Federation of Microgrids: A Moral and Business Necessity

Leadership and Public Interest

The possibility exists that the U.S. may miss the boat relating to Electricity 2.0 because of the absence of a vision, strategy, and investments in microgrids. The U.S. must participate actively in the microgrid space for several reasons:

  • Along with China, the U.S. contributes 40 percent to the world’s carbon dioxide emissions. To act on emissions-related climate change, as active public policy, is almost a moral imperative for the U.S., and microgrids have to be a significant part of the solution
  • Re-purposing the grid into a federation of microgrids, with all the innovation and entrepreneurial opportunities this entails, represents an extraordinary economic stimulus. It will augment the U.S.’s competitiveness in multiple technologies
  • Microgrids make possible local autonomy and entrepreneurial participation in next generation electricity, thereby democratizing the historically centralized, and increasingly obsolete, electricity industry
  • Today’s de facto policy of adding solar or wind to the generation mix, by establishing percentages of “renewables” by certain dates as policy requirements, while good, is an incremental technical “fix,” a kludge
  • Even when the majority of the electricity generated is renewables-based, the policy of adding renewables — centralized or distributed generations (DG) — leaves the grid infrastructure vulnerable to catastrophic failure from accidents or cyber attacks
  • The public interest microgrids represent is a clear, natural consequence of the nature of microgrids and microgrid clusters. They necessarily include a combination of solar, wind, and other generation, plus battery storage and demand side management, all working in a synergistic way. The benefits include reduced emissions, clean energy, security, resiliency, and efficient generation without transmission losses
  • In fact, a grid topology of a federation of microgrids can reduce aggregate emissions by over 20 percent, a potentially dramatic “win” in slowing climate change.*  

Disruptive and Central to All Electricity

Microgrids, as commonly understood, are a niche solution for select uses — islands, remote areas, economically developing nations, military bases, and mining towns. They are perceived as less relevant to regions that have the grid. Nothing can be further from reality.

Microgrids are in fact central to all electricity solutions for the future, worldwide, whether or not the grid exists. They constitute a disruptive force affecting the electricity industry, to use a term popularized by Clayton Christensen in The Innovator’s Dilemma.*

Leaders of electricity companies and regulators are in the uneasy position of ignoring this transformative force at peril to their stakeholders — investors, employees, and customers. In fact, should they ignore microgrids, they compromise the well being of the nation itself, since the electricity grid as it exists, is too big to survive natural or human threats, or accidents, no matter the “smart” technologies used to buttress it. Distributed control and autonomous operations, inherent in microgrids, are essential for resiliency.

Early Research on Microgrids

In 2015, I assembled a team of engineers and accountants, from TU Delft and IIM Kozhikode, savvy in financial principles and fundamentals of electricity, solar, and battery technologies, and we conducted techno-financial modeling of standalone ~ 1 MW microgrids.* We found that off-grid microgrid-based electricity is competitive with traditional electricity in markets such as California and Hawaii at ~ $0.18/kWh versus over $0.25/kWh.

Given the progressive price drop in solar panels, batteries, balance of systems, and other equipment, we concluded that microgrid-based electricity would soon be price competitive in all markets.

Further, we found that when microgrids are organized as clusters, the overall capital costs are lowered, and the aggregate economics, superior to any standalone microgrid. Thus, a federation of microgrids is a better topology, and more economical in a few years, than today’s hierarchical and centralized grid.   

The ideal topology for an electricity grid of the future is therefore a cluster of microgrids as shown in Figure 1a. Visually, this is distinct from how we would represent today’s grid with centralized generation, transmission links, and distribution network. In fact, Figure 1b is a typical representation of the cellular telecom network, and Figure 1a approximates it more than it does today’s electricity network. With due caution, lessons from wireless telecom apply to the electricity infrastructure of the future.

Figures 1a and 1b

Critical Research Needs

Several critical research topics need to be addressed to realize the possibilities of microgrids. The following two topics ideally belong within the scope of national energy labs, as also in research universities:

1. Microgrids involving optimized and multiple generation sources, with their automated controls meeting a variety of loads, need research attention. True, the problem of quasi-optimal generation mix may be solved heuristically, by using thumb rules, but we also need elegant analytical solutions.

