Overcoming Barriers to Microgrid Development: A Review of Policies and Regulations

Written by Madhav Sharma and Anoop Singh

The article analyzes the regulatory and policy frameworks that influence the development and adoption of microgrids and highlights the roadblocks encountered in the process. It examines several policies across nations and emphasizes the importance of regulations that address microgrids' techno-economic viability and sustainability, along with the financial and technical barriers to their development. The insights from various case studies demonstrate the potential of microgrids in providing cost-effective electricity while being sustainable.


Microgrids have emerged as a promising solution to address energy access challenges in developing countries and enhance the resiliency and efficiency of electrical grids in developed countries [1]. The IEEE Standard 2030.7-2017 [2] defines microgrids as flexible systems of interconnected loads and distributed energy resources (DERs), such as solar panels, wind turbines, and battery energy storage systems. A microgrid is a small-scale power generation and distribution system that functions as a single entity. It can connect or disconnect from the grid to operate in grid-tied or islanded mode [3]. They are useful for providing electricity to remote and underserved areas and backup power during grid outages, thereby increasing the grid's resilience [4].

Despite the potential benefits of microgrids, their development is constrained by various regulatory and policy barriers that vary across nations. The uncertainties in regulatory frameworks and lack of clear policies can make it challenging for microgrid operators to secure financing and manage sustained operations, hampering the long-term sustainability of these projects, impeding their ability to provide reliable and affordable electricity and meet the growing demand for clean energy [5]. The regulatory and policy challenges that impact the development and adoption of microgrids are described, and the roadblocks encountered in the process are listed.


Challenges Pertaining to Regulatory and Policy Framework

Regulatory and policy frameworks are crucial in facilitating the growth and acceptance of microgrids. However, several challenges related to these frameworks need to be addressed. One of the primary issues is the variation in regulations that govern microgrids across different countries and states. This inconsistency results in discrepancies based on the size of the microgrid. While some regulations prohibit microgrids from operating independently in "island mode," larger microgrids may be allowed to connect to the grid and sell or purchase excess electricity. However, the lack of clear instructions on connecting microgrids to the grid has led to high costs, complexity, and, in some cases, outright prohibition.

Microgrids offer several benefits, including energy resilience, demand-side management, and the ability to defer grid upgrades [6]. However, quantifying these benefits poses a significant challenge. It is essential to ensure that microgrid operators are compensated fairly for any marginal savings they generate through the regulatory framework [7]. The current net-metering policies and feed-in tariffs have limitations that make it difficult to determine how microgrids should be compensated for the electricity they sell to the grid [8]. This issue is further complicated by cross-subsidy provided to distribution consumers, which places a disproportionate burden on microgrid operators, ultimately affecting their viability and profitability [6]. To promote the sustainability and viability of microgrids, it is crucial to address these challenges.


Policies and Regulations Driving Adoption of Microgrids

Several countries have implemented policies to promote the development and adoption of microgrids. In the United States, the Federal Energy Regulatory Commission (FERC) has implemented Order-2222 [9], establishing rules enabling microgrids to participate in wholesale energy markets. To date, only a few states, including Puerto Rico, California, and Hawaii, have approved preliminary microgrid tariffs, which permit microgrid operators to sell excess energy to the grid and receive compensation for their services [10], [11].

The European Union (EU) has proposed a directive for Local Energy Communities (LECs) to regulate the third-party model for microgrid operation [12]. It represents a significant step forward, as the third-party model allows for the ownership and operation of microgrids by entities other than traditional energy providers. In India, several states, such as Madhya Pradesh and Assam, have issued detailed regulations explicitly outlining the technical standards for interconnection, metering arrangements, licensing provisions, and exit options for microgrids [13], [14]. These regulations aim to reduce the risk of asset standardization and regulatory uncertainties, thereby encouraging the development of microgrids in the country.


Insight from Case Studies: Sustainability of Microgrids

The sustainability of microgrids has been shown through case studies despite the challenges. For instance, a case study in Haiti found that microgrids can provide reliable and affordable electricity to remote communities not connected to the national grid [15]. Another case study was conducted in Puerto Rico, where an organized community determined the feasibility of developing a renewable energy production system configured as a microgrid. The Puerto Rico case study found that an initial incentive may be necessary to justify the development of microgrids [10]. In both case studies, the involvement of local communities was a key success factor of microgrid deployments.



Microgrids are a promising solution to provide electricity in remote areas and enhance resiliency in critical locations such as hospitals and airports [16]. However, the development of microgrids faces regulatory and policy barriers that vary across nations. To enable the adoption of microgrids, policymakers must create clear and comprehensive regulations that address their viability and sustainability. Access to financing and technical expertise is also essential to overcome financial and technical barriers [17]. Despite the challenges, microgrids have demonstrated their potential to provide cost-effective and sustainable electricity, particularly when local communities are involved [11]. As the demand for clean energy grows, creating an enabling environment that promotes the deployment of microgrids and other distributed energy resources is crucial.



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This article was edited by Hossam Gabber.

To view all articles in this issue, please go to May 2023 eNewsletter. For a downloadable copy, please visit the IEEE Smart Cities Resource Center.

Headshot Madhav Sharma
Madhav Sharma (Student Member, IEEE) obtained his B.Tech. degree in Electrical and Electronics Engineering from Uttar Pradesh Technical University, Lucknow, India, in 2013. He then went on to pursue an M.Tech. degree in Electrical Energy Systems from the G.B. Pant University of Agriculture and Technology, Pantnagar, India, in 2016. He is pursuing a Ph.D. in energy management in smart distribution systems from the Department of Industrial and Management Engineering at the Indian Institute of Technology Kanpur, India. His research interest includes smart grids, mini-grids, and microgrids, focusing on their technological, economic, and financial aspects.
Headshot Prof. Anoop Singh
Anoop Singh (Senior Member, IEEE) is a Professor in the Department of Industrial and Management Engineering at the Indian Institute of Technology Kanpur, India. He is also the Founder of the Centre for Energy Regulation (CER) and Energy Analytics Lab (EAL) at IIT Kanpur. He received his B.E. degree in Mechanical Engineering from the Kamla Nehru Institute of Technology, Sultanpur, India, in 1987 and an M.Tech. Degree in Industrial Engineering from Thapar Institute of Engineering & Technology, Patiala, India, in 1996. He completed his Ph.D. degree in the area of Inter-fuel Substitution and some aspects of Industrial Energy Demand from the Indira Gandhi Institute of Development Research, Mumbai, India. His expertise lies in the areas of power sector reforms and regulation, power market development, energy/electricity pricing, renewable energy, smart grid, energy analytics, climate change, project financing, and cross-border energy cooperation. He is a Member of the State Advisory Committee for the Delhi Electricity Regulatory Commission (DERC) and Meghalaya Electricity Regulatory Commission (MSERC).

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