White Paper

How Modular Solutions Accelerate Worldwide

Microgrid and VPP Opportunities
Building the Business Case for a Resilient, Sustainable,
and Digital Energy Distribution System

Published 4Q 2020

Commissioned by ABB

Peter Asmus Roberto Rodriquez Labastida Michael Kelly

Research Director Senior Research Analyst Senior Research Analyst

Confidential information for the sole benefit and use of ABB.

Executive Summary
The world is changing fast, especially when it comes to the energy distribution system needs of today’s
economy and environment. Pressing challenges to business as usual such as unprecedented extreme
weather events coupled with pandemics require new solutions. The good news is that rapid advances in
digital technology provide advanced and smart solutions to the world’s increased reliance upon electricity
as the most fundamental driver of the world economy. Three key trends are driving innovation in the
energy infrastructure space. They are as follows:

• Resiliency: The availability of 24/7 power is more

important than ever as the COVID-19 pandemic
Rapid advances in digital
encourages telecommuting and limits the ability of
technology provide advanced
traditional business practices like in-person
and smart solutions to the
conferences and shared office spaces. Furthermore,
world’s increased reliance
the electrification of the transportation sector requires
upon electricity.
an even greater reliance on the electricity system.
Extreme weather events and the ongoing threat of
terrorist attacks necessitate an always on power systems.

• Sustainability: A shift from fossil fuels toward renewable energy systems is required to reach the
greenhouse gas emission reductions necessary to stabilize the increasing burdens imposed by
global climate change. It is estimated that greenhouse gas emissions will need to be reduced by
7.6% annually over the next decade to meet the 1.5°C global target for 2030. Consider the
following: 1 MW of solar energy can save the equivalent of a half-ton of CO2 annually in a
manufacturing industrial plant. It can also supply clean electricity for 130 EVs over the same 1-
year period.

• Digitalization: Technologies vital to achieving both resiliency and sustainability goals fall in the
digital realm. While the world moves toward greater reliance upon distributed energy resources
(DER), management of electrical distribution system through new advanced software-based
platforms becomes necessary to achieve shared value for all energy ecosystem stakeholders.
Thanks to these platforms, these DER assets can maximize their value to owners, integrators,
utilities, and society at large.

The world is increasingly reliant on diverse DER, from rooftop solar PV to energy storage, EVs, and
demand response. These diverse DER assets need to be aggregated and optimized into nimble systems
capable of responding in real time to ever changing market conditions, goals Guidehouse defines as
integrated DER. Two platforms that tap digitalization to create greater value are microgrids and virtual
power plants (VPPs). The key to unlocking often hidden value embedded in DER assets is a modular
approach to project development for digital platforms such as microgrids and VPPs.

This white paper articulates how one digital platform provider—ABB—is changing its business strategy to
offer new solution blocks directly to engineering, procurement and construction companies and to
integrators that interface directly with consumers. This new modular approach promises to reduce costs,
speed up the development cycle, and increase the prospects for meeting society’s resiliency and
sustainability needs.

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Digital Platforms: Microgrids and VPPs
In the past, platform solutions for managing distributed energy resource (DER) assets often were pitched
directly to project hosts, utilities, or other asset owners. Yet new business models and efforts to
streamline and standardize microgrids and VPPs to the greatest extent possible are transforming market
conditions.

ABB defines a microgrid as “a group with clearly defined electrical boundaries of low voltage DER and
loads that can be operated in a controlled, coordinated way either connected to the main power network
or in islanded mode.” This definition mirrors that of the US Department of Energy and other US federal
agencies and global institutions. Despite congruence on fundamental definitions, there is considerable
debate over whether specific projects fully meet the definition of a microgrid. For the most part, these
debates center around esoteric engineering details or may be shaped by vendors focusing on specific
microgrid-enabling technologies or capabilities for seamless islanding.

What then is a virtual power plant (VPP)? ABB defines the technology as “an aggregated system of
energy assets remotely and automatically optimized by a software-based platform to dispatch services for
distribution or wholesale market.”

VPPs can aggregate heterogeneous DER to make the services these resources provide resemble
conventional and dispatchable centralized power plants. The term VPP flows from this comparison; it was
devised to help utilities and other grid operators understand how advanced software systems
incorporating AI algorithms could mimic the same essential services provided by a fossil or nuclear plant.
VPPs deliver the same services (and more) as a traditional power plant without the liabilities associated
with land use, air emissions, waste management, and stranded asset risk.

