US microgrid market develops at rapid pace, with capacity reaching 10 GW in 2022

The US microgrid market reached 10 gigawatts (GW) in the third quarter of 2022, with more than 7 GW in operation and the rest in planning or construction stages, according to latest analysis from Wood Mackenzie’s Grid Edge Service.

Elham Akhavan, senior research analyst at Wood Mackenzie, said: “Despite the global COVID-19 pandemic and associated macroeconomic challenges causing a 2-year slowdown in the US, the microgrid market is developing at a rapid pace and 2022 is on track to be a record year for installations and scheduled pipelines.

“In terms of customer segments, Commercial and Industrial (C&I) leads the way with significant project development in industries such as retail (department stores) and manufacturing, which indicates a rise in demand for an uninterrupted electricity service. The government sector takes second place, driven by the military’s resilience and decarbonization targets, followed closely by the residential and education sectors,” Akhavan added.   

Developers transition aggressively to clean technologies

The US microgrid market has seen a 47% increase in solar and storage capacity in 2022 compared to 2017 levels. Moreover, Wood Mackenzie data shows that more than 175 solar- and solar-plus-storage microgrid projects have been in active development and were scheduled to come online by the end of 2022.

Akhavan said: “There’s been a significant shift in technology type, in particular the rise of solar and storage demand among microgrid customers, largely driven by corporate ESG goals. This has triggered an uptake of multi-distributed energy resource (DER) microgrids – known as advanced microgrids – which are used in cases where solar and storage alone are insufficient to mitigate long-duration outages. A fossil fuel generator, often sized to cover the entire site, acts as backup for the solar and storage to ensure uninterrupted service when the grid is down.”

Innovative business models will streamline microgrids

The turnkey microgrid-as-a-service (MaaS) business model is projected to experience continued growth across various non-utility customer segments. The influx of diverse investors eager to finance long-term projects, often with ESG attributes, has led to the dominance of the MaaS model. Simultaneously, the industry is seeing a gradual shift away from end-user ownership. 

According to Wood Mackenzie’s data, the percentage of microgrids owned by end-users dropped 31% from 2019 to Q3 2022, while the share of MaaS deals grew 25% over the same period.

“While third-party financing in general is not a new model, MaaS is evolving beyond PPA contracts, which often involves procurement from a single DER to an affordable solution for financing the construction, operation and maintenance of multiple DERs, tailored to the customer’s energy objectives,” Akhavan added.

Microgrids have gained traction among utilities

Wood Mackenzie data shows that there are 28 states with utility microgrids, with approximately 35 megawatts (MW) expected to have come online in 2022. This implies total utility microgrid capacity of over 1.1 GW. 

Akhavan said: “Although utilities typically look to rate base microgrids, some are partnering with developers to offer microgrids to their customers under MaaS agreements. For example, Enchanted Rock announced a utility partnership program in early 2022 that enables utilities to offer comprehensive ‘resilience-as-a-service’ to its customers.”  

Recovery from the COVID-19 slowdown is uneven across regions

Akhavan said: “From a microgrid capacity perspective, if the market continues to develop at a rapid pace, we will see more than 20% growth in annual capacity installation across the US compared to last year.”

“The West coast, led by California, is growing substantially, with a strong pipeline due to go into operation by 2024. This is followed closely by the Southwest market which has expanded more than three times since 2019. Texas is the frontrunner, with two of the leading developers in the region, PowerSecure and Enchanted Rock, having installed all capacity so far in 2022,” Akhavan added.   

The industry has also seen growth in the Northeast where a range of competitive grant programs are supporting resilience projects for critical facilities. However, recovery from the COVID-19 slowdown is uneven across regions in the US. For example, the Southeast has yet to recover to pre-pandemic growth.