How utilities can accelerate microgrid deployment

US electricity demand is expected to surge for the rest of this decade, and utilities are embracing a multifaceted approach to help meet increasing demand, including leveraging microgrids to boost resilience.

By Brian Nelson, renewables manager at ABB Electrification

The annual load growth in the US is forecast to increase by an average of 3% per year over the next five years. To put that into context, nationwide electricity demand has been stagnant—less than 1% per year—for more than two decades.

The latest demand projections, based on annual planning reports submitted to the Federal Energy Regulatory Commission, are significantly higher than estimates made as recently as a year ago. The upward revisions underscore the dramatic role of data centers in driving electricity demand, as well as the uncertainty in projecting demand, particularly as AI adoption and the electrification of transportation and buildings ramp up.

This rapid growth presents a major opportunity for utilities to modernise the grid and embrace innovative energy solutions, while simultaneously transitioning to a cleaner energy mix. There is no one-size-fits-all solution for the energy future and utilities are adopting a multifaceted approach to help meet increasing demand.

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One emerging trend is the integration of distributed technologies and innovations that operate close to where electricity is used rather than relying solely on large, centralised power plants. These resources can be combined to create smart systems such as microgrids that provide power generation. Utilities can also leverage microgrids for energy storage, demand response, sustainability, and grid resilience and reliability.

Utilities play a crucial role in accelerating microgrid deployment by collaborating with businesses, communities, and regulators to support the development of renewable energy sources and to help strengthen the grid.

Evolving attitudes toward microgrids

Electric utilities have a mixed relationship with microgrids. On the one hand, microgrids are a promising tool for providing a reliable, sustainable, and efficient distributed energy resource. On the other hand, microgrids represent a major mindset shift from the way utilities have historically operated.

For years, utility companies viewed microgrids created by large energy users as a threat to their profitability in bulk generation, transmission, and distribution.

However, this attitude is slowly shifting in the face of three major challenges since the turn of the century:

• Weather is wreaking havoc on the electric grid and utility companies’ ability to get power where it’s needed. Between 2000 and 2023, 80% of major reported power outages in the US were due to weather. These numbers will inevitably swell with worsening climate change.
• Aging electrical infrastructure is struggling to meet modern electricity needs, such as renewable energy resources and growing building and transportation electrification. For example, 70% of transmission lines in the US are over 25 years old and approaching the end of their typical 50-80-year lifespan.
• Utilities are moving to decarbonise their energy generation and operations, driven by regulatory mandates, market forces, and customer expectations.

Now the influx of new data centers is making power delivery a complex balancing act. Some utilities are using fossil-fueled power plants and expensive peaker plants to meet this skyrocketing demand. While these plants might offer a short-term solution, they also increase carbon emissions and utility operating costs.

Microgrid benefits

Many would like utilities to build enough new centralised, carbon-free generation to meet rising demand and accelerate the clean energy transition.

But that vision is constrained by limited transmission and distribution system capacity to accommodate more electricity from new sources and complex siting and permitting requirements. Rapid demand growth combined with grid constraints makes it more difficult for utilities to balance their goals for reliable and affordable power.

However, the challenges are not insurmountable, and smart and effective tactics will be crucial for success. Microgrids are a key tool for utilities to expand service in high-growth areas, support economic development, and improve reliability.

Utility interest in microgrids is growing because distributed technologies have demonstrated their benefits. Microgrids owned and operated by a single large customer, such as a university, military base, or commercial facility, have long been used for backup power. If the utility’s primary power source or power lines go out during a severe weather event, a microgrid can be turned on to ensure everything from refrigerators and HVAC systems to lights continue to function. They can also ensure critical infrastructure like hospitals and fire stations have the electricity they need to provide essential services.

