What Is a Microgrid?

A microgrid is a localized energy system that can operate either connected to the main electrical grid or independently in island mode. It consists of distributed energy resources such as solar panels, batteries, generators, and fuel cells, along with loads and a control system that manages power flow. When the main grid goes down, a microgrid can disconnect and continue supplying electricity to its connected buildings and facilities.

Microgrids range in scale from a single building with solar and storage to campus-scale systems serving universities, military bases, or entire communities. What distinguishes a microgrid from a simple backup generator is its ability to manage multiple generation sources, optimize their dispatch, and seamlessly transition between grid-connected and islanded operation.

How Microgrids Operate

The brain of a microgrid is its controller, a software and hardware system that constantly monitors generation, demand, and grid conditions. In grid-connected mode, the controller optimizes the microgrid’s resources to minimize electricity costs, charging batteries when grid power is cheap and discharging when prices are high. It can also export excess generation to the grid for revenue.

When the controller detects a grid outage, it opens the point of common coupling, the switch that connects the microgrid to the main grid, and transitions to island mode. This switch must happen within milliseconds to prevent disruption to connected loads. In island mode, the controller manages generation and demand to maintain stable voltage and frequency within the microgrid, prioritizing critical loads if available generation is insufficient to serve all connected facilities.

Use Cases and Applications

Military installations are among the most active microgrid adopters. The Department of Defense has invested heavily in microgrids to ensure that critical military operations can continue during extended grid outages. Bases like Fort Hood in Texas and Camp Pendleton in California operate sophisticated microgrids with solar, storage, and diesel backup generation.

Hospitals, data centers, and water treatment facilities use microgrids to ensure uninterrupted power for life-safety and mission-critical operations. University campuses are natural microgrid candidates because they have concentrated loads, existing power infrastructure, and technical staff to manage the systems. Communities in remote areas or regions prone to natural disasters are increasingly deploying microgrids for resilience, particularly in island territories and wildfire-prone areas of California.

Economics and Financing

Microgrid economics depend heavily on the application and location. For facilities with high outage costs, such as data centers or manufacturing plants where an hour of downtime can cost millions, the resilience value alone can justify the investment. For other applications, microgrids must generate savings through energy arbitrage, demand charge reduction, and participation in utility demand response programs.

The cost of a microgrid varies widely, from $2 million to $5 million per megawatt for simple configurations to $10 million or more per megawatt for highly redundant systems with long-duration storage. Third-party ownership models, where a developer builds, owns, and operates the microgrid and sells power to the host facility under a long-term contract, have made microgrids accessible to organizations that cannot make large upfront capital investments.

The Future of Microgrids

The microgrid market is growing rapidly, driven by declining costs for solar and batteries, increasing frequency of extreme weather events, and growing awareness of grid vulnerability. Networked microgrids, where multiple microgrids in a region can coordinate with each other and with the main grid, represent the next evolution. These networked systems can share resources and provide mutual support during outages, creating a more resilient overall power system.