Once a microgrid sells a service to a load aggregator or utility, it becomes VPP-ready. Furthermore, if a
utility develops a microgrid and deploys it to help mitigate voltage hotspots on a feeder (for example), it
could be viewed as a form of distributed energy resource management systems (DERMS). Just as
demand response providers are expanding software platforms to control generation along with load—and
manage energy storage—microgrids are being optimized as VPPs and DERMSs by providing
bidirectional value. VPPs provide economic value upstream while mitigating frequency challenges on the
larger grid.

There is growing overlap and convergence with other digital platforms designed to manage, control, and
optimize DER portfolios. There is a clear move away from siloed solutions by utilities and solution
providers alike for classes of DER assets to broader platforms that can be adopted for specific use cases,
such as microgrids. As Figure 1 depicts, ABB offers related aggregations and automated control schemes
for microgrids, VPPs, and DERMS. DERMS is another digital platform designed to maximize value from
DER assets, with a special focus on utilities’ need to balance grid resources to protect the integrity of the
overall system.

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Figure 1 Digital DER Platforms Are Converging

(Source: ABB)

Both microgrids and VPPs are enjoying exponential growth, with DERMS also slowly gaining traction. Yet
engineering, regulatory, and financing challenges remain. Innovative solutions to these challenges offer
end users a number of benefits.

Digital Platform Market Application Segments

Microgrids and VPPs represent two digital platforms that bring significant economic and environmental
benefits to a variety of end users. Project developers and engineering, procurement and construction
(EPC) companies seeking opportunity in this space would be wise to think through the top value
propositions and solution sets needed to meet the needs of the following customer segments (also
illustrated in Figure 2).

• Commercial Buildings. One of the most prominent ways for commercial buildings like shopping
malls or offices to use digital platforms is to reduce demand for energy. By collecting real-time
data monitoring power flows in the cloud, digital platforms can shrink peak demand by up to 20%
with state-of-the-art controls. This goal is achievable with fast load shedding technologies
responding to frequency shifts. Factor in predictive maintenance algorithms and ongoing
operations costs can be cut by as much as 33%. In the event of a distribution grid fault, mission
critical power loads at sites such as hospitals can be maintained via islanding. Furthermore,
energy storage systems outfitted with advanced power conversion systems can act as virtual
generator units. Digital platforms can also use uninterruptible power supply (UPS) systems and
backup generators for resiliency.
• Industrial Sites. Wastewater and clean water treatment facilities, food and beverage stores,
automotive operations, data centers, and mines and manufacturing facilities also benefit
immensely from digital platforms. For example, they can institute creative load management
programs to maximize self-consumption from any onsite generation sources. They can manage
e-mobility charging to maximize renewable energy consumption if available locally or from the
utility grid. Monitoring systems can help identify areas at the industrial site that could benefit from
compensation switchboards or active filters. Industrial loads tend to be bigger than most

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 commercial operations, so they stand to gain the most economically from digital platforms on a
direct monetary basis. These industrial loads can use a microgrid platform for resiliency and can
provide ancillary services to the utility in the form of a VPP—whether acting as a demand
response resource or providing other grid services.
• Campuses and Institutions. Campus institutions including universities, schools, and fire and
police stations can shave peak demand by 20% and shrink operation costs by as much as 33%
with state-of-the-art digital platforms. Along with these efficiency benefits comes the resiliency
options outlined above for commercial buildings.

• Communities and Utilities. Smart communities and utility distribution networks will need to rely
upon digital platforms to maximize the use of prosumer assets such as rooftop solar PV or
community solar programs or centralized combined heat and power. Such customers may desire
either slow- or fast-charging EV charging—or both. Prosumer assets can also be aggregated into
DER portfolios that trade energy services via VPPs, provided market structures in a specific
jurisdiction allow for the creation of these additional revenue streams.

