Microgrids: here is what you need to know

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Written By Marc Helman

Tackling new challenges with a passion for the environment.

A microgrid is an electricity distribution system smaller than the traditional grid, and it can be used to provide backup power for critical facilities like hospitals or police stations.

The concept of microgrids has been around since at least the 1970s, when they were first proposed by researchers in the U.S. Department of Energy (DOE). 

In the 1980s, DOE-funded research into microgrids, but no commercial products emerged until the 2000s, when the term “microgrid” was coined.

How do microgrids work?

A microgrid is a self-contained generation facility within a utility’s existing electrical service area. The microgrid connects back to the main grid through a single point of interconnection called a “substation.”

This connection allows utilities to transfer energy from the microgrid to the rest of the grid as needed. Microgrids are designed to operate independently of the main grid, meaning their fuel source, energy storage systems, loads, and even transmission lines may vary.

Different types of microgrids

There are three basic types of microgrids:

Community microgrids:

These are typically owned and operated by local governments and businesses. They’re usually connected to the main grid with a single point of interconnection. Community microgrids have limited capabilities and are not suitable for large-scale deployment.

Utility-owned microgrids:

Utilities build and maintain these microgrids on their property. Like community microgrids, they’re connected to the main grid via a single interconnect point. However, unlike community microgrids, utilities can expand and upgrade them over time.

Independent microgrids:

This type of microgrid is completely disconnected from the main grid. It operates autonomously and can produce electricity using any combination of renewable resources. Independent microgrids are more expensive than traditional grids but offer greater flexibility and independence.

How does a microgrid connect to the grid?

How a microgrid connects to the main grid depends on how it was built. There are three basic ways to connect a microgrid to the main network:

Direct connections:

In this case, the microgrid has no contact with the main grid. 

Instead, it uses an independent power system (IPS) to produce and deliver electricity. IPSs are common in remote areas with insufficient infrastructure to support a conventional grid. Direct connections are typically used only when building a new microgrid.

Interconnected systems:

In this case, the microgrids share parts of the electrical system with the main grid. For example, they might share transformers, distribution circuits, transmission lines, or substations. The microgrids are still separate from the main grid, though. They don’t directly access the main grid’s voltage or frequency.

Hybrid systems:

Some microgrids combine both direct connections and interconnected systems. In hybrid systems, each microgrid shares parts of the electrical infrastructure with the main grid while maintaining its independent power system.

This allows them to operate independently without affecting the main grid. Hybrid systems are most commonly found in large cities because they can provide backup power for the entire city if needed.

Components of a microgrid

A typical microgrid consists of several key components, including:

Generation sources:

These include solar panels, wind turbines, fuel cells, and other renewable energy devices. Some microgrids also use diesel generators and/or hydroelectric dams as well.

Energy storage:

Microgrids often incorporate batteries, flywheels, superconducting magnetic coils, compressed air, and other technologies to store excess energy produced during peak demand.

Distribution equipment:

This includes transformers, switches, circuit breakers, and other equipment used to distribute power throughout the microgrid.

Control and monitoring equipment:

This includes meters, computers, sensors, actuators, and other electronic devices used to control and monitor the microgrid.


These connect the microgrid to the main grid and allow utilities to transfer energy between the two networks.


Communication links between microgrids and substations. These may be wired or wireless.

Transmission lines:

Electricity flows along these wires from one part of the grid to another.


Devices such as motors, appliances, heaters, lights, and other electric loads consuming energy.

Who can benefit from a microgrid?

A microgrid can help utilities serve customers more effectively with less infrastructure investment. For example, a utility might have many small substations scattered across its service area.

These substations are expensive to build and maintain because each one must withstand earthquakes and other natural disasters.

If a microgrid could replace all those individual substations with a single central station, then the utility would only need to invest in one large facility.

Microgrids also make sense for remote communities where there may not be reliable access to the larger grid. With a microgrid, these isolated communities can generate their own electricity, eliminating the need for costly diesel generators.

Microgrids can also improve reliability and resiliency. When a microgrid becomes disconnected from the main grid, it still provides power to essential loads such as security systems, medical equipment, and refrigeration units.

This means that the community will continue to function even if the main grid goes down.

How do I know if my home needs a microgrid?

To determine whether your home needs a microgrid, you should start by asking yourself some questions:

How much energy does my home use?

If your house uses a lot of electricity, then it makes sense to consider installing a microgrid. Most homes use about 1kWh per day on average. So, if a typical house uses 2kW of power, the homeowner would pay $0.02/kWh to connect to the microgrid.

However, if a home uses very little electricity, then connecting to a microgrid isn’t likely worth the cost. The reason is that most people don’t use enough electricity to justify the expense of installing a microgrid.

Is a microgrid right for me?

Before deciding whether a microgrid is right for you, you’ll want to consider the benefits you’re looking for. 

Do you just want to save money, or do you want to reduce your carbon footprint?

For example, if you live in an earthquake zone, you probably don’t want to install a microgrid. If you’re concerned about climate change, you’ll want to look at renewable energy sources, such as solar panels or wind turbines.

On the other hand, if your home is located far away from the nearest electrical substation, then a microgrid is probably a 

How much does a microgrid cost to build?

Installing a microgrid typically costs between $10,000 and $20,000. However, this price includes everything from design and installation to maintenance.

It’s important to note that the cost of building a microgrid varies based on factors, including the size of the project and how well-connected the microgrid is to the existing grid.

Can I get financing for a microgrid?

Yes! There are several ways to finance a microgrid project. One way is through a loan from a bank or financial institution. Another option is to sell bonds issued by a government agency like the U.S. Department of Energy (DOE). Bonds are repaid using revenue generated by the microgrid.

Another option is to create a special purpose vehicle called a “special purpose entity” (SPE) to fund the construction of the microgrid. SPEs are similar to limited liability companies, but they have fewer restrictions. They can raise capital quickly and easily, making them ideal for small projects.

How do I decide who to hire to build my microgrid?

There are many different types of contractors who specialize in microgrid installations. Some more common names include electricians, engineers, architects, lawyers, accountants, and consultants. You may be able to find one near you, or you may need to travel farther to find someone with experience working with microgrids.

When choosing a contractor, ensure he or she has experience installing microgrids. Also, ask for references from previous customers so that you know that the company will deliver on its promises.

Who owns the microgrid after it’s built?

The owner of the microgrid usually retains ownership of the system. This means that the owner pays all the expenses associated with maintaining the system. The owner also receives any revenues generated by the microgrid, although these revenues aren’t always large.

However, there are some exceptions to this rule. For example, if the microgrid was financed by selling bonds, then the bondholders own the microgrid.

What is the difference between a smart grid and a microgrid?

A smart grid combines electricity generation, transmission, and distribution into a single network. Microgrids, on the other hand, are standalone systems that provide power only to specific locations within a community.

Smart grids can connect to microgrids, allowing both networks to work together to improve efficiency and reliability.

What are the challenges of a microgrid?

While microgrids are a great idea, they’re not without their challenges. Installing a microgrid requires extensive planning and coordination among multiple parties. In addition, the technology required to operate a microgrid isn’t widely available yet.

Microgrids are still new enough that most people haven’t had much experience dealing with them. So, when you start looking at a microgrid, ensure you understand what it takes to install and maintain the system.

For example, the software used to control a microgrid must be compatible with the hardware that connects the microgrid to the rest of the electrical system.

Also, remember that a microgrid doesn’t solve every energy production and delivery problem. It’s important to think about how your microgrid will fit into your overall strategy for managing your energy use.

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