University of Pennsylvania Journal of Law and Public Affairs


Microgrids are an increasingly popular means of making a smaller, smarter, cleaner, and more resilient energy grid. When Superstorm Sandy hit the northeast states, a few microgrids continued to provide their constituents with energy for weeks while the rest of the grid was down. Microgrids typically involve small-scale energy generation coupled with nearby storage and distribution, and are connected to, but capable of disconnecting from, the macrogrid during a power outage.

This Comment will analyze the economics of microgrids, focusing on the necessity of effective cost-benefit analyses. In order to allow for the development of microgrids, regulators should create appropriate mechanisms for microgrid developers to recover the costs of development and operation. However, when incentivizing microgrid development, regulators must remain focused onmaintaining an optimal market for consumers, by accounting for the net utility provided by the microgrid. The benefits and costs of microgrids must be quantified both when planning specific microgrid projects and when creating regulatory frameworks. The efficacy of energy policy relative to microgrids will turn on the accuracy of the cost-benefit analysis used by regulators and developers.

This Comment will begin by introducing what microgrids are, their costs, benefits, barriers, the driving forces behind their development, and some notable microgrid success stories. Part I will describe the present uncertainty around microgrid regulation and discuss the need to introduce specific microgrid legislation/regulation to increase certainty. Part II will discuss modern attempts to evaluate the costs and benefits of microgrids and the importance of further developing cost-benefit analyses. Part III will address how microgrids fit into typical laws governing public utilities. Part IV will discuss how states should regulate and incentivize microgrid development, with greater or lesser emphasis on market efficiency. This portion will also analyze creative uses of rate-making to intelligently encourage microgrid development. Lastly, Part V will address a means of fitting energy storage, and through it, microgrids, into wholesale markets, thereby adding an important source of cost recovery to microgrid developers.