thermal energy, today’s microgrid CHP capacity is the largest of any DG option besides diesel generators.

The bulk of CHP installations are with grid-tied systems within institutional campus environments.  The current low cost of natural gas in North America translates into the ability for microgrids to provide lower cost energy services than the incumbent utility grid.  For example, the University of California San Diego microgrid is saving over $4 million annually thanks, in large part, to on-site combustion of natural gas.

Still, Pike Research believes that declining solar PV costs will be one of the largest drivers for microgrids worldwide, and in terms of numbers of new installations, solar PV will be the market leader.  (CHP will lead in terms of total capacity due to the relative scale of CHP systems compared to solar PV.)  With the price of solar PV reaching grid parity in key markets by 2014 and 2015, the variability of this DG resource will necessitate a greater reliance upon energy storage (as well as the networking function of microgrids).  All told, this microgrid solar PV market adds up to almost $2 billion globally by 2018.

Total Microgrid Distributed Generation Vendor Revenue, Average Scenario,
World Markets: 2012-2018

(Source: Pike Research)

If one also includes distributed wind and fuel cells in the overall microgrid DG mix, this segment of microgrid enabling technologies is, by far, the largest target of new investment: 3,978 MW of new generation capacity valued at more than $12.7 billion (see the chart above).

The U.S. military is taking an all-hands-on-deck approach to deploying cleantech for military applications (including facilities, vehicles, and soldier power).  The application with the most firepower is medium-to-large-scale installations – up to 12 megawatts (MW)  –  at U.S. bases – with biomass, solar PV, wind, and geothermal expected to be the primary sources of renewable energy.

Large-scale solar PV projects currently in operation on Department of Defense (DOD) property include Nellis AFB (14 MW) and Fort Carson Army Base (2 MW).  A year-long ICF International study commissioned by the DOD found potential for 7 GW of solar to be installed at seven sites in desert bases in California and Colorado alone.  Pike Research only expects a fraction of this to actually be developed, but it nonetheless underscores the size of the opportunity and the financial feasibility of deploying solar PV.  The following table illustrates some of the most economically viable military sites for solar development.

(Source: ICF International)

The Army’s Energy Initiatives Task Force (EITF), which is directing the implementation strategy for the Army, has screened 180 Army and National Guard sites and has identified potential for 20 renewable energy installations totaling 683 MW.  Of that total, 183 MW have moved from the EITF planning pipeline to the execution portfolio.  Of the 183 MW in the execution portfolio, biomass currently represents roughly 75 MW, solar represents 55 MW, and other (unnamed) technologies represent 53 MW.  The following map provided by EITF shows the large-scale renewable energy installation opportunities either under consideration or undergoing review.

(Source: EITF)

Despite the massive potential for 100+ MW deployments, the U.S. military appears to (wisely) be sticking to installation sizes that it has experience with.  A $7 billion request for proposal (RFP) released by the Army in August 2012 called for renewable energy projects across several sites to generate 2.5 million megawatt-hours of power over the next 30 years – all via projects up to 12 MW (the military will not own the power plants, but instead pay a fixed rate over the lifetime of the contract).  Twelve MW is large enough to make an impact on the overall renewable energy use at the base, but small enough to avoid the large amount of red tape, environmental and wildlife concerns, water use, and transmission issues associated with much larger renewable energy deployments.

As we described in the recently released report, Renewable Distributed Energy Generation, solar leasing options, including residential solar power purchase agreements (PPAs), are available in a dozen states and have become the leading driver of the U.S. distributed solar PV market.  These solar leasing options represented more than half of the residential solar sales in California in 2011.  The market share of solar PV leases is expected to exceed 75% for distributed installations in 2012.

Investors have been pouring money into residential solar financing, enabling a growing list of companies like SunEdison, SunRun, SolarCity, SunGevity, and Gen110 to enable customers to generate clean electricity without ever owning the system.  Depending on the agreement, the customer enters into a 15 to 20 year contract with the solar service provider and pays a fixed rate that, with incentives, typically comes in just below the cost of retail electricity from the utility.