• AC and DC Marine Applications. Ships ranging from large fishing vessels to cruise line ships,
ferries, and military boats can also be considered microgrids. They must operate in 24/7 island
mode while traveling to destinations and then can also interconnect to onshore power distribution
grids by ship-to-grid technologies. With the help of digital platforms, these marine application
segments can access SCADA systems for data on temperature, humidity, and vibrations to
optimize predictive maintenance. When docked, the digital platform can coordinate among
protection devices while also using dynamic positioning to save fuel. In some cases, digital
platforms can manage direct current (DC) architectures, saving 30% of space due to a reduction
in conversion equipment. In this case, there is no need for synchronization with the portside grid
as there is with alternating current (AC) systems.

Figure 2 Microgrids and VPPs Can Support Multiple Customer Applications

(Source: ABB)

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Market Sizing the Digital Platform Opportunity
Microgrids come in many sizes, are installed at multiple customer application sites, and can feature
diverse resource configurations including conventional and renewable energy supply, energy storage,
demand response, and EV charging. What ties these DER assets together into intelligent aggregations
are digital monitoring and control platforms. Without a premium monitoring and control platform, the full
value of a microgrid cannot be realized. One of the industry’s current focuses is on a platform that can be
fine-tuned to meet the end customer’s needs without excessive engineering and customized expense.

Since these end users may not understand the complexities and nuances of smart integration, a new
approach is to offer modular solutions to those building microgrids that lack the capability to offer their
own controls technology stack. One of the primary drivers for increased microgrid deployments globally
are shifts in strategy among growing numbers of vendors. The focus is moving from hardware to software
and more modular approaches to development are gaining traction. New business models to streamline
financing are emerging. These factors explain why microgrids are expected to showcase double-digit
annual growth and reach nearly $40 billion in implementation spending annually by the end of the next
decade (See Chart 1).

Chart 1 Annual Total Microgrid Power Capacity and Implementation Spending by Region,
World Markets: 2019-2028

25,000 $45,000
North America
Europe $40,000
Asia Pacific
20,000 Latin America $35,000
Middle East & Africa
Total Spending $30,000
15,000

($ Millions)
$25,000
(MW)

$20,000
10,000
$15,000

$10,000
5,000

$5,000

- $-
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

(Source: Guidehouse Insights)

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VPP capacity displays exponential growth, reinforcing the increased importance of orchestrating DER
assets. The key enabling technology for VPPs are also digital platforms, which help squeeze more grid
value from prosumer assets across similar customers as microgrids.

Chart 2 VPP Capacity by Region, World Markets: 2020-2029

50,000 North America

Europe
45,000
Asia Pacific
40,000 Latin America
Middle East & Africa
35,000

30,000
(MW)

25,000

20,000

15,000

10,000

5,000

-
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

(Source: Guidehouse Insights)

Three Key Regional Markets Serve as Bellwethers for Digital Platforms

The market for digital platforms is truly global. However, regional policies, resources, and grid conditions
shape near- and long-term market opportunities. This section focuses on three leading regional markets,
highlighting a handful of specific countries that are particularly promising. A case study application is
presented to illustrate how a modular and scalable digital platform solution solved a problem at specific
customer sites.

Asia Pacific
Australia is a hotspot for microgrids and VPPs. The majority of the continent’s microgrids are deployed by
utilities such as Horizon Power. Located in Western Australia, the utility has the largest service territory in
the world and the fewest customers per square meter, for customers are not interconnected to a
traditional grid. Australia has long been a leader in hybrid microgrids, many of which were provided by
vendors such as ABB. When it comes to VPP energy trading, Australia represents the new frontier.
Recent power outages, high energy prices, and the highest penetrations of distributed solar PV in the
world have made Australia a focal point of innovation. Australia’s consumers also boast one of the
highest per capita electricity consumption rates in the world, even greater than the US. These
consumption levels translate into flexible load resources ideal for VPP manipulation, aggregation, and
optimization.

If Australia is a hotspot for innovation, China is the top prize in terms of sheer magnitude of opportunity.
According to Guidehouse Insights’ Microgrid Deployment Tracker, China only lags the US in terms of total
identified microgrid capacity. Five of the top microgrid markets are located in the Asia Pacific region.

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Chart 3 Total Microgrid Capacity, World Markets: 1Q 2020

12
11
10
9
8
7
(GW)

6
5
4
3
2
1
-

(Source: Guidehouse Insights)

Most microgrids installed in the Asia Pacific region serve remote clients not interconnected to a traditional
grid. In cases such as India, the incumbent utility distribution network is so unreliable that microgrids and
other forms of backup power are required for businesses and critical facilities to enjoy resilient and
reliable electricity. China’s market diverges a bit from these regional trends. Though many early
microgrids did serve remote communities, the country has launched recent initiatives focused on
distribution feeder retrofits. According to one veteran vendor active in China, 240,000 sites have been
identified as microgrid candidates for weak feeder upgrades.

