With renewable energy growing in acceptance every day, distributed generation (DG), locally produced energy, is expected to increasingly replace the large, centralized power grid that we’ve all grown accustomed to.

• Earlier this year, the utility trade group Edison Electric Institute warned of distributed energy’s potential to disrupt the traditional utility’s century-old business model of charging all customers for shared infrastructure.
• In a recent utility industry survey by PricewaterhouseCooper (PwC), 94% of international industry representatives predict that the power utility business model will be either completely transformed or significantly changed between today and 2030. Distributed generation, according to the survey, is one of the primary causes of this change. Worldwide, 64% expected that distributed generation would make up more than 20% of the global electricity mix by 2030, and 90% of North American businesses predicted that distributed generation would force utilities to significantly change their business models.
• In a report covering lessons learned from Superstorm Sandy, a group of companies that design, build, and operate the grid called the GridWise Alliance issued a report with a broad swath or recommendations. The stakeholders recognized new policies, rules and operating procedures are needed to safely leverage customer-owned distributed generation during major outage events like Sandy.

A host of changing dynamics including deregulation, changing state and federal policies and incentives for renewable energy, and an explosion of distributed generation is leading to a reduction in the fossil-fuel electricity utilities sell.  As the grid shifts toward this new distributed generation, microgrids—small, self-sustaining grid systems—will become more and more commonplace as technology enablers.

Microgrids have the potential to radically change the U.S. electricity paradigm. Although barely heard of ten years ago, microgrids are expected to explode into a $40 billion-a-year global business by 2020, according to Navigant Research, a clean-technology data company. In the U.S., about 6 gigawatts of electricity will flow through microgrids by 2020, Navigant said.  And while only about 30 commercial-scale systems exist now, some estimate that up to 24,000 U.S. sites could be available for large-scale microgrid conversions.

Once just used to avoid power blackouts, microgrids are now used by power consumers to offset rising retail power prices, which have climbed 34% since 2003 according to the Energy Information Administration. Operators can remain connected to the grid and switch between the electricity they generate and the outside, and can also sell surplus electricity back to the utilities through net metering.

The Department of Defense (DOD) is beginning to embrace DG and microgrids as well.  In May, Lockheed Martin completed the first domestic microgrid at Fort Bliss in Texas for the U.S. Army. The military has already been using them at sites in other countries to reduce fuel consumption.

DOD’s Smart Power Infrastructure Demonstration for Energy Reliability and Security (SPIDERS microgrid program) prime integrator Burns & McDonnell put together a white paper highlighting two huge benefits for our military:  increased power reliability and generation efficiency.

Microgrids do come with their own challenges, such as enabling all of the various components to communicate with one another—and increased standardization is certainly needed if microgrid systems are to continue to proliferate.  But, much like the smart grid and other networks, this challenge can be met with guidance by cooperative stakeholders and perhaps some guidance from government policy.  Any policy will have to straddle the technology-neutral line of effectively enabling development, while still encouraging future innovation.

As our grid increasingly turns to renewable energy, look for distributed generation and, in particular, microgrids to change the hundred-year-old energy game.