Since most utility rates are expected to go up over time, these solar PV customers will pay less for electricity than those who continue to only buy utility power.  This model has been a game changer in the U.S residential solar PV market because it enables homeowners to install solar for little to no money down.  Currently, the best SunRun deal in rainy Oregon enables qualifying residential customers who pay $6,000 up front to receive $6,000 in state and federal tax credits back in $1,500 increments over the following 4 years.

As solar lease providers proliferate in the United States, some companies have expanded overseas.  SunEdison, which was purchased by MEMC in 2009, is typically credited with developing the residential solar lease model, and now provides residential, commercial, and utility-scale solar plants throughout the United States, Europe, and Asia Pacific.  The company has more than 550 operational sites, with more than 500 megawatts of installed capacity across both solar leases and outright solar sales. The company has raised more than $2.5 billion in financing for solar leases alone.  Sungevity recently exported its operations to Europe and Australia, partnering with Zonline and Nickel Energy, respectively.  In Australia, the joint venture offers a pay-as-you-go financing model that functions similarly to a solar PPA.

The combination of reduced solar module prices, falling levelized cost of energy via microinverters, and expanded solar financing options may have tipped the scales to smaller, distributed generation that is often less costly than larger, centralized systems.

The Achilles’ heel of solar PV has been its low efficiency.  Even the most efficient commercially available monocrystalline silicon PV panel is only 20% efficient; the majority of modules installed today range from 12% to 18%.  This compares with wind at 30% and fossil fuel generators at 80% to 95%.  However, this is only part of what determines the solar PV system’s overall output.  Shading, dirt, cabling, voltage drop, inverter efficiency, and heat also affect the overall energy harvest.  Breakthroughs in microinverters (which convert DC electricity to AC power) and DC optimizers (which provide a steady and “optimum” voltage level for the current fed to the inverter) are two of the most disruptive technologies in the solar PV sector today, as we describe in Pike Research’s recently published report Inverters for Renewable Energy Applications.  The main benefit of microinverters is an overall higher energy yield because they prevent one panel’s failure from affecting the overall system’s energy harvest (unlike solar PV installations that use string or central inverters).  At the installation site, microinverters are easily installed on the back of each panel, matching the rated capacity.

With microinverters, each panel is individually monitored, thus removing the need for DC cabling.  This architecture distributes the overall risk of failure among all the panels in the installation, and relies on information technology to identify and isolate failed panels.  By contrast, central inverters have a single point of failure, which can lead to longer periods of downtime if that inverter fails.  With maximum power point tracking (MPPT) at the panel level instead of the string level, microinverters are ideally suited for residential and small commercial systems that are likely to be shaded more often that centralized solar power plants in the desert.  Microinverter companies claim their technologies reduce the overall levelized cost of energy (LCOE) by 15% to 20% as compared to string inverters.  Individual modules can also be shut down remotely and, with AC electricity, safety is increased for installers.  Microinverter manufacturer Enphase Energy claimed to have 34% of the California residential market in 2011, based on wattage.

The downside of microinverters is that they are typically two to three times as expensive as string inverters and have lower efficiencies (although they do typically result in a better overall energy harvest).  While the distributed architecture removes the risk of a single point of failure, many more electronics are being introduced to the PV system.  Startup microinverter companies claim higher reliability than string inverters, but microinverters have not been used long enough to test this claim.  Furthermore, placing microinverters on the back of a panel and on a roof could increase the risk of heat damage to the inverter due to higher rooftop temperatures, compared to string and central inverters, which are normally housed elsewhere.

The future of microinverters could very possibly end up being with fully integrated AC panels, of the type that SolarBridge Technologies and SunPower are experimenting with.  Under this architecture, the microinverter is pre-installed on the module at the factory.  The main value-add is the reduction in installation time from not having to separately install the microinverter or AC bus cabling at the job site.

Despite the doom and gloom in the headlines, and as we describe in the recently published Renewable Distributed Energy Generation report, the future of distributed solar PV is bright. Microinverters will continue to play an increasingly important role in this future.