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Microgrids: Impact on the Development of Sustainable Electric Energy

Systems

Chapter · January 2021

DOI: 10.1007/978-3-319-95864-4_13

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Microgrids: Impact on Development of Sustainable Electric Energy
Systems

Pertti Järventausta, Faculty of Information Technology and Communication Sciences/Electrical

Engineering, Tampere University, [email protected]

Lasse Peltonen, Faculty of Information Technology and Communication Sciences/Electrical

Engineering, Tampere University, [email protected]

Jussi Valta, Faculty of Management and Business/Industrial Engineering and Management,

Tampere University, [email protected]

Sanna Uski, VTT Technical Research Centre of Finland, Ltd; Ampner Ltd,
[email protected]

Pami Aalto, Faculty of Management and Business/Politics, Tampere University

[email protected]

1. Definition
The concept of microgrid is evolving by leaps and bounds and assumes various forms
depending on location and local requirements (Wouters 2015, 23). At the same time, the
definition of microgrid is not based on a minimum or maximum size of a microgrid system but
rather on function (Soshinskaya et al. 2014, 661).
A generic definition treats microgrid as a cluster of locally available or distributed generation
(DG) resources, other renewable energy resources and local loads connected to the utility grid
(Fu et al. 2013). More precisely, microgrids are “electricity distribution systems containing
loads and distributed energy resources (such as distributed generators, storage devices, or
controllable loads) that can be operated in a controlled, co-ordinated way either while
connected to the main power network or while islanded”, as suggested by the work of the
CIGRÉ C6.22 Working Group, Microgrid Evolution Roadmap (Marnay et al. 2015).
The draft version of International Electrotechnical Commission (IEC) standard (IEC TS 62898-2)
for its part relates microgrids to alternating current (AC) electrical systems with loads and
distributed energy resources (DER) at low or medium voltage level. However, in addition to AC
microgrids, low voltage direct current (LVDC) microgrids also exist (Nuutinen et al. 2017). Some
definitions moreover include not only electric but also thermal loads, that is, heat (Mohn 2012,
17). The draft IEC standard divides microgrids into isolated microgrids with no electrical
connection to a centralized electric power system, operating in island mode only and non-
isolated microgrids, which may be controllable units of the centralized electric power system
and operate in grid-connected or islanded mode. Together, these different definitions indicate
the versatility of the concept of microgrid. In practice, the realization of microgrids varies
depending, for example, on available resources, market area, regulations and technology.
Microgrids have attracted more attention owing to the ongoing transition of energy systems.
Electricity is becoming more crucial than before while electric energy systems are witnessing
increasing penetration of variable, weather-dependent renewable energy production such as

1
solar or wind power, or as it is conventionally termed, intermittent production. This increases
the need for flexibility within the electric energy system. Microgrids can help to provide such
flexibility. Simultaneously, modern societies are increasingly dependent on the security of
supply which microgrids can also enhance. The “smart” electric energy systems envisioned in
most Member States of the Organisation for Economic Cooperation and Development (OECD)
should simultaneously serve interests such as energy-efficiency, environmental protection and
reliability that can be promoted by means of microgrid solutions. In the context of developing
countries, microgrids can support energy access and electrification, considering that a quarter
of the world’s population lack access to electricity while 2.4 billion people use traditional
biomass for cooking and heating (Mohn 2012, 17).
Given the availability of multiple types of microgrid solutions (see section 1.1) applicable to
both developed and developing countries, they can support the sustainable development
goals of the United Nations (UN), thereby ensuring access to affordable, reliable, sustainable
and modern energy for everyone by 2030 (Wu and Wu 2015). Microgrids can also improve the
resource fficiency of the energy system as a whole and offer several technical benefits for its
operation (Vine and Morsch 2017; see section 2 below).

