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Nanogrids: How Off-Grid Markets Prove Developing World Is Testing Ground for Innovation

The basic concept behind the nanogrid is simple: small is beautiful. Nanogrids are modular building blocks for energy services that support applications ranging from emergency power for commercial buildings, such as data centers in mature economies like the United States, to the provision of basic electricity services for people living in extreme poverty.

In short, nanogrids are just small microgrids, typically serving a single building or a single load. The market currently lacks consensus on the definition of a nanogrid. As such, Navigant Research developed its own classification, with the most critical criterion being size: 100 kW for grid-tied systems and 5 kW for remote (off-grid) systems not interconnected with a utility grid. Because of the simplicity, the technology requirements for nanogrids are, in most cases, less complex than those for either microgrids or the utility-dominated smart grid.

Ironically, nanogrids are big business. If one were to calculate the total market for power via nanogrids over the next decade, the size of this market is astounding. According to one recently published report and a forthcoming report, both from Navigant Research, hundreds of billions of dollars are expected to be invested in these systems over the coming decade, but the majority will flow to remote off-grid nanogrids. Solar PV paired with batteries is growing rapidly in the grid-connected world and even more so in the off-grid world, led by countries that usually lag behind the industrialized nations.

Nanogrids mimic the innovation that is rising up from the bottom of the pyramid (BOP) and capturing the imagination of a growing number of technology vendors and investment capital. Despite the small scale of nanogrid solutions, a number of familiar names are active in these nanogrid markets, among them Bosch, Eaton, Emerson Network Power, Johnson Controls, and NRG Energy. While nanogrids can support the growing movement toward enhancing resiliency and, therefore, complement microgrids, there are times when microgrids and nanogrids will be competing for the same customers.

 

Solar PV and Energy Storage Nanogrid Trends

Though focused on grid-tied nanogrid applications, a Navigant Research report published in the third quarter of 2015 entitled Solar PV plus Energy Storage Nanogrids (1)  shows that smaller networks such as these nanogrids are beginning to gain market traction. The technologies and system designs will likely create synergy between grid-tied and off-grid nanogrid markets. In fact, among the top markets for these grid-tied nanogrids are Australia and the United States—two markets where residential customers are motivated to go off grid, even though in many circumstances staying connected to a utility grid would make the most economic sense. It is this grid-tied market, and the explicit linking of rooftop solar PV to onsite lithium ion batteries, that is driving down the overall cost of nanogrids. It is also facilitating advances in energy storage and the inverters used to optimize both renewable distributed generation (DG) and batteries. Most nanogrids in the developing world will not feature batteries in the near-term. Longer-term, however, they may serve as a bridge between nanogrids and larger microgrids as energy demand grows.

 

Chart 1.1 Total Solar PV plus Energy Storage Nanogrid Capacity and Revenue by Region, World Markets: 2015-2024

 

When looking at the off-grid nanogrid market designed to serve primarily off-grid cell phone towers and villages, one sees a similar adoption curve, though a much different regional dynamic. If one limits the entire remote market to village electrification (including both microgrids and nanogrids) for the Asia Pacific, Latin America, and Middle East & Africa regions, nanogrids are estimated to capture 90% of the forecasted cumulative revenue. Nanogrids seem to be favored by funders for BOP deployments since they are seen as less risky and reach potential consumers quicker.

The dynamics of the remote nanogrid market are quite revealing. While commercial remote nanogrids capture the majority of the market today, these segments are expected to switch roles by the end of the forecast period. By 2024, commercial remote nanogrids are estimated to have a healthy $3.5 billion in annual revenue but a compound annual growth rate (CAGR) of 0%. The residential remote nanogrid market, on the other hand, is expected to stand at a staggering $14 billion by that same date, a CAGR of 12%. The Middle East & Africa region—with Africa clearly the focal point of development—is anticipated to lead the overall remote nanogrid space. Annual revenues are estimated to be $4.5 billion in 2015; by 2024, they are expected to reach nearly $10 billion annually. All told, this market is estimated to grow from $8.5 billion to $17.5 billion annually between 2015 and 2024, a CAGR of 8%.

 

Chart 1.2 Annual Remote Nanogrid Capacity by Region, Base Scenario, World Markets: 2015-2024

 

Conclusion 

The proliferation of cell phone usage, which is prompting demand for electricity in remote regions of the world, provides a model of technology dispersal that mimics the Internet. It is more in line with nanogrids than traditional utility distribution systems. A common analogy when discussing nanogrids in the developing world is that of cell phones and the skipping of phone landlines—in similar ways these regions are jumping to nanogrids in lieu of traditional centralized transmission infrastructure.

 

Figure 1.1 highlights how two simultaneous technology trends (solar PV and mobile phones) are fueling this remote power system market today in Africa.

 

Figure 1.1 The Link between Solar PV Cost Declines and the Rise in Mobile Phone Usage 

 

The bottom line is that two once separate markets are merging into one due to the mutual benefits of declining costs for solar PV and advanced batteries and the rise of cell phone technologies. One could make the argument that developing world remote nanogrids are pioneering the concept of a smarter, more resilient, and flexible power grid in advance of the developed world. This provocative view holds true in certain respects. Even large technology players such as ABB are migrating distributed control approaches from remote power systems largely pioneered in developing world market applications to grid-tied smart grid networking for industrialized economies.

These two nanogrid market trends are mutually supportive. Investments in distributed energy resources are creating opportunities for companies, both large and small, to find room to innovate in these nanogrid markets. When the larger distribution grid reaches the fringes of humanity in countries in Africa, Latin America, and Asia Pacific, they may be surprised when villages decide to stay connected to their existing sustainable nanogrids rather than interconnecting with a utility distribution grid whose cost may be higher due to stranded assets and the carbon penalties attached to traditional fossil fuels.

 

(1)  Navigant Research, Solar PV plus Energy Storage Nanogrids, 2015.
https://www.navigantresearch.com/research/solar-pv-plus-energy-storage-nanogrids.

 

Peter Asmus is a Principal Research Analyst with Navigant Research with more than 25 years of experience in energy market reporting and analysis. Learn more about his research at the following website: www.peterasmus.com.

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