Recent policy reforms are creating new opportunities for outside vendors to offer digital platforms. In
October 2017, the National Energy Administration (NEA) and the National Development and Reform
Commission (NDRC) announced a joint initiative for market-oriented distributed power generation as a
new part of the power sector reform in China. This new initiative has the most potential to transform the
Chinese energy industry from the edge of the grid. The initiative calls for the creation of platforms that
facilitate electricity trading between distributed generation projects and end users across a local electricity
distribution network. The electricity market and distributed energy reforms introduced by NDRC and NEA
jump-started an effort to create new business models based on DER solutions. These new business
models are geared toward new investments in solar PV on local distribution networks and are financed
and implemented by third parties or new, privately owned distribution companies, which could represent
key new markets for microgrids. In 2019, State Grid Corporation of China announced a new initiative to
build microgrids under the rationale of a non-wires alternative, given its stated mission of providing
reliable electricity to all customers.

NEA recently released its annual national energy strategy, Energy Sector Work Guiding Opinions for
2020, which states that energy security is the most important task of the country’s energy industry. The
change signals Beijing’s concerns over energy access and sufficiency, amid challenges raised by

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geopolitics and global market issues. Accordingly, the most critical R&D areas now are the applications of
storage in auxiliary services, DER, and microgrids.

Case Study: Jibei Electric Power Co. Ltd.

Thanks to its new public policies, China is also exploring VPP platforms. The state grid company, Jibei
Electric Power Co., Ltd., now controls diverse DER assets while also managing flexibility resources such
as energy storage devices. This enables the company to provide the equivalent grid services as a
conventional power plant but at less cost and environmental impact. In operation since December 2019,
11 types of DER assets have been aggregated and optimized, representing 26.5 MW. The second phase
of the project leverages an Internet of Things (IoT) digital platform provided by ABB that will expand to
incorporate another 226 MW of capacity. Once the second stage of the project is completed, the VPP will
serve 12.4 million people in the cities of Zhangjiakou, Qinhuangdao, and Langfang.

This VPP is enabled through a combination of intelligent instrumentation and digital equipment, including
state-of-the-art smart meters and switchgear for monitoring, protection, and control. Data on electrical and
environmental parameters are all processed in real time to realize efficiency goals and to power peak
shaving and creative load management. Distributed solar PV systems, air-source heat pumps, residential
and industrial air conditioning units, and EV charging stations are all used to balance variable solar and
wind generation.

This project serves as a demonstration use case to help articulate an International Electrotechnical
Commission (IEC) VPP standard. Merging IoT and VPP digital management sets the stage for further
innovation in enabling real-time optimization between renewable generation and flexible load
management. For China, this represents a path forward as it modernizes its overall grid network and
enables prosumers to contribute to grid stability and efficiency.

North America (US)

The US leads on global microgrid capacity and represents

the vast majority of microgrid activity in North America. This In response to aging grid
largely is due to extreme weather events, including infrastructure and extreme
hurricanes and wildfires. It is also a reflection of aging grid weather events leading to
infrastructure with power quality and reliability going down increased frequency of power
rather than up. outages, growing numbers of
US states have approved
In response to aging grid infrastructure and extreme weather
microgrid support programs.
events leading to increased frequency of power outages,
growing numbers of US states have approved microgrid
support programs. All told, 112 bills have been proposed or
enacted in 18 different states and in Washington, DC over the last 5 years (see Figure 1). Connecticut
was the first state to pass a microgrid law in 2011. The northeast led the way initially, with the top three
states ranked according to number of bills coming from that region: New York (15), Massachusetts (14),
and New Jersey (13). The latest state from the northeast to join the microgrid ranks is Maine, which
enacted L.D. 13 in 2020. L.D. 13 tackles many of the policy questions surrounding microgrids as utilities
move more aggressively into this space.

