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What are the benefits of the smart microgrid approach?

Galvin Electricity Initiative Microgrid Hub

Accelerates improvement — The term “microgrid” reflects a new way of thinking about designing and building smart grids. The microgrid approach focuses on creating a design and plan for local energy delivery that meets the exact needs of the constituents being served, whether a city, university, neighborhood, business park, or major mixed use development. At the local level, smart microgrids most efficiently and economically integrate consumers and buildings with electricity distribution and generation. Through smart microgrids, the economic and environmental benefits to consumers of the smart grid transformation are maximized, and are a significant multiple of the implementation costs, as described below.

Increases reliability — Smart microgrids increase reliability locally through the establishment of a specific reliability improvement plan that integrates redundant distribution, smart switches, automation, power generation, power storage and other smart technologies. Local power generation and storage allow portions of the grid and critical facilities to operate independent of the larger grid when necessary and thus eliminate blackouts. Technologies such as smart switches and sensors automatically fix — and even anticipate — power disturbances, unlike today’s system where switches have to be reset manually in case of an outage. Redundant sources ensure that power continues to flow when storms, ice or squirrels cause interruptions in the power system. Microgrids also back up the bulk power grid when power demand and cost are highest by supplying electricity ancillary services.

Helps consumers save moneyConsumers and businesses in the U.S. pay at least $150 billion per year in costs due to power outages. Smart microgrids’ reliability significantly reduces these costs. Microgrids allow consumers to procure power in real-time at significantly lower costs, while using local generation to hedge peak power costs. In addition, the microgrid model usually includes third-party financing and long-term modernization plans, which diminish the infrastructure improvement costs that are typically passed on to ratepayers. Similarly, local power generation is typically more efficient and reduces the distance energy must travel and thus passes on fewer costs from transmission losses, congestion pricing and customer service overhead, particularly when power costs are at their highest.

Generates revenue — Consumers and businesses can supply valuable services to the grid in return for payments from the serving utility or independent system operator. This includes demand response, realtime price response, day-ahead price response, voltage support, capacity support, and spinning reserve to name a few. These smart microgrids also set the stage for additional consumer revenues from distributed power generation, plug-in electric vehicles and carbon credits.

Encourages economic growth — More and more communities and nations are finding that microgrids can jump-start economies through new job creation at the local level and new business opportunities for stakeholders. Microgrids increase local investment through community on-bill financing of energy efficiency, local spending on grid improvements and integration of distributed energy and other smart technologies. By fostering the development of microgrids, some of these countries are establishing a new electricity business model that is more efficient, environmentally responsible, compatible with future technologies and likely to spur continuous innovation. Japan and Denmark are leaders in implementing the microgrid approach; most recently, Japan’s energy agency, NEDO, partnered with the state of New Mexico to co-fund and develop microgrid projects for several communities.

Makes the grid “futureproof” — One of the greatest benefits of smart microgrids is that they are much better positioned than the centralized grid to meet the known and unknown needs of the future. They allow local communities and commercial campuses to increase the overall electricity supply quickly and efficiently through relatively small local generators, solar cells, wind turbines and other means, rather than having to wait for power companies to build centralized power plants that are costly and take much longer to come online. Smart microgrid technology empowers consumers, stimulates future electricity innovations and activates entrepreneurial free-market funding. In addition, smart microgrids’ energy management technology enables plug-in electric vehicles to be connected to the electricity system as smart power storage resources rather than simply another electricity user.

Reduces carbon footprint — The most significant environmental benefit of a smart microgrid is its ability to use local generation and the resulting “waste” heat to displace coal-fired generation. A local power generator can be renewable- or natural gas-fueled. The smart microgrid can reuse the energy that is produced during electricity generation for heating buildings, hot water, sterilization, cooling and even refrigeration (through absorption chilling). Smart microgrids also make it possible to get the most from clean, renewable energy because they have the flexibility needed to use a wider range of energy sources, including those that present a challenge for the current centralized system such as wind and solar. Microgrids enable consumers to meet some or all of their electricity needs by generating their own power, whether it is through sources like wind, solar, geothermal, microturbines and so on. This “bottom-up” consumer approach can reduce reliance on fossil fuels and lower greenhouse gas emissions based on open market economic value.