1.1 Types of microgrids

Various types of microgrids can be identified with region, country and market-specific
differences. Microgrids vary from small systems based on the resources of an individual actor
to larger ones consisting of several actors pooling their energy resources within a joint low-
voltage network supplied by one secondary transformer. Microgrids may extend over a large
area with multiple energy resources formed around a medium voltage network. At the other
extreme, virtual microgrid comprises energy resources situated at different network locations.
As a commercial entity, microgrid can also be considered a prosumer (customer both
consuming and producing energy). Such a prosumer may be an individual customer (for
example, the owner-occupier of a detached house) or a community consisting, for example, of
the residents of an apartment block or the units of an industrial facility.
Various types of physical and virtual microgrids with different commercial connections to the
Distribution System Operator (DSO) and energy retailer can be discerned (see Fig. 1). The
Nordic electricity market can conveniently serve as a proxy illustrating these options owing to
its advanced, open character with several independent actors trading energy and managing
the grid, and hence enabling different types of microgrids.

2
Fig. 1. Types of microgrids and their commercial connections to the DSO and the energy market. The blue
circles in the figure represent the existing grid tariffs of the DSO available to the customer. The blue
triangles represent the products of the energy retailers. The total electricity bill before tax is deducted is
the sum of these. The orange circle represents a new type of grid tariff structure that may yet be needed
for large-scale microgrids. The green circle illustrates a new type of tariff structure

n DSOs
DSO DSO DSO ER DSO DSO ER

Netting
Netting the
resources of several the resources of two
sites of a single
customers
customer
Electrical energy purchase from ER
Type 6 Type 5 Today’s network tariff of the DSO
ER Novel DSO network tariff for the
Virtual independent network
Industrial
customers Novel internal network tariff of the
Type 2 independent network
Micro-
Detached grid Independent
Type 1 house network Type 3
Small
Block of Physical customers
ER
flats
Type 1
Part of a
Quarter distr. grid Type 4
Type 1 n
Distribution customers
system operator
ER
(DSO)
Energy
retailer (ER)

Type 1 microgrid may comprise a detached house and the resources available to it including,
for example a solar PV plant, controllable loads such as electric space heating or a water boiler,
electrical energy storage or an electric vehicle (EV). A block of flats can likewise form a
microgrid in an energy community format utilizing similar resources, optimizing the use of
common loads such as lifts and the loads of individual flats. This type of microgrid may also
include buildings sited in the same quarter. The ongoing energy transitions, when combined
with appropriate market design and regulation, support the emergence of type 1 microgrids in
the Nordic context and further in the OECD countries (see also section 3 below).
Type 2 microgrid consists of a larger area with various energy resources and a medium voltage
network. The microgrid in this case is considered a separate network with a dedicated network
licence from the regulator. This may involve a large industrial customer, such as a pulp and
paper mill or a shopping centre with its own electricity network and generation units.
Type 3 microgrid consists of small consumers, such as detached houses. However, not all
regulatory frameworks recognize or enable this type of microgrid, as is the case in Finland in
the Nordic context. From the point of view of network pricing, type 2 and 3 microgrids may
require novel distribution network tariffs and separate tariffs for internal use.
Type 4 microgrid is part of the network of the DSO, built to enable island operated mode. The
DSO can offer uninterrupted electricity supply to the customers within the microgrid area if
the microgrid has production unit(s) and/or electrical energy storage, or access to a mobile
reserve power unit.

3
Finally, virtual microgrids “cover DER at multiple sites but are coordinated such that they can
be presented to the grid as a single controlled entity” (Marnay et al. 2015). In other words, the
energy resources are located at different sites owned by an individual customer (type 5) or by
several different customers (type 6). For example, in type 5 microgrid, the production of solar
PV panels at a customer’s property can also be aggregated with the load of this customer on a
separate property at a different geographical location. Alternatively, this type may be
applicable if a block of flats rents land not in its immediate neighbourhood to develop a small-
scale solar PV park. At both points of network connection the customer pays grid charges to
the DSO(s). This means that the properties may be located in the areas of two different DSOs.
Type 6 is an energy community or virtual microgrid. It consists of several customers whose
energy resources are aggregated by the energy retailer. Each customer pays distribution fees
to the DSOs based on the measurements at the network connection point. Such virtual
communities can be formed in the present electricity market environments of many OECD
countries with the retailer operating as an aggregator.