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On the other side of the country, Hawaii pioneered a microgrid services tariff released in March 2020. An
important element of this tariff is that the onus is with microgrid operators to make the case for monetizing
the societal and resiliency benefits of the technology. Microgrid tariffs are also being developed in
California per state legislation SB 3119, largely due to the last 3 years of unplanned and planned power
outages from major wildfires. The California Public Utilities Commission (CPUC) approved new microgrid
directives in June 2020. As a result, a new Community Microgrid Enablement Program will move forward
in Pacific Gas & Electric’s service territory. This CPUC program will provide incentives in the form of
credits to offset distribution upgrades to encourage the commercialization of microgrids in its service
territory.

Figure 3 Microgrid Legislative Activity by US State: 2015-2020

(Source: Smart Electric Power Alliance)

The US is also a leader in VPPs. FERC Order 2222, approved in summer 2020, opens new revenue
opportunities for mixed DER asset portfolios as small as 100 kW in scale to provide grid services for
wholesale markets. This tighter integration between retail and wholesale markets is vital for digital
platforms to grow market share. FERC Order 2222 also highlights how regulators are shifting to an
agnostic approach to achieve desired policy outcomes. This approach allows for diverse DER assets
including EVs and various forms of energy storage, generation, and demand response, which will be
marshalled in support of improving grid reliability, reducing emissions, and boosting resiliency.

Case Study: Florida Air Force Base

US military facilities are leading candidates for microgrids given their need for premium, cyber secure,
and resilient power. With bases located around the world, the US Army, Marines, Navy, and Air Force
have been microgrid pioneers. Many of these facilities cannot be disclosed due to security concerns.

An Air Force base in Florida, for example, required insurance that it would always have power given the
site’s sensitive equipment and the security threats that result from power outages. ABB installed two
transformers to provide redundant power supply options. If the primary transformer goes down, the other

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serves as a backup. Additional advanced distribution system upgrades were installed in a difficult to
access mezzanine and other locations on the facility. The automatic transfer switches embedded in circuit
breakers are key to maintaining this site’s resilience. This reduces the need for components and wiring,
allowing for a much smaller footprint. A human machine interface also allows for manual optimization
remotely for distribution feeders.

Europe
Europe is often touted as a global leader moving toward a low carbon energy future; however, the tightly
regulated EU markets have several features that historically limited the development of microgrids:

• Policymakers focused on large-scale renewable energy developments such as offshore wind,

which requires massive investment in transmission infrastructure.

• DER deployments (such as rooftop solar PV) primarily based on feed-in tariffs (FITs), a business
model that precludes the defining feature of a microgrid: the ability to seal off resources from the
larger grid via islanding.

Until recently, the vast majority of microgrids deployed in Europe were on islands not interconnected to
the mainland grid. According to Guidehouse Insights’ Microgrid Deployment Tracker, Europe’s cumulative
global market share is the smallest of any major region analyzed.

The European VPP market historically has centered around renewable energy integration. The tightly
connected countries in the European Union (and the UK) have advanced market integration that takes
VPP platforms in a more sophisticated direction, stacking complex use cases. The continent is adapting
VPP platforms to provide new, more sophisticated capabilities to maximize the value of flexibility. The use
of advanced software platforms to enable smart energy trading is the distinguishing feature of Europe’s
VPP market.

Case Study: Bank in Rome, Italy

A major EU bank in Rome offset the need for additional fossil backup generators because of the
functionality embedded in a smart circuit breaker from ABB. This has reduced costs and increased
resiliency. The all-in-one circuit breaker can control, protect, and coordinate operations of a microgrid
designed to provide 24/7 power services to support mission critical financial services processing needs.
Banks historically have relied upon fleets of backup generators to maintain uptime in the event of a grid
outage. Similar to data centers and military bases, several layers of redundancy are required so financial
transactions can proceed around the clock. The very last resort is often UPS systems deployed at each
critical load. Digital technologies like this circuit breaker provide
advanced protection, programmable logic, full connectivity, and
streamlined integration for microgrid energy management. Digital technologies like this
Other vendors often require a host of different hardware and circuit breaker provide
software technologies to achieve a similar result. The circuit advanced protection,
breaker’s digital software can deliver a load shedding strategy programmable logic, full
based on voltage and frequency. If the first line of defense fails
connectivity and streamlined
and a generator trips off, the circuit breaker sheds loads so a
integration for microgrid
second line of defense, a smaller generator, kicks on to
energy management.
maintain mission critical operations.

