Dive Brief:
- The U.S. microgrid market reached 10 GW in the third quarter of 2022 with 7 GW already in operation and the rest in planning or construction stages, consulting firm Wood Mackenzie said in a news release Tuesday.
- As the microgrid industry has adopted new business models that shift upfront costs away from the end user, the technology is becoming an increasingly popular option for green initiatives and for entities trying to navigate costly electricity outages, according to Elham Akhavan, senior research analyst at Wood Mackenzie.
- “We are watching the market closely and still waiting to receive further details on the [Inflation Reduction Act], but we believe that the [U.S. microgrid] market will continue to grow at about a 19% average annual growth rate through the year 2027,” Akhavan said.
Dive Insight:
U.S. microgrid capacity reached 10 GW in the third quarter of 2022, and with new legislative support and a rebounding supply chain, the expansion of microgrids is likely to continue in 2023, according to consulting firm Wood Mackenzie’s U.S. microgrid outlook 2022 report.
“We are very optimistic about this year,” said Akhavan.
As supply chain constraints ease following the winding down of COVID-19 pandemic restrictions, the microgrid market is developing rapidly. If the trend continues, the market will see more than 20% growth in annual capacity installations across the U.S. compared to last year, according to the report.
In addition, over the last five years, approximately 7% of the renewable generation deployed in the U.S. was associated with a microgrid.
New business models have also spurred development. Historically, the end-user was responsible for the costs associated with deploying microgrids, but that is changing as third-party providers and utilities offer microgrid-as-a-service, allowing the end user to outsource all of the upfront costs, Akhavan explained.
“Outside of the utility segment, the share of end-user ownership dropped 31% from 2019 to 2022, while microgrid-as-a-service grew 25%,” Akhavan said.
One of the key benefits of microgrids is that they improve electric reliability and resilience at a time when electricity outages are increasing. When the grid goes down, a microgrid can take over operations in a specific area.
The risks and costs associated with outages are one of the reasons why the commercial and industrial sector made up 48% of the microgrid customer segment in 2022, followed by the governmental sector, which runs critical facilities, at 22%. The residential and education sectors were 16% and 13%, respectively, and the remaining 1% fell under the undisclosed category, according to Wood Mackenzie.
Microgrid developers have increasingly adopted solar and storage capacity technologies as corporations adopt environmental, social, and governance goals. There has been a 47% increase in microgrid solar and storage capacity since 2017, but the high price point for renewable energy sources remains one of the key challenges for deploying microgrids, according to Akhavan.
Akhavan predicts that the Inflation Reduction Act can alleviate some of the costs. The law, which includes $369 billion for energy and climate spending, provides incentives for hydrogen development as well as solar and wind power, which can be integrated into microgrids.
Some states, such as California, Colorado and Oregon have also introduced resilience funding projects that include provisions for expanding microgrids.
“Whatever incentive and whatever legislation that can support and compensate for the upfront cost or the operation cost of microgrids is helping,” Akhavan said
