The United States faces a growing threat from natural disasters and energy infrastructure is in the eye of the storm. The electric grid is considered especially important because power is required to maintain the functionality of most critical infrastructure sectors—those deemed vital to the economy, public health, and safety.
The threat from natural disasters has grown in intensity and frequency. The previous decade was far and away the most destructive since the federal government began tracking these storms in 1980—both in terms of the frequency of severe storms and the destruction they caused. In 2021 alone, there were 20 separate billion-dollar disasters, causing total losses of nearly $150 billion.
As state lawmakers consider policies to enhance energy system reliability and resilience, a growing number are looking to the benefits of microgrids, which can maintain power locally even in the face of wider system failures. Microgrids comprise a suite of technologies designed around a pragmatic admission: that the power grid is vulnerable and will at times fail.
However, microgrids often face a variety of financial and regulatory barriers that limit their deployment. The characteristics that make microgrids so attractive—powering critical facilities, enhancing community resilience and integrating clean energy resources—often leave them in a regulatory gray space.
The reality is that microgrids are much more than simply backup power systems. These advanced systems are designed to operate in concert with the larger grid during normal operations. With the right incentives and programs, they can support grid reliability in a way that can help absorb larger disturbances.
As lawmakers consider whether to support microgrid development in their states, it’s helpful to consider the full suite of benefits that microgrids can provide. Several states have already taken steps in this direction by enabling new financing tools, addressing regulatory uncertainty and clarifying how they should be compensated for these services.
This story and a issue brief explain how microgrids operate, how they can support the reliability and resilience of the power grid, and how state legislatures have adopted policies to support their development.
What Is a Microgrid?
Microgrids are bespoke energy systems—each designed around the customer’s specific objectives, considering both normal and islanded operations. Those objectives can be motivated by several factors, including increasing electric reliability and resilience, enhancing power quality, decreasing electricity costs, integrating clean energy resources and powering remote communities.
Feasibility studies, along with engineering, design and business planning, are all common steps in the planning process. Ultimately, a high degree of specialized knowledge is required to justify these investments and support a microgrid’s development, which is why some states have provided technical assistance to potential developers.
Components of a Microgrid
Electrical loads:The devices and systems that require electricity within a microgrid’s footprint. They're usually divided into tiers to prioritize service from the highest to the lowest.
Distributed energy resources:The power generation, energy storage and demand-side resources available to provide electric service to a microgrid.
Microgrid controls:The system that controls the microgrid’s operations. These systems determine whether to disconnect or connect with the larger grid, maintain power balance while operating in island mode, and dispatch the available electricity to support load in order of priority.
Point of common coupling:The point where the microgrid connects and disconnects to the larger grid, also referred to as the PCC or point of interconnection.
Although microgrids deliver electricity during outage events, they are much more sophisticated than backup generators. While backup generators have grown in complexity and quality over the years, they remain exactly what their name implies: standby systems designed to run only during emergencies.
By contrast, microgrids are designed to run continuously. During normal conditions, microgrids operate harmoniously while tied into the larger power grid, using distributed energy resources, or DERs, to offset energy needs and reduce consumption from the local utility—not unlike rooftop solar installations. Often microgrids will rely on “anchor” resources—in many cases, diesel- or natural gas-fired generators that can supply power on demand—that are complemented by a suite of other technologies, including renewables and energy storage. The bulk of a microgrid’s operating life will take place as a supplement to normal grid operations.
However, when an outage does occur, the microgrid will disconnect from the larger grid to operate in “island mode.” When islanded, the microgrid relies on its complement of DERs to supply the various connected loads within the microgrid with electricity. The loads are often designated based on how critical they are, with the most important loads prioritized for uninterrupted service. Using this combination of generation and demand-side management, the microgrid can enable various degrees of redundancy and operational continuity. When the outage ends, the microgrid will reconnect to the larger grid and resume harmonious operations.
Microgrid projects are designed to serve the needs of end customers, which can include businesses and organizations, government entities, utilities and residential customers. The exact design requirements can vary substantially between microgrids, depending on the loads, DERs and other factors. For example, a microgrid developed to enhance operational resilience for emergency response services in a community will be driven primarily by public safety considerations. Meanwhile, a commercial or industrial microgrid will often have economic drivers, such as avoiding losses in productivity through operational continuity during outages and deriving revenue from competitive energy services markets during normal operations.
Additionally, microgrids can vary by scope and structure—from a single-customer, single-facility microgrid to one that covers the breadth of a college, medical or industrial campus, with multiple customers and multiple facilities. In this story and the accompanying issue brief, “microgrid developer” will be used broadly to include microgrid project development companies and microgrid owners and operators.
State Policies to Support Microgrid Development
While myriad inputs can affect whether a customer or developer decides to pursue a microgrid project, state policymakers can play an important role in establishing programs and procedures that incentivize and facilitate the development of these systems.
In some cases, states have established funding mechanisms and technical assistance programs to help prospective customers and developers navigate the financing and planning hurdles that can derail projects in the early stages. In others, states have sought to provide developers with greater certainty and standardization around the interconnection and operation of microgrids in relation to their electric utility—notably by establishing interconnection requirements, addressing access to rights-of-way and developing microgrid service tariffs. Lawmakers have also begun to consider how energy resilience policies, including microgrids, can be designed to support residents of low-income and elderly communities that are often disproportionately affected by extreme weather events.
Daniel Shea is a program principal in NCSL’s Environment, Energy and Transportation Program.