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Modular Solution Blocks for EPCs and Aggregators
As microgrid and VPP markets mature, the industry’s needs are evolving. Larger, more established EPC
companies (e.g., AECOM, Worley, and Mortenson) are entering the fray, expanding their coverage
across renewables, battery energy storage, gensets, and e-mobility. These historically nontraditional
players see opportunity in capitalizing and creating new value streams as a function of these complex
applications. There is a need for more standardization and a more nimble, distributed way to control DER
assets. Industry and vendor focus is shifting from hardware to software, with more modular and scalable
solutions gaining traction within the microgrid and VPP markets.

Solutions providers build modular solutions in various ways; one approach is the use of solution block
modules sold directly to system installers and integrators. Since these end users may not understand the
complexities and nuances of smart integration, this new approach offers modular solutions to those
building microgrids who lack the capability to offer their own controls technology stack. This enables
installers and integrators to streamline their deployments, reduce engineering and testing efforts,
maximize use of state-of-the-art digital products, and allow for a new form of customization based on
several fundamental building blocks for microgrids and VPPs.

Within this microgrid and VPP context, there are several functional areas that lend themselves well to this
modular, solution block model. For example, the establishment of microgrid energy management systems
can be broken up logically along the lines of several core capabilities, including:

• Metering and Connectivity: Measuring system used to define the installation load profile and
collecting all energy to environmental data required for operation of the energy management
system within a fully connected architecture based on interoperable communication protocols.

• Power Quality: Performance monitoring system that provides comparative analysis of

consumption profiles and indicates trends and data for power quality analysis.

• Energy Management: Core management systems such as distributed control systems and
energy management systems that enable customers to monitor, optimize, and control their plants
and assets.

• Asset Management: Applications and tools to help customers detect, analyze, and predict the
health and status of monitored devices leveraging predictive analytics.

Pooled under a common architecture, these modules create a

functional microgrid energy management system. This provides Solution providers build
end users with more financial flexibility and allows for more modular solutions in various
strategic deployments based on near-term and long-term ways; one approach is the
business objectives. Along with the modularization of software use of solution block modules
management systems, there are also several foundational sold directly to system
microgrid capabilities that can be enabled through this modular installers and integrators.
approach, including holistic islanding and synchronization:

• Load Shedding: Platform that enables load shedding to

reduce microgrid stress during islanding events in synergy with resynchronization logistics
o Basic load shedding is enabled by a simple logic that can detect the microgrid disconnection

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 event and shed a group of nonpriority loads, enabling a fast response time and proper power
balancing

o Adaptive load shedding uses advanced algorithms to shed nonpriority loads quickly
according to the microgrid power consumption and frequency measurement

• Peak Shaving: Keeps the load profile under established thresholds to enable electricity bill
savings and the achievement of demand response targets
• Automatic Transfer Switching: Enables instantaneous automatic switching between power
sources

• Interface Protections: Interface devices that enable disconnection whenever the voltage and
frequency values of the grid are out of the ranges prescribed by the local grid codes and
standards

• Adaptive Selectivity: Protection strategy that adapts protection thresholds automatically

according to microgrid scenarios for loads and generators

Modular approaches allow for a more incremental and longer-term customer journey. Similar to how
electric utilities adopted advanced distribution management systems in a stepped fashion, end use
customers may not have the requisite resources or knowledge to deploy a fully-fledged microgrid or VPP
platform without delay. Vendors have responded by making their suites of systems highly interoperable
and are increasingly adopting modular system architectures. This allows for logical investments to be
made with a clear path forward as end users work to meet immediate needs and plan for future
requirements and competitive pressures. Modular, microservices-based architectures allow end
customers the flexibility to evolve their management system portfolios without the constraints of
expensive and complex rip and replace projects down the line. Under this microgrid and VPP scenario, an
end customer may begin with a battery management system, graduate into an intelligent energy
management system, and then move into microgrid control and ultimately VPP platforms (see Figure 4).

Figure 4 Modular Digital Platforms for DER Optimization

(Source: ABB)

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Not every project will require the complete set of solution blocks. That is the beauty of a modular
approach. Under this pathway to market adoption, the goal is to simplify the value proposition across the
entire ecosystem with a new focus on those experts bringing projects to life, on budget and on time.