In California, utilities have placed microgrid projects into service to deal with wildfire dangers, extreme heat, and other weather events, aimed at providing greater resilience during grid disruptions. San Diego Gas & Electric, for example, unveiled four new microgrids in February 2024, featuring 39MW of solar power and 180MWh of battery storage. These microgrids will actively dispatch clean energy to the grid when needed and help improve energy resilience for critical facilities like fire stations, schools, and cooling centers.

In 2023, Duke Energy created a microgrid in Hot Springs, a town of about 535 residents in a remote part of its service territory. Hot Springs is connected to Duke’s larger grid by a single, 10-mile power line that crosses mountainous and wooded terrain. Fallen trees or heavy snowfall often interrupted service, leaving homes and businesses without electricity for hours or even days.

Duke won regulatory approval for a solar-powered microgrid with battery storage because it was cheaper than the grid upgrades required to provide the town with reliable power. It’s also the utility’s first community microgrid that uses inverters to transform the direct-current electricity of solar panels and batteries into the alternating current of the power grid. The technology allows for so-called black start capacity that can power the entire town if its main power line experiences an outage.

The advanced microgrid was tested last year when floods from Hurricane Helene devastated western North Carolina. After the substation that fed Hot Springs was washed away by the floods, the microgrid, using only solar and batteries, safely restored power.

The inverter-only system also provides energy and bulk system benefits for all of Duke’s customers. This includes reliability services to the electric grid, such as frequency and voltage regulation and ramping support and capacity during system peaks. Duke said it was using lessons learned from this first-of-its-kind installation to take to its other microgrids under construction in Indiana and Florida.

Interest in virtual power plants

The technologies in distributed resources have come so far that utilities are proposing they can meet incoming load growth without building expensive power plants and transmission lines. These technologies include digital connectivity, software, and artificial intelligence that allow utilities to aggregate and flexibly manage distributed energy resources.

Xcel Energy, which provides electricity to 3.7 million customers in eight states in the West and Midwest, recently told state regulators in Minnesota that it wants to build a network of strategically located solar-powered energy storage hubs. The company proposes combining 440MW of solar power with 400MW of battery storage that would be linked with technology to create a virtual power plant (VPP). The solution, Xcel said, would save ratepayers money, improve reliability, accelerate clean energy development, and reduce energy disparities by placing assets in underserved communities.

Data centers and other big energy users represent a largely untapped market for utilities to integrate distributed energy resources into grid operations.

Data centers have extensive backup power systems, including uninterruptible power supplies. Instead of sitting idle, these assets can be integrated into a VPP to provide grid services like peak shaving and frequency regulation. In addition, many data centers are investing in large-scale battery storage systems to replace diesel generators and improve sustainability.

These batteries can act as flexible grid assets within a VPP, allowing data centers to participate in demand response programmes, relieve network congestion, and improve market efficiency.

For utilities looking to scale up microgrid deployment quickly and efficiently, they need to adopt a combination of policy advocacy, technological innovation, financial strategies, and customer engagement.

Here are five strategies, based on the case studies above, utilities can use:

1. Develop utility-owned microgrid models where utilities provide microgrid services as part of their business model.
2. Target high-value use cases. Focus on microgrid deployment for critical infrastructure, such as hospitals and water treatment plants, for remote communities with unreliable grid access, and for large commercial and industrial customers looking for resilience solutions.
3. Streamline regulatory and policy approvals. Work with regulators to create clear policies and streamlined permitting and advocate for updated interconnection standards that simplify the process of integrating microgrids into the grid.
4. Invest in advanced technologies. Deploy AI and machine learning for real-time grid optimisation and integrate battery storage solutions to enhance reliability.
5. Strengthen grid modernisation plans. Include microgrid projects as part of long-term planning and align microgrid deployment with economic expansion and electrification efforts.

For utilities, electricity demand growth is both an opportunity and a challenge. While it can drive revenue and investment in new technologies, it also requires strategic planning to balance supply, costs, regulatory requirements, and sustainability goals.

Utilities that proactively embrace innovation, renewable integration, and smart grid solutions will be best positioned to handle the increasing demand efficiently.