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U.S. Microgrid Market Develops at Rapid Pace, With Capacity Reaching 10 GW in Q3 of 2022

The U.S. microgrid market reached 10 gigawatts in the third quarter of 2022, with more than 7 GW in operation and the rest in planning or construction stages, according to a new analysis from Wood Mackenzie.

“In terms of customer segments, Commercial and Industrial 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,” said Elham Akhavan, senior research analyst at Wood Mackenzie. “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.   

The U.S. 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 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.”

The turnkey microgrid-as-a-service 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 microgrid-as-a-service model. Simultaneously, the industry is seeing a gradual shift away from end-user ownership, the consulting firm said.

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, microgrid-as-a-service “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.

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

“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,” Akhavan said

“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.