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Microgrids Are Coming, and They Could Change the World

As the cost of solar energy has fallen, it has opened up new markets that were once unimaginable in energy. Five years ago, it seemed impossible that a million homes in the U.S. could be powered by solar energy, but that's the goal of just one company -- SolarCity (NASDAQ: SCTY  ) -- and it hopes to accomplish this goal by 2018.

As the cost of solar energy falls and new technologies like energy storage, smart meters, and demand response advance, new opportunities open up, like microgrids, which can create a self contained energy ecosystem. If designed right, microgrids can produce more renewable energy, cause less strain on the grid, and even provide technology that could change energy around the world. 

What's a microgrid?
A microgrid is an electric grid that is much smaller than a city, state, or national grid and contains both generating assets as well as energy demand sources.

It may contain distributed solar on rooftops, ground mounted wind and solar generation, smart meters, energy storage, and even demand response. The main electric grid would then feed into a central point that would control all points of the system and communicate with the main grid, which would still provide a feed of energy to the microgrid. Below is a graphic from Siemens, a large grid supplier, that shows what a microgrid may look like.

Source: Siemens. 

From the grid's perspective, microgrids could turn hundreds of points of demand (homes) into a single point of demand, simplifying operations and giving more control within the microgrid. In some locations, the microgrid could even operate independently of a central electric grid.

Solving the grid's main problem with rooftop solar
One advantage is that microgrids would alleviate the major problem utilities say they have with rooftop or distributed solar's intermittent supply to the grid. By dealing with one large point of contact, the microgrid could smooth out demand from the larger grid and even store excess energy produced within the microgrid for use during times when solar energy production may be high.

If designed correctly, the microgrid could actually improve a utility's cost structure by reducing the amount of spinning reserves required to pick up when intermittent energy sources, like wind and solar, reduce generation. 

It may soon be possible to invest in the solar system on your neighbor's roof. Source: SolarCity.

So, how does this change the world?
The revolution of the microgrid will be noticed here in the U.S., but it could also transform impoverished nations with little access to energy worldwide. There are currently 1.3 billion people worldwide who lack power, and most of them live in locations far from a traditional energy plant or electric grid. It's also often infeasible to build a fossil fuel plant or run transmission lines from the central grid to these locations. So, creating a microgrid with local energy sources is a logical solution.  

It just so happens that many of these communities in Africa and India are also home to tremendous solar energy potential. If these communities had the ability to build their own grids, produce energy, and store energy, they could improve life immensely. It's possible the improving economics of solar energy, energy storage, and microgrids could improve the lives of billions of people. 

Who will play in this market?
So, who is going to be building microgrids and community energy assets?

The first two companies I think of are SolarCity and SunPower (NASDAQ: SPWR  ) . SolarCity is the largest distributed solar installer in the U.S. and has invested in Off-Grid Electric, a Tanzania-based company that provides solar lighting in Africa. It is also developing energy storage to store energy for emergencies within the home that could be transferred to microgrids both here and abroad. 

SunPower is working with 7 of the top 10 homebuilders in the country and is testing energy storage systems that would be valuable for microgrids as well. It's also building utility-scale projects in Africa and the Middle East, building out capabilities in places where solar energy potential is highest. Below is a short explanation of SunPower's energy storage vision. 

SunPower's plans for energy storage in the home. Source: SunPower.

No doubt companies like Siemens and General Electric would be in this market as well, but microgrids would be more line extensions than new growth markets.

The grid is changing
As distributed energy becomes more common, and utilities adapt to the new normal, where homeowners can own power-generating assets, we'll see new opportunities emerge in energy. One concept I think communities will see as attractive is the microgrid. If built properly, they will put the power in the community's hands and give consumers more control over their energy choices. If that happens, it will be a positive development for the world of energy.

Read/Post Comments (15) | Recommend This Article (24)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 30, 2014, at 9:00 PM, DRayZ wrote:

    Until energy storage becomes cheap and a LOT smaller in footprint, energy sources like solar and wind will still require a major investment in generating capabilities by utilities. Microgrids may be useful in a few situations but not in general.

  • Report this Comment On August 30, 2014, at 10:35 PM, locsphere wrote:

    If I own a home, I want to own those panels on my roof. As Solar prices fall so do the price of panels. If I am going to save 20,000 to a 100,000 do an addition I should be able to the same with solar.Which right now cost about 40,000 to put an array on. (Friend just leased one.) I am not looking for a return I simply want to be independent of the grid without a change in lifestyle. If Designed right I could be completely without the need for the grid.I think its ridiculous that I have to rely on a company when there is technology that allows me to be independent like our grandparents. Everyone wants a chunk of my pay check, health insurance, power companies, car insurance. I simply want to be independent and utilize the grid when it is needed. Technology can be liberating if done right. Or oppressive like with the surveillance state we have created.

    There is no need I have to rely on the grid anymore. What happens to the electric company? Not my problem.

  • Report this Comment On August 30, 2014, at 11:46 PM, jgs111 wrote:

    Been around since 2000 with the johnny green seed project. Takes time to get it all together and been hearing they are focused on this with hybrid energy solutions for maximum results incorporated into neighborhood communities. may be solar city or one of the others but my bet is with the people who planned this first.

  • Report this Comment On August 30, 2014, at 11:58 PM, doawithlife wrote:

    If I remember right, it was on Fool where they posted 60% of solar costs come from installation.

    It's sad people pay SolarCity 250% the normal cost, because people can't use their hands and follow simple tutorials online.

