The Global Microgrids (MGs) and Virtual Power Plants (VPPs) Market

Executive Summary

-The short term for microgrid (MG) market development will be impacted by technical immaturity, utility unwillingness, and high set-up costs. However, the future for advanced MGs is promising especially with smart grids gaining momentum.
-Smart MGs minimize operating costs through a combination of technology and customer participation. They include distributed energy resource (DER) integration, smart technologies, and demand response (DR). Moreover, they change the dynamics of supply and demand.
-Several MG projects are being piloted, and power equipment companies are investing because they foresee higher market opportunities with increasing MG demand and with first-mover advantages to capture market leadership.
-MGs are all about enhancing efficiency at the local level, while VPPs are about innovation at the distribution edge with embedded intelligence. The ongoing trend is for the large technology companies to provide cloud-based Web service solutions and for energy providers to manage VPPs from the cloud.
-Mixed opinions exist among utilities that foresee VPPs and MGs either as a threat or as a new business model. Traditional utilities are required to adopt a bottom up approach with MGs and VPPs as a part of their business portfolio in order to be more proactive with DER integration, storage, demand response, and energy efficiency, thus incorporating customers into solutions.
-The challenge facing these industries are inconsistent regulations and lack of standards.
-Hotspots for VPPs and MGs are the United States, Japan, and Europe.
-Higher growth for MGs is expected to occur in developing markets such as India, Brazil, Malaysia, and Africa.
-The major driver for growth is remote and rural electrification.
-The value chain for VPPs and MGs is highly fragmented and integration of various participants exists across the value chain.

CEO’s Perspective

The market for VPP is still nascent with the US, Europe, and Japan running small scale demonstrations. DR-based VPP is more prominent in the United States while Europe focuses on a DER-based VPP model.
Government funding plays a critical role in MG project developments. Military MGs are a growth market in the United States while rural electrification, urbanization, and industrial development are driving rural and community MGs in Asia-Pacific (APAC). Community and commercial projects in Europe are gaining importance.
The definition of MG has evolved greatly from the simple concept of ‘islanding’ to one that includes the management of load and generation as a critical subset of the modern electric power system.
MGs present short to medium term opportunity while VPPs offer long term growth prospects. The market for VPPs and MGs lacks established standards. Complex projects are ongoing in the United States and Europe. Regulatory and technical challenges exist.

MG Overview

Definition: An MG is a regionally limited energy system consisting of a group of interconnected loads, distributed energy resources, consumers, and optional storage that acts as a single controllable entity with respect to the grid. It optimizes power quality and reliability, sustainability, and economic benefits. It can connect and disconnect from the grid and can continuously run in off-grid (island) mode or on-grid mode, as well as in dual mode by changing the grid connection status by opening or closing the point-of-common-coupling breaker. In this way, benefits of distributed generators can be maximized and renewable or fossil-fuelled generators need not be shut down during times of utility grid power outages. An MG is a smaller version of an electricity grid, having access to key assets of the larger grid which includes generators, substations, transmission lines, and switchgear.

Key Drivers

Increasing focus on renewables and DER integration
Unreliable power quality and power shortages
Rural electrification
Efficiency improvements
Natural disasters

Key Restraints

Lack of standardisation
High initial set-up cost
Restricted market concentration
Policy restraints
Natural disasters

Importance of MGs

Grid Modernization
-Enabler and important element of grid modernization
-Building block for smart grids and allows integration of multiple technologies
-Possible integration of generation, distribution, and regulation of electricity locally through smart MGs (includes integration of renewables and customer participation)

End User Needs
-Enables security of supply for critical loads
-Better power quality and reliability from local generation
-Impact market dynamics through price—a more cost effective solution than buying power from the utility
-Allows demand management and load shedding
-Enables independent supply of power to communities and promotes community involvement in supply of electricity
-Increases end-user participation

DER Integration
-Promotes integration of micro technologies and CHP
-Energy efficiency and loss reduction due to generation close to demand
-Rise in consumption is met by locally generated power, thus reducing large capital investments in macrogrid
-Encourages independent power producers and third-party investments in MG
-Enables peak load reduction

Backbone of Macrogrid
-Locally handles sensitive loads and intermittency of renewables
-Promotes DER integration including CHP
-Ancillary services supplied to bulk power system
-Promotes renewables; lowers carbon emissions
-Helps stabilize overvoltage conditions and overload issues
-Local control and ownership enabling utilities to experiment with new technologies to serve customer needs

The Global Microgrids (MGs) and Virtual Power Plants (VPPs) Market : Challenges and Promises in Decentralizing the Grid and Morphing Business Models
Executive Summary 3
MG Overview 7
VPP Overview 15
MG and VPP Correlation 20
MGs and VPPs in Utilities—Opportunities vs. Threats 24
Key Stakeholders 29
Regional Trends 37
MG Business Models 48
VPP Business Models 51
Future of MGs and VPPs 60
Conclusion 66
The Frost & Sullivan Story 69