2. Microgrids enabling sustainability

As microgrid types 1-4 (see above) feature mostly small-scale generation units close to the
point of consumption, they enable the exploitation of abundant distributed renewable energy
resources, e.g. solar or wind power, or local bio-based fuels (Murthy 2012). In some cases,
micro-hydropower can also be used (Soshinskaya et al. 2014, 662). The use of local resources
serves the UN sustainable development goals vis-à-vis the energy sector in several ways (see
above), while also supporting wider social objectives.
Local generation close to the loads reduces the transmission losses typical of centralized
power systems and decreases the loading and transmission capacity needs of the transmission
system (Lasseter and Piagi 2007). With the assets of the system in effective use, the need to
expand transmission capacity decreases. Possible indirect effects include enhanced local
employment and economy (Mergner and Rutz 2014). Local power generation also decreases
dependence on large utilities and other energy business actors that frequently operate within
the confines of the fossil fuels economy (Jones 2017, 271-278), and dependence on foreign
electricity imports whose environmental sustainability is difficult to ascertain. Finally, local
generation can augment energy poverty by means of co-operative models allowing low-cost,
wide-ranging participation. This can raise awareness of energy issues, inducing a
transformation from passive consumers to active prosumers, and by extension, prompting
people to make more environmentally sustainable energy choices. This can shape their energy
consumption habits, thus helping to decrease greenhouse gas emissions (Koirala et al. 2016).
Microgrids can have wide-ranging sustainability effects in developed OECD countries, where
the electrical power lines reach almost all consumers. In developing countries, where
electricity connections may be poor or non-existent, microgrids can be deployed for purposes
of electrification notably in remote areas (Basnet et al. 2015) or for increasing the reliability of
power supply (Buque and Chowdhury 2016). Microgrids can also increase resilience in
different environmental conditions, e.g. locations hit by hurricanes (Kwasinski 2010) or in cold
climates or Arctic conditions (Whitney 2017).
Although microgrids potentially serve a wide range of sustainable development interests and
can support the ongoing energy transitions, they may not always be profitable. Hence
microgrids range from commercially operated for-profit solutions to partly and fully subsidized
ones (Schnitzer et al. 2014, 1-2). Moreover, in commercially operated microgrids, natural gas
based solutions may – depending on the context – turn out to be the most profitable. Hence,
without a proper policy and regulatory framework prioritizing locally available renewable
sources, the multiple sustainability benefits of microgrids may not be fully exploited (Hanna et

4
al. 2017). Yet, even with adequate sustainability policies and regulation in place (see section 3
below), commercially driven developers have access to multiple revenue streams: e.g.,
participation in demand response programmes, export of on-site generation to the electricity
grid, reduced cost due to added resiliency against outages and lost loads and participation in
local microgrid electricity markets (Stadler et al. 2016).
Microgrids can also serve the interests of the centralized power system, considering how
energy and electricity – today and in the future – are crucial to the functioning of developed
societies in particular. Microgrids can provide services and support, for example in the
frequency reserve market (Yuen et al. 2011), thus improving the long-term synergy between
the interconnected transmission system, distributed generation and local microgrids.
Distributed microgrids within a centralized power system also increase the resilience of the
whole system against major black-outs. Furthermore, power supply is needed to maintain the
vital information and communication technology systems operational during transmission
system black-outs (Tsumura 2008). Operational, electrified islanded mode microgrids within a
blacked-out centralized power system can help to restore electricity supply to customers
(Wang et al. 2016), and support the power restoration of the system (Peças Lopes et al. 2005).
Finally, multiple small-scale microgrids using distributed resources within larger power systems
are invaluable against cyber-attacks. Microgrids enable local power supply even in the event of
the centralized power system being paralyzed by cyber-attacks. However, there are cyber
security issues to be managed in all individual power systems, including microgrids (Zhiyi et al.
2017). Nevertheless, the effects of cyber-attacks on individual microgrids and the whole
transmission system are of different orders of magnitude.