Although the end user is still the ultimate customer, onsite power solutions are increasingly complex,
coupled with emerging trading markets to create new revenue streams. This landscape means that
underpinning technology to maximize value may be beyond end users understanding .

While the energy as a service trend considers the upfront capital costs barriers, modular solution blocks
address implementation challenges in a new way. In short, digital control solution providers offer validated
off-the-shelf solution sets in a menu that can then be customized during the installation process.

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Conclusions and Key Takeaways
There are many competing products, technologies and platforms vying for increased market share in the
DER management space. Superior and validated hardware and software products that stand behind new
concepts such as VPPs and microgrids are necessary to bring these platforms fully into the mainstream.
These digital platforms and products are foundational to the new energy distribution system. With the
right approach to market adoption, these platforms can deliver end users and the larger grid the full value
embedded in diverse DER portfolios (which increasingly include EVs and unprecedented forms of load
management).

Here are three key takeaways from this white paper:

• Digital platforms for DER optimization such as microgrids and VPPs are gaining traction
across a broad array of customer applications. The value of digital platforms continues to
grow for utilities, C&I customers, small to midsize industrial operations (such as food and
beverage sites), communities, and maritime vessels. These technologies offer resiliency and
flexibility, lower energy costs and the ability to tap, support, or draw from the larger distribution
and transmission network. The bidirectional exchange of value between host site and different
layers of grid topologies has wider acceptance as digital products prove themselves in the
marketplace.

• The need for microgrids and VPPs is global, but key regions are fostering innovation
today. There is universal need for digital platforms that optimize DER assets. Yet the pace of
adoption will vary immensely due to policy and regulation, available renewable resources, and
end use customer profile differences. China, the US, and Italy feature examples of deployments
ranging from microgrids to VPPs. Digital platforms will proliferate around the world, but today
innovation is led in the Asia Pacific, North America, and Europe.

• Modular solution blocks for EPCs, system integrators, and other installers is one of the
better ways to build market momentum toward full-scale commercialization. Most digital
platform providers today sell their products and services directly to end users. Outside of utilities,
many of these entities do not have the expertise to make informed decisions. Furthermore, they
may not understand a better way to finance these solutions. Selling modular solution blocks to
experts that design and install the systems is a better path forward and fully reflects the
commercially viability of these technologies.

Resiliency, sustainability, and digitalization are the three

pillars supporting growing investment in microgrid and Resiliency, sustainability, and
VPP solutions (see Figure 5). Digitalization enables digitalization are the three
resiliency and sustainability. Devices such as circuit pillars supporting growing
breakers can provide mutual value for end users and investment in microgrid and
utility grids, revolutionizing the way the world builds VPP solutions.
green distribution networks. These digital devices
capture previously hidden value created by the rapid

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growth in DER assets and leverage the expertise of a growing pool of well-established companies that
require digital products and services to deliver top value to their customers.

Figure 5 Modular Digital Platforms Vital to World’s Resiliency and Sustainable Goals

Islanding via
microgrids

Microgrids and VPPs

Renewable
as platforms for
DER and CO2
EPCs and system
reductions
integrators

(Source: Guidehouse Insights, ABB)

Confidential information for the sole benefit and use of ABB. 15

Acronym and Abbreviation List
AC ..................................................................................................................................... Alternating Current

AI ..................................................................................................................................... Artificial Intelligence

DC ............................................................................................................................................. Direct Current

CPUC .................................................................................................. California Public Utilities Commission

EPC ........................................................................................... Engineering, Procurement and Construction

DER ................................................................................................................. Distributed Energy Resources

DERMS ........................................................................ Distributed Energy Resources Management System

EU ......................................................................................................................................... European Union

EV ........................................................................................................................................... Electric Vehicle

FERC............................................................................................... Federal Energy Regulatory Commission

IoT ....................................................................................................................................... Internet of Things

NEA ............................................................................................................... National Energy Administration

NDRC .................................................................................. National Development and Reform Commission

PV ................................................................................................................................................ Photovoltaic

SCADA .......................................................................................... Supervisory Control and Data Acquisition

UPS .................................................................................................................. Uninterruptible Power Supply

UK ......................................................................................................................................... United Kingdom

US ............................................................................................................................................. United States

VPP .................................................................................................................................. Virtual Power Plant

