What is a Microgrid?

Definition of a Microgrid

The Electrical Grid is defined as “the electrical power system comprised of generating plants, transmission lines, substations, transformers, distribution lines and end-use customers.” A Microgrid can be viewed as a miniature version of the Electric Grid. Specifically, a Microgrid is defined as “a localized group of interconnected generation resources and end-use customers that operate as a single controllable entity.” For more technical details on Microgrids see Microgrids at Berkeley Labs.

Some Microgrids consist of only a single electric user’s distributed generation and consumption. An industrial site, an educational institution or a hospital would be a good site for a single user Microgrid. Other Microgrids consist of the distributed generation and consumption of a community of electric users. This second type of Microgrid is often referred to as a milligrid. The important point, however, is that Microgrids must be controlled and operated as unified systems.

The following video describes how a Microgrid works:

Benefits of a Microgrid

The critical feature of a Microgrid is that the operator monitors and controls all of its distributed generation and electric customer usage. Microgrids are interconnected to the larger electric grid and viewed by the interconnecting utility as a single customer point of interconnection. Microgrids can purchase back-up power from the utility and it can sell excess generation to the utility. However, in the event of an outage on the utility system the Microgrid can disconnect and operate as an “electrical island”.

Electric customers participating in a Microgrid receive the benefits of a secure source of electric supply, efficient operation of their distributed generation and reduction in transmission line losses. The benefits available from Microgrid operation are similar to those that a utility might gain from installation of the Smart Grid.  However, it is easier to implement a Microgrid because of its smaller scale and the voluntary interest of the participants.

While utilities are starting to get into the business of operating Microgrids many are now being operated by non-utilities. The ability to operate the Microgrid as an electrical island raises the possibility that the operator may, at some point, opt to simply disconnect from the utility system if they no longer see advantages from further connection. This potential for disconnection is one of the concerns raised in the Post entitled What is the Smart Grid?


I. David Rosenstein worked as a consulting engineer and attorney in the electric industry for 40 years. At various times during his career he worked for utility customers, Rural Electric Cooperatives, traditional investor owned regulated utilities and deregulated power generation companies. Each of his posts in this blog describes a different aspect of the past, present or future of the electric industry. 

Is the Utility Death Spiral for Real?

Causes of a Utility Death Spiral

For over 100 years the government has guaranteed utilities a reasonable operating profit. However, current conditions have led utilities to the precipice of a death spiral.

The regulatory compact, embedded in all state public utility acts, requires utilities to provide reliable service to their customers in exchange for a government guarantee of a reasonable return on utility investment. What could be a better promise for a business? Provide a necessary service to customers and receive a steady and reliable return for investors. 

But now there is talk of a utility death spiral. A death spiral can be defined as “a situation that keeps getting worse and that is likely to end badly with great harm or damage being caused.” Is this even possible?

Well the fact is that not only is it possible, it is probably true. Utilities have invested in infrastructure that provides a necessary service. Their government approved rates include recovery of, and a return on, that investment in infrastructure.  

But customers are responding to these rates by installing distributed generation like rooftop solar. This self-generation reduces, or even eliminates, purchases from the local utility. And even though sales go down, the fixed costs of the installed infrastructure remains the same. And those fixed costs have to be recovered from remaining customers. Those costs will be recovered over fewer sales and rates for those sales will inevitably increase.  

Rooftop solar is contributing to the utility death spiral
Source: weforum.org

As rates increase more customers will decide to install their own distributed generation. This further reduces sales by the utility and increases rates for remaining customers. If nothing is done to check this utility death spiral the infrastructure costs will either be paid by the poorest customers who can least afford to install distributed generation or will not be paid at all sending the utility into bankruptcy.

Utility Response to the Death Spiral

Some utilities have responded to the death spiral by seeking to hold on to the status quo. To retain sales, they have opposed government incentives to customers that tend to overprice the value of distributed generation. And to make sure that they recover their fixed costs, they have proposed to “decouple” recovery of fixed costs from sales-based charges. Where decoupling has been approved the utility recovers its infrastructure costs through a fixed customer charge paid by all customers no matter how much electricity they use. 

The utilities’ tactics effectively reduce the benefits of distributed generation for customers. Customers hoping to get the full benefit of distributed generation will opt to disconnect from the grid. At one time disconnecting from the grid would have been almost unthinkable. However, now more and more customers can disconnect by purchasing small scale storage to back up their distributed generation or by joining a micro-grid. The following video describes the operation of such a micro-grid: 

If the utility tactics that seek to stop the death spiral force customers off the grid they will not stop the utility death spiral. They will instead exacerbate it.  

