Inside an Optimized Microgrid: What is the Source of its Value?

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Here we lift the lid on an optimized microgrid to see the source of its real value: the advanced microgrid controller. Surprisingly, the controller makes up a relatively small amount of a microgrid’s costs, as we discuss in this excerpt from our new report, “How Microgrids Can Achieve Maximum Return on Investment (ROI): The Role of the Advanced Microgrid Controller.”

Defining microgrid and microgrid-like projects

Microgrids can be very simple or very complex—and this will influence their ability to derive value and achieve a favorable ROI. So it’s important to start this discussion by describing the different types of microgrids and microgrid-like projects that exist.

The U.S. Department of Energy (DOE) defines a microgrid as:

A group of interconnected loads and distributed energy resources (DER) within clearly defined electrical boundaries that acts as a single controllable entity with respect to the grid. A microgrid can connect and disconnect from the grid to enable it to operate in both grid-connected or island-mode.

This definition embodies a wide range of energy projects, with various kinds of generation and any kind of customer.

The simplest microgrid might have an elementary microgrid controller governing perhaps one building and at least two forms of generation with no connection to the central grid.

The most complex microgrid in operation today uses an advanced microgrid controller that orchestrates the energy supply from several generation sources. It supplies multiple loads and is likely to include energy storage, renewable energy, CHP and possibly back-up reciprocating engines. In most cases, the complex microgrid is connected to a central grid, from which it can both supply and derive services.

Adding value for microgrid-like projects

Even if a project is not a true ‘microgrid’ as the defined by DOE, but rather a variation on the theme, it can gain greater value with integration of an advanced microgrid controller. These microgrid-like projects include:

1) nanogrids

2) solar plus storage

3) CHP

4) other types of distributed energy resources

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Among them, a nanogrid is closest to the microgrid: it can island from the central grid, but it has only one source of generation and only one load to manage (a single building). A true microgrid, by comparison, has more than one distributed energy resource (DER) and multiple loads to optimally manage—this system complexity is where microgrid control drives value.

While distributed energy projects may lack the versatility of a full optimized microgrid (i.e. islanding functionality), they can benefit from similar control technologies that can help them optimize their internal resources, and in some cases leverage against utility rates. Particularly important are the multiple DERs, the advanced controller, and the available utility rate structures. As we’ll discuss later in this article series, when these and other aspects of the distributed energy solution are ‘optimized’—used to their fullest value — they offer the opportunity for greatest ROI.

What does a microgrid cost?

Securing value is just one side of the equation to determine project payback. The other is investment cost.

Microgrid costs vary; they depend on the complexity of the installation. The major expenses are:

▶▶Distributed generation assets

▶▶Grid automation

▶▶Microgrid optimization software

▶▶Development and installation costs

▶▶Energy storage (potential)

Distributed generation almost always requires the biggest investment; in fact, generation can account for more than 50 percent of the capital costs, particularly for a greenfield microgrid with multi-megawatt gensets or utility-scale solar, according to Omar Saadeh, Senior Analyst, GTM Research.

microgrid costs

Credit for Data: GTM Research

Meanwhile, the microgrid controller accounts for closer to 15 percent of overall microgrid costs, according to Saadeh.

“A control architecture can be seen as the microgrid’s nervous system—the smarts enabling all its functionality from monitoring and economically dispatching DERs to communicating with the utility or signaling an island disconnect. Development costs do add up when considering a larger portfolio of DERs or more advanced capabilities, but so do additional savings and performance opportunities,” he says.

The importance of the microgrid controller 

“What’s most poignant about this cost breakdown is the low cost of the controller compared with the value it brings to the microgrid project,” says Jacquemin. “The controller costs can account for as little as 10 to 15 percent of overall development costs. Yet, the controller is the key differentiator between smart, optimized microgrid or energy generation project and simple, basic control projects, such as a stand-alone solar project that operates under a power purchase agreement or a battery connected via inverter.”

In short, the microgrid controller is what drives the financial value streams and enables the technical islanding functionality, when needed.

The controller’s ability to derive value will depend on the microgrid’s internal complexity, as well as external factors, among them the microgrid’s location. We describe this further in “How Microgrids Can Achieve Maximum Return on Investment (ROI): The Role of the Advanced Microgrid Controller,” available as a free download courtesy of Siemens.

[clickToTweet tweet=”Lifting the lid on a #microgrid to see what really makes it tick. @SiemensUSA” quote=”Lifting the lid on a #microgrid to see what really makes it tick.”]

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About Elisa Wood

Elisa Wood is the chief editor of and She has been writing about energy for more than two decades for top industry publications. Her work also has been picked up by CNN, the New York Times, Reuters, the Wall Street Journal Online and the Washington Post.


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