Networked Microgrid Optimal Design and Operations Tool: Regulatory and Business Environment Study

Francisco Flores-Espino, Julieta Giraldez, Annabelle Pratt

Research output: NRELTechnical Report


Microgrids increase the reliability of the electric supply at the distribution level by combining multiple power generation assets, storage systems, and loads. Networking two or more microgrids has the potential to increase reliability more efficiently and at a lower cost by taking advantage of economies of scale and increasing the diversity of the generation assets and loads. The study presented here is part of a collaborative effort among several U.S. Department of Energy national laboratories to develop a networked microgrid Optimal Design and Operations (OD&O) tool. This addresses the goal defined in the Grid Modernization Multi-Year Program Plan to develop a suite of tools that addresses functional requirements for system optimal design and operations of networked microgrids. This report describes the impact of electric utility regulations in the United States on the feasibility of networked microgrids, and it presents possible ownership, development, and operational business models for networked microgrids. The report also identifies the required changes to existing regulatory environments that would allow the implementation of networked microgrids. Most states in the United States do not have regulations that apply specifically to microgrids even though regulation can greatly affect the economic viability of microgrids. The lack of microgrid-specific regulation hinders microgrid development and creates a situation in which each microgrid faces different regulatory constraints depending on its unique configuration. A handful of states—such as New York, Connecticut, and California—have started efforts to implement microgrid development and operation regulations; however, initial regulation on networked microgrids is lacking. This report describes four regulatory environments that affect microgrid economic performance. The objective is to use the qualities of these regulatory environments to appropriately structure the OD&O tool to design and assess the benefits of networked microgrids. These environments reflect the regulations of three jurisdictions in the United States—traditional, partially deregulated, and regulated—and a fourth networked microgrid-friendly environment that has the least amount of constraints on the operation of networked microgrids. A networked microgrid-friendly environment does not exist today in any jurisdiction of the United States. It will require regulators to incentivize or mandate utilities to allow networked microgrids to energize utility-owned infrastructure during an outage. It will also require advances in distribution management system and distributed energy resource (DER) management system technologies to enable feeder sections containing networked microgrids to be isolated. The OD&O tool for networked microgrids will optimize the design and calculate benefits from networked microgrids by assessing the net present value of networked microgrids compared to microgrids designed and operated independently. The NPV calculation is informed by the ownership models for network infrastructure and DERs. We discuss four different ownership types—utility-owned, mixed, unbundled, and user-owned—and we describe the benefit calculations for these, including capital cost allocation. If multiple entities create a microgrid, the structure to allocate costs and benefits can become complex. The number of combinations of regulatory environments and ownership models could generate an overly complex design space. Our approach is to start with a simplified case that separates initial investment from operational transactions (but nets them out in the end), and all microgrid assets are built simultaneously in year zero. A more complex set of cases can be built on this initial, simplified case.
Original languageAmerican English
Number of pages30
StatePublished - 2020

NREL Publication Number

  • NREL/TP-6A20-70944


  • design
  • economic performance
  • electricity
  • networked microgrid
  • NMG
  • regulatory environment


Dive into the research topics of 'Networked Microgrid Optimal Design and Operations Tool: Regulatory and Business Environment Study'. Together they form a unique fingerprint.

Cite this