The energy challenges of our world are changing at an accelerated rate. Questions about the future are quickly becoming the realities of today. What path will the microgrid market take over the next 10 years? What factors might expand or limit growth?
By looking to the past and evaluating current market indicators, Wood Mackenzie researchers Isaac Maze-Rothstein and Benjamin Attia have gathered a clear sense of the direction global microgrid and minigrid markets will take—and they have the data to back it up.
Leveraging Wood Mackenzie’s proprietary database of 3,402 planned and operational microgrids and minigrids, the researchers have explored historic drivers of microgrid deployments and analyzed the market’s present status. Insights from their extensive research and in-depth case studies have allowed them to compare US and Kenyan markets and map out an overview of what the future may look like for these microgrid markets. They will present their findings at the 8th annual HOMER International Microgrid Conference on October 12.
We spoke to Isaac Maze-Rothstein this week to learn more about current market trends and what the future may hold for microgrid markets worldwide.
Microgrid News (MN): From your research, what is the scale of opportunity for US microgrid development in the next five years? How does that compare with minigrids for energy access?
Isaac Maze-Rothstein (IMR): From 2010 to 2016 there were approximately 150 microgrids installed each year in the US. Beginning in 2017 smaller systems began to grow. 2019 was a record with 546 microgrids installed. Most of the systems installed last year were below 5 MW. This is part of a larger trend: the market has shifted from being led by projects above 5 MW pre-2017 to smaller systems starting in 2017.
By comparison, minigrids for energy access have been deployed in a much broader geographic region – primarily Africa and Southeast Asia. These systems tend to be for communities without access to a central grid. We focused on the Kenyan market because of their historical progress on electrification targets, mature solar home system market, ecosystem of private-sector minigrid developers, and comprehensive grid extension program. The scale of the US market is significantly larger than Kenya’s market — there were a little over 30 energy access minigrids installed in Kenya last year.
MN: What are the primary drivers of deployment for microgrids today?
IMR: Drivers vary by region, customer type, and use case. In general, microgrids are driven by a combination of economics, sustainability, and resilience. In the US, standardization, financing, and decreasing cost of solar and energy storage enable the deployment of smaller microgrids. Together these forces have driven down costs and eliminating the need for high upfront investment.
In Kenya, cost savings compared to grid extension and national goals to electrify the remaining 12.8 million Kenyans without access to the electric grid have led to market growth. The future growth of the private minigrid market in Kenya is sensitive to the success of the national grid extension programs. Ultimately the question for this market is what percent of customers accessing electricity for the first time will be connected to the central grid or minigrids.
MN: How have those drivers evolved in recent history?
IMR: Increasing system standardization and the declining costs of energy resources have reduced development costs and boosted the growth of small microgrids in the US. As the market has grown, it has also attracted increasingly diverse financiers, ranging from investor-owned utilities to private equity groups.
While Kenya’s national utility, Kenya Power, connected over 3.25 million new customers since 2015, most of these new customers have been low-income peri-urban and rural households. These customers consume on average four times less than urban customers and are more expensive to connect because of their remote location. How these trends shape future grid extension will significantly impact the growth of the Kenyan minigrid market.
MN: How has the coronavirus pandemic influenced microgrid markets?
IMR: Wood Mackenzie forecasts the US microgrid market to be slightly down next year because of the impacts of COVID-19. The first half of 2020 was the slowest start to the year for the microgrid market since 2016, with shelter-in-place orders and social distancing delaying permitting, engineering, construction, and interconnection processes for developing microgrids. We expect to see the challenges of originating new deals during 2020 impacting capacity additions over the next three years. These delays can become more pronounced in remote communities like the projects in Kenya. We expect financial uncertainty to combine with project development delays and slow equipment supply chains to reduce the microgrid outlook through 2022.
MN: What shifts in the microgrid and minigrid development markets do you foresee in the near future?
IMR: Outside of policy development to enable minigrids and microgrids, the biggest shift we are watching is how quickly all components of microgrids can be turned into plug-and-play modules. This could continue to drive down costs and enable deployment.
Empowering Trust UL Southern Africa