  • Report this Comment On August 30, 2014, at 11:58 PM, shawwjon wrote:

    Don't get fooled into a no money down lease from Solarcity or the like. They will lock you into a 25 year unbreakable contract, and the panels won't add a penny of value to your home. In fact, the lease will reduce the value of your home by about 10%. If at all possible, do a cash out refinance, or some other long term loan, and own the system outright.

  • Report this Comment On August 31, 2014, at 12:04 AM, RMac619 wrote:

    I sent John Augustine a full proposal including better Battery Tech for this purpose in 2008 still have the plans response letter telling me it wasn't feasible Now they're planning it?!!!!!! What a crock of sh*t

  • Report this Comment On August 31, 2014, at 12:37 AM, 1READER11 wrote:

    Microgrids, considering developments associated with Perovskies and Graphene in solar panel construction, will be an excellent move in localizing the power production that neighborhoods can rely on while being supportive of the macrogrid.

  • Report this Comment On August 31, 2014, at 1:23 AM, kutasyk wrote:

    So far, solar option is prohibitively expensive. I actually called Solar City for estimate for our 100-unit condo association couple of times. They never contacted me.

  • Report this Comment On August 31, 2014, at 2:32 AM, rodgerolsen wrote:

    The places where this can make major impact are in China, India, and Africa where power grids do not exist now and where power requirements are lower.

    This could have the same effect on power that cell phones had on parts of China. Many Chinese villages never installed land lines because it was far cheaper to erect cell towers than run wires. They went from no phones to cell phones and skipped the steps in between.

    Microgrids could d the same and bring light, internet, cell phones, television and small machinery to areas that are now far off grid.

    It's nice to to read an article about something that really could change the world.

  • Report this Comment On August 31, 2014, at 11:25 AM, sgttdavis wrote:

    Recently read an article on German Yahoo. There is a small 300 plus town that produces more than 380% more electricity then what they need each day (on an average). Why isn’t America doing this? By 2020 Germany will be independent of nuclear. America needs to wake up and stop burning coil. If the most powerful Oil man in TX stated that we should switch off of oil and switch to propane and natural gas and renewable resources. Why wouldn’t we, o ‘wait Obama is in charge. He needs to attack the oil and coal companies, and the Senators that’s being feed by them, to be able to change how the USA gets their electricity. If Germany can switch over to solar and wind! Why can’t we. For those that are out there that don’t believe it works, you’re an idiot cause it works. I live here in Germany and I see it daily. You get an supplement if you place so many panels on your house / building. Also they use solar panels to help heat the homes. Something to think about.

  • Report this Comment On August 31, 2014, at 12:28 PM, fpl1954 wrote:

    I'm an Electrical Engineer who has remained in touch with alternate energy for the roughly 40 years since it became viable economically. 40 years ago a system cost about 4 times what they cost today. It made sense if you used it correctly, on equipment that cost a significant % of capex to operate and you could wait long enough for the investment to pay off. For example, if you ran a DC swimming pool pump during daylight hours. Installing sufficient panels to run the pump would have paid back in avoided electricity in about 25 years, and doubled the investment in 50 years, still well shy of service life of solar panels, now expected to be about 75 years. Where solar doesn't make sense if if you want to go "off grid". The reason why is batteries. To buy batteries with a 75 year life greatly increases the cost of the installation. It would never pay off in 1976. Today, off grid pays off in about 25 years, but by the time most of us can afford the investment, we barely have 25 years left. What makes the most sense is we let the power companies handle storage and distribution. If we do that, the payoff period to eliminate your electric bill is less than 10 years, but you will have to pay the power company to maintain the lines and provide power when the sun doesn't shine.

  • Report this Comment On August 31, 2014, at 12:30 PM, phillipzx3 wrote:

    ". Why wouldn’t we, o ‘wait Obama is in charge. "

    In one sentence you support "big oil" (natural gas and/or propane) then in the next, you support solar and wind (which Obama supports).

    Make up your mind. Maybe you just had to figure a way to post your political rant? Either way, it's going to be a long while before someone from the opposite party (IE, GOP) supports solar or wind as they just hate those tiny (compared to the fossil industry) subsidies, tax breaks, credits (call them what you like) renewables receive.

    It's not just "he" (Obama) that would like a reduction in fossil fuel use. A good chunk of the country that wants it as well.

    BTW, T. Boone Pickens is MOSTLY for natural gas.

  • Report this Comment On August 31, 2014, at 12:56 PM, fpl1954 wrote:

    The beauty of cheap solar is right now there is a Federal Law requiring utilities in all states to buy solar electricity. They don't have to lose money but they do have to buy it. Many utilities do "net metering" where you run the meter backwards when the sun shines, forwards when it doesn't. You pay for what you use.

    What this means is most of us can put in a solar plant that generates about 80% of what we use for about $10,000 - if we do it ourselves.

    The payoff period for this size plant is less than a year if you have nuclear power, three years if you have hydroelectric power, and ten years if your electricity is produced by coal.

    If you want to produce 100% of what you use, it costs 25% more, but like most things there are diminishing returns. It only makes economic sense to produce 100% if you have nuclear power, with all other electricity you are better off stopping at 80%.

  • Report this Comment On August 31, 2014, at 12:57 PM, fpl1954 wrote:

    Oops, I make a calculation error. The payoff for 80% solar is 3-4 years if you have nuclear power, 10-12 years if you have hydro, but if you have coal fired power it never pays off.

  • Report this Comment On September 09, 2014, at 4:01 PM, TopAustrianFool wrote:

    Like the internet... decentralized and profitable. Some places will have natural gas and other solar as source...

    In order to do it you need deregulation and allow experimentation.

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Travis Hoium

Travis Hoium has been writing for since July 2010 and covers the solar industry, renewable energy, and gaming stocks among other things.

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