3. How can regulation promote sustainable microgrids?

3.1 Affordability
The affordability of microgrid solutions in comparison to the main grid is improving due to
decreasing DER prices. This helps urban microgrids to increase the amount of self-produced
energy, in particular solar PV. They can also offer grid services through new energy storage and
management technologies. Nevertheless, unambiguous regulation is important for
affordability. It decreases capital costs and establishes the framework for different business
models such as energy service agreements. Governments can further reduce the capital costs
with soft loans and grants. Regulated energy prices protect customers but impact financing
options (IRENA et al. 2018). Whether the microgrid has the status of an electricity company
likewise affects its affordability, since in such a case it has to follow the same ratemaking
procedures as other utilities. For grid-connected microgrids it matters whether they can
participate in demand-response markets (Burr et al. 2013). Dynamic pricing and services to
reserve markets increase the opportunities to earn revenue, although they also require more
advanced energy management systems.
Decreasing DER prices makes rural islanded microgrids, typical in developing countries, less
dependent on expensive, volatile diesel prices. In terms of regulation and policy, rural
microgrids are often part of rural electrification plans that include the development of the
centralized power grid. Microgrid operators can be guaranteed exclusive rights for operating in
a certain area so that they can amortise all its assets (Vinci et al. 2016). Some countries set
tariff-caps for private microgrids, while some governments cross-subsidize them at the
expense of the customers of the centralized power grid. In some cases, microgrids are self-
regulatory (Vinci et al. 2016). The cost difference between microgrids and the centralized
power grid can also be subsidized by reducing the import tariffs of the required technologies,
including solar PV plants and energy management systems.

5
3.2 Environmental, economic and social objectives
Regarding the environmental objectives, microgrids entail emission evaluations and regulation
since they typically include energy production close to population centres (Strachan and Farrell
2006). Economical regulation is moving towards more system-friendly policies aiming to
reduce peak loads, so far typically handled by fossil fuel generators, and towards policies
appreciating the integration of DER to the centralized power grid. For instance, feed-in tariffs
are being replaced by self-consumption policies where electricity consumption takes place at
the same property or is adjacent to the generation site (King 2006). Fixed feed-in tariffs have
been efficient in incentivizing renewable energy investments but they may dis-incentivize local
energy management or microgrid solutions. The purpose of feed-in tariffs is to maximize
production from renewables but they do not take account of demand and supply peaks, and
the prospects of grid services or islanding (Tao et al. 2011), as more dynamic pricing models
would do (Zhou et al. 2016; Yuan et al. 2017). In most cases the current taxation rules suit
conventional power systems by forming a fixed amount of the energy bill without incentivizing
demand-response or self-consumption. For example, feeding any excess electricity from the
microgrid into the centralized power grid should yield a fair compensation, especially if
sustainably produced.
Where demand response rules exist, they are often designed for fossil fuel generation rather
than distributed renewable energy resources. For instance, rules for reserve markets and
capacity mechanisms have technical characteristics reminiscent of conventional generators,
such as long availability and large bid sizes (Pérez-Arriaga and Knitte 2016). Connecting
aggregators of small-scale distributed generation to these markets entails altering the rules
and responsibilities among all actors within the scope of the grid (Eid et al. 2016). The internal
market mechanisms of microgrids can increase consumer engagement and system efficiency
but remain undeveloped (Mengelkamp et al. 2018). Furthermore, internal market mechanisms
require smart metering of consumption, which adds costs but helps to optimize the use of
resources within the system.
Self-consumption policies have economic and social drawbacks when implemented within
current regulatory regimes. Self-consumption with volumetric tariffs for grid supply creates
cross-subsidization from non-microgrid customers to microgrids customers (Pica et al. 2015;
Burr et al. 2013). To become more cost-reflective, network tariffs are moving towards power
demand charges (Villarreal et al. 2014). Maintaining the internal consumption within the
microgrid tax-free has the same effect. In developing countries the customers of the
centralized power grid may understandably subsidize more expensive rural off-grid solutions.
Different prices between main grid and microgrid consumers, or between neighbouring
villages, form political barriers in putting businesses and households in unequal situations
(IRENA et al. 2018). Overall, self-consumption policies incentivize microgrids in the short term
and can support energy transitions. Therefore a balanced approach is necessary (Faure et al.
2017), although equality among consumers must be the long-term aim.

3.3 Modernization objectives

The structure of the energy market significantly influences the diffusion of modern distributed
energy technologies. Microgrids serve only certain customers whereas utilities have to offer
the same level of service to everyone. Regulation often merely sets the minimum service level.
Furthermore, utilities tend to look backwards in their planning processes because of cost-of-
service remuneration, being mindful of established practices and dis-incentivised for proactive
decisions. These approaches are currently challenged by regional differences in future DER
adoption. Reductions in technology prices are also difficult to predict (Pérez-Arriaga and Knitte
2016). Investing in large capital-intensive infrastructure projects like transmission lines can
create lock-ins where potentially more sustainable local solutions cannot emerge.

