Slowly but surely, the renewable energy industry is finding ways to compete with fossil fuels and traditional utilities to serve customers in a cost effective way. One concept driven by renewables, energy storage, and smarter devices is microgrids, which have long been a dream of the advanced energy industry. And they have finally become a viable option for the energy industry, opening up a new growth opportunity. 

The best news this year is that the idea of microgrids is gaining steam in the U.S., which would be great for future growth around the world. And that may now be a reality. 

Visual of connected city.

Image source: Getty Images.

Where microgrids are starting to make sense

A microgrid is a small energy system where small electricity generating sources match demand in a relatively small amount of space, as opposed to a larger national or regional grid. Island grids are an easy example, but areas in tyhe developing world where a central grid infrastructure is absent are places where microgrids have been seen as a great option for a long time. 

Initially, the application of microgrids may be much more mundane. Schneider Electric (SBGSF 4.67%) and Duke Energy (DUK 0.48%) are building microgrids for the Montgomery County, Maryland Public Safety Headquarters and Correctional Facility. The microgrid won't take the facilities off the grid, but they'll act as backups in the case of emergencies and integrate solar and natural gas generators with advanced controls on-site to keep the lights on. The two companies said in a press release that there is an "island mode operation" option.

Some facilities, like a jail, may value islanding in emergencies, but utilities and regulators are also looking at using microgrids as a way to offset or defer transmission and distribution investments. A growing rural community or suburb may require new transmission lines to feed the area, which are typically only used for a few hours of peak demand each year. Building microgrid capabilities like energy storage or demand response into these areas may be more cost effective than upgrading existing infrastructure, giving utilities a new option to maintain a reliable grid. 

Existing utilities and specific facility needs are really a proving ground for the industry. Once their viability has been proven, they can expand around the globe. 

The next frontier for microgrids

Three areas I'm watching for microgrids are islands, remote locations where there's no access today, and industrial applications in rural locations. 

Islands have been a leader in microgrids and related services. For example, Tesla (TSLA 9.21%) has built solar and energy storage on the Hawaiian Island of Kauai and a microgrid with 1.4 MW of solar and 6 MW-hr of energy storage powers the American Samoan island of Ta'u on top of other projects. SunPower (SPWR -1.28%) is also building solar plus storage for the French West Indies and Corsica. Islands are often powered by imported diesel, so building a microgrid to provide their own power is often very cost effective for Island communities.

Remote locations would also be ideal for microgrids, allowing the ability to electrify villages without ever connecting them to the electric grid. But funding infrastructure is difficult for the energy poor because financing is hard to come by. But with 1.2 billion people in the world still without electricity, building microgrids could be a huge opportunity.

On the industrial front, microgrids could make a lot of sense for infrastructure that's remote but needs power nonetheless. Think of cell phone towers, water infrastructure, rest areas, and even EV charging stations in the middle of rural areas of the country as great opportunities for microgrids. Rather than connecting to existing infrastructure, they can power their own needs with smart energy generation, storage, and consumption devices. 

The next advancement in energy?

A revolution in energy is gaining steam, and concepts like microgrids are a sign of how much disruption is already taking place. The old rules of building more infrastructure when customer demand increases or new areas need power are toppling down. Now, energy storage, solar, demand response, and smart devices can answer energy problems at lower costs, opening new business models that even the oldest utilities have to adapt to. And the fact that microgrids are taking hold in the U.S. bodes well for their future in less developed parts of the world with much larger infrastructure challenges ahead.