As described in the Post entitled What is the Smart Grid? utilities can achieve significant efficiencies for the entire system if they use a Smart Grid to gain the ability to monitor and control customer owned distributed generation. In other words, it is in the public interest for the utilities to keep customers on the grid and to take advantage of their efforts to use distributed generation. It will be up to utilities and policy makers to determine how the utilities will be able to both meet the public interest and to thrive financially in an environment where their traditional source of revenue (selling and/or transmitting energy) is shrinking. 

For more information on utility response to the death spiral see the Deloitte article entitled Beyond the math: Preparing for disruption and innovation in the US Electric power industry.


I. David Rosenstein worked as a consulting engineer and attorney in the electric industry for 40 years. At various times during his career he worked for utility customers, Rural Electric Cooperatives, traditional investor owned regulated utilities and deregulated power generation companies. Each of his posts in this blog describes a different aspect of the past, present or future of the electric industry. 

Distributed Generation – an Old Idea Reconsidered

Development of Central Station Generation

In 1882 Thomas Edison brought electric light to an office building located in New York’s financial district. He used electricity generated at a dynamo located close the point of use. While he did not know it at the time, his use of a small generator located close to the point of use would one day be referred to as “distributed generation.”

Edison's first form of distributed generation
Edison’s Pearl Street Generating Station
Source: alchetron.com

Edison hoped to “light the world” with duplicates of his business model. However, his use of multiple small generators was expensive and inefficient. George Westinghouse saw the shortcomings of Edison’s system. With Nicola Tesla’s help Westinghouse developed an alternating current system that used large remote central station generating plants. Westinghouse used transformers and long distance high voltage transmission lines to deliver the electricity generated by these plants . Because Westinghouse’ system was much more efficient than Edison’s he won the Electric Current War.

Remote central station power plants using a complex delivery system of transmission lines are now the standard in the industry.  And distributed generation fell out of favor for more than 100 years.

Flaws of the Central Station Model

The current system is not, however, without its own problems. The fossil fueled central station plants emit pollution and greenhouse gases. And, because of their size, the central station plants must be added in large chunks, often before they are needed by utility customers.

The transmission system used to deliver the power is also an issue. It requires rights-of-way in controversial areas, is maintained by utilities with varying levels of commitment to that maintenance, is subject to potential outages due to weather, faulty equipment and terrorist attacks and results in energy losses of as much as 10%. Even with these flaws, however, for more than 100 years, Westinghouse’ system has been used for the delivery of reliable and affordable electric service.

Reconsideration of Distributed Generation

Reliance on large central station generation may, however, be changing. Distributed generation, similar to what Edison used in his early lighting systems, may be an efficient substitute for at least some portion of the current system.

Distributed generation can come in the following forms:

  • Back-up generation that ensures continued operation during an outage of the larger grid. Many health care facilities have historically used this type of distributed generation. But more residential and commercial facilities are starting to adopt its use.
  • A combination of generation sources (possibly including small scale thermal generation along with one or more renewable resources) that can provide service to a major institution such as a university, a hospital or a government campus, as well as the surrounding community. This is sometimes referred to as a micro-grid. It can operate either along with, or independent from, the larger grid.
  • Site specific generation, such as an industrial facility’s cogeneration plant or residential roof top solar panels where a portion of the energy generated can be sold to the larger grid.
  • Behind the meter generation where the output is used solely to reduce the owner’s purchases from their local utility.
Rooftop solar as distributed generation

Source: weforum.org

The United States Department of Energy paper entitled The Potential Benefits of Distributed Generation and Rate-Related Issues That May Impede Their Expansion provides a more detailed discussion of the various forms of distributed generation.

Distributed Generation Can Provide Both Individual and System Benefits

Customers who see a benefit are likely to install distributed generation for their own use. But, distributed generation can also provide benefits to the overall utility system in the form of reduced losses, reduced pollution from central station thermal plants and improved system reliability.  There should be a way to encourage installation of distributed generation to provide these benefits. But, utilities like to rely on their own large scale generation plants. So, historically, they have discouraged customers from installing distributed generation.

In recent years, however, regulatory agencies have reduced the utilities’ ability to discourage customer installed distributed generation. And utilities seem ready to capitalize on the potential benefits.

Utilities will not, however, fully realize the system-wide benefits of distributed generation until they fully incorporate their operation into their system operations and planning. And that will not occur until they fully implement the Smart Grid.


I. David Rosenstein worked as a consulting engineer and attorney in the electric industry for 40 years. At various times during his career he worked for utility customers, Rural Electric Cooperatives, traditional investor owned regulated utilities and deregulated power generation companies. Each of his posts in this blog describes a different aspect of the past, present or future of the electric industry.