What is a microgrid?
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Published: 29 February 2024
Contributors: Amanda McGrath, Alice Gomstyn

What is a microgrid?

Microgrids are small-scale power grids that operate independently to generate electricity for a localized area, such as a university campus, hospital complex, military base or geographical region.

 The U.S. Department of Energy defines a microgrid as a group of interconnected loads and distributed energy resources within clearly defined electrical boundaries that acts as a single controllable entity with respect to the grid.1 Microgrids can work in conjunction with more traditional large-scale power grids, known as macrogrids, which are anchored by major power plants. But because microgrids are self-contained, they may operate in “island mode,” meaning they function autonomously and deliver power on their own. They usually are comprised of several types of distributed energy resources (DERs), such as solar panels, wind turbines, fuel cells and energy storage systems. Their power generation resources can also include more traditional sources such as diesel generators and natural gas-powered combined heat and power (CHP) systems.

Why are microgrids important?

When it comes to electricity generation, microgrids offer potential solutions to several challenges associated with a traditional power grid. Microgrids may:

  • Improve resilience: Microgrids can reduce pressure on the primary electric grid and provide backup power during outages caused by extreme weather or other disruptions, ensuring a reliable power supply for critical loads. This capability is particularly valuable in remote areas with limited access to the main grid or in regions prone to power outages or natural disasters.
  • Increase efficiency: By managing local energy resources and loads, microgrids can efficiently balance supply and demand, reduce transmission losses and enable demand response, meaning they allow for adjustments to energy usage in response to price signals. This can result in lower energy costs; for example, Pittsburgh International Airport’s switch to a solar and natural gas microgrid led to a reported USD 1 million in savings in its first year.2 And a California winery built a microgrid around photovoltaic (PV) solar energy that reduced its monthly energy bills from USD 15,000 to USD 1,000.3
  • Encourage modernization and sustainability: Microgrids enable the integration of renewable energy sources into the power system, which can reduce overall greenhouse gas emissions and contribute to clean energy goals.
Key parts of a microgrid

A variety of energy technologies connect to create a microgrid. Each consists of several key components:

Power sources

These are the generators that produce electricity for the microgrid. They can include renewable sources like solar panels, wind turbines, and hydroelectric systems, as well as non-renewable sources like diesel or natural gas generators.

Energy storage systems

Energy storage devices such as batteries or flywheels store excess power generated by the microgrid. This stored energy can be used when demand exceeds production, or during periods of intermittent power generation (like at night for solar power).

Distribution infrastructure

This includes the physical infrastructure needed to distribute power from the sources to the loads, such as power lines, transformers and switches.

Control systems

The “brain” of the microgrid manages its operation, balancing power supply, integrating renewable sources, managing energy storage and maintaining power quality. It also allows the microgrid to disconnect from and reconnect to the main grid as needed. Control systems include load management tools that adjust supply as power demands rise and fall, as well as metering devices, which measure power production and consumption, providing important data for managing the grid's operation.

Point of common coupling (PCC)

This is the physical point where the microgrid connects to the main utility grid. The PCC can isolate the microgrid to enable it to operate in island mode during a main grid outage.

Considerations for implementing a microgrid

Implementing a microgrid involves several steps, including feasibility assessment, design, commissioning and operation. Considerations include the selection of generation sources, sizing of the energy storage system, design of the control system and compliance with interconnection standards. Technology plays a crucial role in this process. Advanced microgrid control systems use algorithms to optimize the operation of diverse power sources in real-time. Meanwhile, digital technologies such as Internet of Things (IoT) devices and blockchain can enable peer-to-peer energy trading within a microgrid.

Installing and operating microgrid projects can come with challenges: The high upfront costs of microgrid technologies, such as advanced control systems and energy storage, can deter potential adopters. Connecting a microgrid with the main grid requires careful coordination to ensure power quality and safety. The microgrid controller, a critical component of the microgrid system, must manage and optimize the operation of diverse power sources in real-time, which can be complex. Regulatory barriers related to utility franchise rights, grid access and tariffs can also deter adoption.

However, the potential benefits of microgrids, including flexibility, resiliency and efficiency, make them appealing to many businesses and communities seeking new energy management systems. In fact, investment in microgrids is growing, with one report suggesting the global market for them could grow to USD 55 billion by 2032.4

What is a smart microgrid?

A smart grid is an advanced electrical power system that integrates digital communication and control systems with traditional power infrastructure to enable real-time monitoring and management of energy flows. Smart grids optimize the use of renewable energy sources, reduce carbon emissions and increase energy efficiency. They also provide consumers with more control over their energy consumption and costs through the use of smart meters and home automation systems.

The technologies that support smart grids can also be used to drive efficiency in microgrids. A smart microgrid utilizes sensors, automation and control systems for optimization of energy production, storage and distribution. Smart microgrids are designed to be resilient and reliable, able to quickly respond to changes in demand or supply disruptions.

Microgrids and sustainability

Microgrids offer energy solutions for companies and communities seeking greater sustainability. They can seamlessly integrate renewable energy sources such as solar, wind and hydroelectric power. They also support the electrification of transportation (for instance, by providing charging infrastructure for electric vehicles.) This reduces reliance on fossil fuels, contributing to a reduction in greenhouse gas emissions and climate change.

By generating power closer to the source of consumption, microgrids reduce energy loss that typically occurs during long-distance transmission. And they can better manage demand response by reducing load during peak times or shifting it to off-peak times. Together, these attributes lead to more efficient use of generated power.

In addition to the environmental benefits of renewable and efficient energy supply, microgrids can stimulate local economies. They may create jobs in the fields of construction, operation and maintenance, helping communities thrive.

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    Resources A smarter approach to energy delivery

    “We were pushing the cutting edge of the state of the art": How CleanSpark is setting itself apart as a leader in microgrid development.

    What is advanced metering infrastructure?

    AMI is an integrated, fixed-network system that enables two-way communication between utilities and customers.

    What are smart meters?

    These digital devices measure electricity, gas or water consumption in real time to manage energy metering more effectively.

    How smart grid tech optimizes energy production

    Smart grid technology promises to modernize the traditional electrical system with digital intelligence that helps energy providers transition to clean energy and reduce carbon emissions.

    What is net zero?

    Net zero is the point at which greenhouse gases emitted into the atmosphere are balanced by an equivalent amount removed from the atmosphere.

    What is energy management?

    Energy management is the proactive and systematic monitoring, control and optimization of an organization’s energy consumption to conserve use and decrease energy costs.

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    1 The U.S. DoE’s Microgrid Initiative (Link resides outside ibm.com), United States of America Department of Energy, October 2012

    2 How a microgrid saved Pittsburgh International Airport $1 million (Link resides outside ibm.com), Microgrid Knowledge, July 2022

    3 Microgrid Analysis and Case Studies Report (Link resides outside ibm.com), California Energy Commission, August 2018

    4 Global Market for Microgrids Estimated to Grow to Over $55 Billion by 2032 (Link resides outside ibm.com), Guidehouse Insights, January 2024