2. Further, astonishingly, almost no resources are devoted to the challenge of combining a variety of complementary microgrids into a synergistic system. There exist no microgrid prototypes of 0.5 to 5 MW capacities, inter-working with each other, even as test-beds.

In designing electricity systems for the future, the particular problems to be solved include a) communications or information flows among microgrids, b) common resource sharing among microgrids, such as batteries, and c) trade and financial exchange based on comparative advantage among microgrids.

When the microgrid cluster design problem is successfully solved, it will result in generating electricity cleanly, reliably, economically and with security, since each microgrid can work independently, and also in coordination with neighboring microgrids, as well as with today’s macrogrid.

Industrial grade design of microgrid clusters needs a focused research agenda. Developing this agenda requires brainstorming with experts and researchers in the Department of Energy’s national labs, in international trade, in electricity systems at universities, equipment companies, even Bell Labs, and visionary leadership of investor-owned utilities. Who can coordinate the work of disparate scientists in distinct disciplines, engineers, and financial modelers to tackle the federation of microgrids challenge?

Telecom Inter-networking and Comparative Advantage in International Trade

The inter-networking problem — the telecommunications grid as a network of networks — is well studied. When the electricity grid of the future is conceived as a federation of microgrids, parallels may be drawn from telecommunications networks to answer critical questions relating to inter-microgrid synergies.

Similarly, the benefits of trading based on comparative advantage is well understood in economics. Inter-microgrid trade, conceptually similar to international trade, can contribute to an understanding of electricity systems organized as microgrids.

Being a new concept as applied to electricity, comparative advantage may be described as follows. Different microgrids enjoy distinct advantages. For instance, microgrids with daytime peak loads, having office buildings as customers, may complement microgrids in residential neighborhoods with evening peak loads.

Some microgrids benefit from ample rooftop space for solar panels, others benefit from being located on hills optimal for wind turbines, and yet others benefit from proximity to a flowing river for micro-hydro generation. Thus, due to distinct load and generation attributes, a microgrid cluster parallels nations as they engage in trade based on comparative advantage. Just as international trade creates economic benefits for all trading nations, so also inter-microgrid exchanges result in superior economics and operational performance for all microgrids.

DOE Partnership with the FCC

Within two years, it should possible to implement at least two prototype microgrids of ~ 1 MW each, as overlays on existing infrastructure, to address some of the technical research problems identified through brainstorming. Soon thereafter, it should be possible to implement a cluster of microgrids as prototypes to simulate inter-microgrid interactions, resource sharing, and trade.

I am optimistic this can be rapidly accomplished because a) component technologies exist, b) expertise in distinct and needed domains exists, c) and the technical challenges — optimization, control, and simulation — can be addressed under a suitable R&D umbrella. In fact, the principal missing piece in achieving a federation of microgrids is public policy leadership and organizational design.

But even this challenge has been successfully tackled before when the Federal Communications Commission (FCC) auctioned spectrum in the 2 GHz band in the mid-1990s; the U.S. was divided into relatively small markets called Basic Trading Areas as defined by Rand McNally. Will some similar approach work in electricity? Could the U.S. Department of Energy partner with the FCC to explore the options?  


1. Assuming coal-based power plants account for roughly 40 percent of aggregate emissions, and microgrids comprised of solar panels, batteries, and some gas or diesel based generators can cut these emissions at least by half.

2. Christensen, Clayton. 1997. The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail, 1997, Harvard Business Review Press.

3. The Microgrid Revolution: Business Strategies for Next Generation Electricity. 2016, Praeger. http://www.abc-clio.com/ABC-CLIOCorporate/product.aspx?pc=A4496C

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Mahesh P. Bhave is Professor, NTPC School of Business (NSB), New Delhi area, He is also Founder, BHAVE Power Systems, San Diego, CA.  He teaches "Corporate Strategy - Energy-centric" and "Business Strategies for Microgrids" for MBA and executive MBA students. He works on projects to replace LPG (liquified petroleum gas) for cooking with solar and battery based solutions. Until December 2016, he was visiting professor, strategy, IIM Kozhikode, India.  Mahesh is an engineer from IIT Delhi with a Ph.D. from Syracuse University’s Maxwell School. He may be reached at  mahesh.bhave@nsb.ac.in . He is the author of  The Microgrid Revolution: Business Strategies for Next Generation Electricity , 2016, Praeger.  

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