6
Within the EU unbundling the generation and network businesses is intended to enhance
competition, presumably leading to affordable prices for customers. However, microgrids are
not entirely suitable for such a competitive modernization paradigm. Microgrids are not
necessarily fully competitive as they emphasize the allocation and sharing of local energy.
Separating production from distribution can also increase transaction costs in small systems.
That DSOs are forbidden to own storage within the EU may have grave consequences for
microgrids. However, the Clean Energy Package of the EU includes the definition of Local
Energy Community and exceptions for closed distribution network operators for installing
extra generation capacity in order to cover energy losses and provide non-frequent ancillary
services to the grid (European Commission 2017).

3.4 Reliability objectives

Microgrids can offer reliable power with the right configurations taking account of local
circumstances and resources. Too excessive regulatory requirements may inhibit microgrid
diffusion whereas inadequate regulation may not guarantee reliable and safe long-term power
to consumers. Classifying microgrids as “distribution companies” raises the question of
whether they have obligations to offer service, or are bound by consumer protection laws and
need emission permits (Hirsch et al. 2018). In developed countries the liabilities inherent in
DSO status and the associated permitting process, can be burdensome and a barrier to the
diffusion of private microgrids. At the same time, DSOs can use a microgrid concept to improve
reliability in remote communities and thereby reach their reliability standards. In developing
countries local private microgrids can improve the quality of service and reliability. In such
cases the private operator can work locally and may pay a small rent to the network operator
for grid usage (Vinci et al. 2016, 64). In the USA utilities have franchise rights setting the
service territories which, in essence, prohibit communities from undertaking infrastructure
improvements on their own (Kumar et al. 2015).
The interconnection to the centralized power grid is a major regulatory issue vis-à-vis
microgrids. In most cases the original guidelines for connecting distributed generation were
issued when microgrids were not recognized as constituting distributed energy sources.
Therefore the capability of some microgrid types for islanded operation, to continue feeding
power during black-outs, is often not recognized in regulations but instead treated as
disturbance to the centralized power grid (Tao et al. 2011). The capability for islanded
operation increases reliability and offers added value, especially in critical loads such as
hospitals. In stand-alone systems the situation is different; franchise rights or interconnections
are not issued, at least until the centralized power grid extends to the area. In such projects
quality issues and technical standards are important for customer protection. Licensing and
permitting can ensure some level of reliability and service. Availability of information on
different requirements is important while such licensing processes should also be streamlined.
Small projects below one megawatt are sometimes exempted from licensing requirements in
order to facilitate their implementation (IRENA et al. 2018).

4. Technical aspects in microgrid development

4.1 General features
Because several types of microgrids can be developed (see section 1 above), different
combinations of grid architectures, production units and control methods are applicable. The
tools and procedures for evaluating and quantifying the overall technical design of microgrids
are equally numerous. The location of the grid and availability of local energy resources
naturally restrict some of these combinations. Yet each combination has its own case-specific
features, in particular regarding frequency, voltage stability and control, as well as power
sharing methods between generation units and safety issues.