Confidential information for the sole benefit and use of ABB. 16

Table of Contents

Executive Summary .................................................................................................................................... 1

Digital Platforms: Microgrids and VPPs ................................................................................................... 2

Market Sizing the Digital Platform Opportunity ......................................................................................... 5

Three Key Regional Markets Serve as Bellwethers for Digital Platforms ................................................. 6

Asia Pacific ............................................................................................................................................ 6

North America (US) ............................................................................................................................... 8

Europe ................................................................................................................................................. 10

Modular Solution Blocks for EPCs and Aggregators ............................................................................ 11

Conclusions and Key Takeaways ........................................................................................................... 14

Acronym and Abbreviation List ............................................................................................................... 16

Table of Contents ...................................................................................................................................... 17

Table of Charts and Figures..................................................................................................................... 18

Scope of Study .......................................................................................................................................... 19

Sources and Methodology ....................................................................................................................... 19

Confidential information for the sole benefit and use of ABB. 17

Table of Charts and Figures

Chart 1 Annual Total Microgrid Power Capacity and Implementation Spending by Region, World
Markets: 2019-2028................................................................................................................. 5

Chart 2 VPP Capacity by Region, World Markets: 2020-2029 ............................................................ 6

Chart 3 Total Microgrid Capacity, World Markets: 1Q 2020 ................................................................ 7

Figure 1 Digital DER Platforms Are Converging.................................................................................... 3

Figure 2 Microgrids and VPPs Can Support Multiple Customer Applications ....................................... 4

Figure 3 Microgrid Legislative Activity by US State: 2015-2020 ............................................................ 9

Figure 4 Modular Digital Platforms for DER Optimization ................................................................... 12

Figure 5 Modular Digital Platforms Vital to World’s Resiliency and Sustainable Goals ...................... 15

Confidential information for the sole benefit and use of ABB. 18

Scope of Study
Guidehouse Insights prepared this white paper, commissioned by ABB, to summarize how a new modular
solution block approach to microgrids and VPP deployments can help accelerate market adoption. Rather
than targeting these solution block offerings directly to project hosts, digital platforms should instead be
sold to EPC firms, system integrators, and installers. These customers are more likely to recognize the
proper solution and are knowledgeable about proper technology integration for microgrids and VPPs.
Guidehouse Insights believes modular solutions are gaining market share, which reflects the rapid
maturation of digital platform technologies around the world.

Sources and Methodology

Guidehouse Insights’ industry analysts use a variety of research sources in preparing research reports
and white papers. The key component of Guidehouse Insights’ analysis is primary research gained from
phone and in-person interviews with industry leaders including executives, engineers, and marketing
professionals. Analysts are diligent in ensuring that they speak with representatives from every part of the
value chain, including but not limited to technology companies, utilities and other service providers,
industry associations, government agencies, and the investment community.

Additional analysis includes secondary research conducted by Guidehouse Insights’ analysts and its staff
of research assistants. Where applicable, all secondary research sources are appropriately cited within
this report.

These primary and secondary research sources, combined with the analyst’s industry expertise, are
synthesized into the qualitative and quantitative analysis presented in Guidehouse Insights’ reports. Great
care is taken in making sure that all analysis is well-supported by facts, but where the facts are unknown
and assumptions must be made, analysts document their assumptions and are prepared to explain their
methodology, both within the body of a report and in direct conversations with clients.

Guidehouse Insights is a market research group whose goal is to present an objective, unbiased view of
market opportunities within its coverage areas. Guidehouse Insights is not beholden to any special
interests and is thus able to offer clear, actionable advice to help clients succeed in the industry,
unfettered by technology hype, political agendas, or emotional factors that are inherent in cleantech
markets.

Confidential information for the sole benefit and use of ABB. 19

Published 4Q 2020

This deliverable was prepared by Guidehouse Inc. for the sole use and benefit of, and pursuant to a client
relationship exclusively with ABB ("Client"). The work presented in this deliverable represents
Guidehouse’s professional judgement based on the information available at the time this report was
prepared. Guidehouse is not responsible for a third party’s use of, or reliance upon, the deliverable, nor
any decisions based on the report. Readers of the report are advised that they assume all liabilities
incurred by them, or third parties, as a result of their reliance on the report, or the data, information,
findings and opinions contained in the report.

© 2020 Guidehouse Inc. All rights reserved. 20