7
The normal operation and fault response of microgrids varies greatly depending on whether
generation units are directly grid-connected (e.g. diesel-generation set) or connected to the
grid via a power electronics (e.g. PV plant). In the latter case, the ability of an inverter to feed
fault current is substantially lower compared to a directly grid-connected, synchronous
generation unit. The dynamic response of the microgrid can be greatly enhanced in both of
these cases if an energy storage system is integrated into the system. An energy storage
system is often a crucial component if an uninterrupted transition from a grid-connected to
islanded mode is needed.
4.2 Microgrids as part of the electricity system
Recent dynamic analyses of power systems, including islanding studies, have mostly addressed
either the transmission or distribution system level. As a result, only few studies have
concentrated on both system levels, their interactions, traits and challenges (Suh et al. 2017).
Separate dynamic analyses have found no accuracy problems in power systems because of the
still small amount of DER and low penetration of microgrids on the distribution system level. In
the future microgrids may constitute a notable share of the electric power system. Therefore
the transmission system operator (TSO) cannot ignore the role of microgrids while evaluating
the stability of the transmission network. In the future dynamic analyses of both system levels
must also be conducted in parallel.
Most islanding analyses on the transmission system level emphasize the survival of the whole
or part of the transmission system. The studies conducted on the distribution network level for
their part focus on proper and safe operation within a usually fairly small islanded area. Here
major issues include how the islanded grid can supply uninterrupted power to critical loads,
and how the safety and control issues are handled (Ma et al. 2014). Furthermore, given the
existence of several different topology alternatives, a review of the fundamental distribution
network architectures is needed. These include radial, ring and mesh architectures,
considering their types of operation, control and management, growth model and advantages
and disadvantages (Islam et al. 2017). A microgrid concept wider than the traditional one is
Multi-MicroGrid (MMG), which provides connectivity to several microgrids. The concept
entails rethinking the operational and planning methodologies of distribution systems to
exploit the opportunities of such a novel arrangement (Celli et al. 2016).
4.3 Control of microgrids
Most of the basic control requirements between stand-alone microgrids and centralized power
systems, such as load balance and stability issues related to voltage and frequency, are in
principle similar (Cady et al. 2015). However, there are often two main differences: system
size, i.e. the total kinetic energy of rotating masses and the total amount of apparent power of
the production units and the way the production units are connected to the grid. Microgrids
are typically much smaller while frequently some, or all of the production units, are connected
to the grid via an inverter. In inverter-connected units, the primary source may be AC or DC.
Several types of stability studies, including various types of generating units and control
methods, have been conducted. They prove that microgrids can withstand severe grid
conditions in stand-alone mode if the numbers and types of generating units are properly
dimensioned and appropriate control methods are selected. For example, two combinations of
generating units: i) generation with static electronic converter and synchronous generator and
ii) static converter connected generation, survived a severe load imbalance following two very
different control strategies (Negri et al. 2017). Further, the successful control and operation of
a microgrid in islanded mode consisting of several different generating units is feasible. For
example, uninterrupted power supply to local loads can be provided with the combination of a
diesel unit, PV plant and battery energy storage (Koohi-Kamali and Abd Rahim 2016).

8
Centralized power systems typically apply centralized control methods. In microgrids
centralized control methods can also be used but because of the small size of the system
decentralized methods can be exploited equally well. In general two types of power sharing
methods between generating units are frequent. In a droop-control method, each production
unit adjusts its output power based on the measured quantities of the microgrid, such as
voltage and frequency. In a master and slave control method, one master unit dictates the
voltage and frequency in the microgrid and other units operate on the basis of commands
received from the master unit (Caldognetto and Tenti 2014).
For technical reasons a microgrid may require more than one storage technology (Sreelekshmi
et al. 2016). In case of severe power imbalance within the microgrid, a further option is load
shedding. Novel load shedding schemes have been proposed (Zhang et al. 2014).
Uninterrupted power supply to the local loads is a major benefit in the microgrid concept.
Therefore the load shedding method is usually the last countermeasure preventing the
collapse of the microgrid.

5. Summary
Microgrids are relatively small-scale electricity distribution systems utilizing local resources.
They may include energy storage as well as heat and cool distribution units. Microgrid
solutions are deployable in developed and developing countries alike. They may comprise
apartment blocks and critical infrastructures such as hospitals; or serve remote villages, larger
industrial areas or communities of citizens. Types of microgrids range from those connected to
the main grid to off-grid systems in remote areas, and further to energy community type
virtual microgrids linking resources and consumption that are geographically separated from
each other. Microgrids can support sustainable development by means of enhancing the use
of locally available renewable resources, avoiding transmission losses typical of centralized
electric power systems as well as excess infrastructure. Further, they may offer local socio-
economic benefits, increase local awareness of energy and sustainability issues, enhance
participation and improve security of supply as well as the resilience and security of the
system. Suitable regulation is crucial in realizing these benefits given that until now microgrids
in most localities have not been central to energy policy and law. At the same time, the
microgrid concept offers flexible solutions suitable for different environments. Several
combinations of grid architecture, generation units and control methods are possible
depending on where the microgrid is to be deployed and what resources are to be used.

Cross-references

Alternative energy
Community engagement
Electricity
Energy prosumerism
Future energy
Local and global environmental sustainability
Policy experimentation
Sharing economy and the future of energy
Universal access to energy

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