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Nanogrids: A Whole Building Approach to Distributed Energy Resources

Distributed Energy Resources

Distributed Energy Resources (DERs) are a growing part of the energy landscape in the United States, and they are becoming an ever more attractive opportunity for households, companies, and building owners to gain control of their own energy needs. By 2024, it is estimated that solar PV plus energy storage will represent a $14 billion industry [1]. These resources are installed on the customer side of the utility meter and include distributed generation, such as combined heat and power (CHP) and solar photovoltaics (PV); energy storage assets, such as batteries; energy efficiency and demand management; and building energy management software. When deployed correctly, DERs have the potential to reduce the carbon footprint of the electric grid, increase grid reliability and resiliency, and defer the need for costly upgrades to grid distribution and transmission infrastructure [3,4,7].

Under the umbrella of its Renewing the Energy Vision (REV) initiative, New York State is planning to create strong market incentives to promote development of these resources. This effort is intended not only to combat climate change through reduced carbon emissions, but also to protect against the adverse effects of climate change, such as the greater frequency of extreme weather events such as Hurricane Sandy, through increased grid resiliency and reliability.

While they provide value to both consumers and the grid, DERs can often have competing behaviors. By taking a whole building approach, multiple DERs can be combined to provide value that is greater than the sum of the value provided by each resource independently. In this sense, buildings can be considered to be analogous to the grid as a whole. Whereas communities are being developed into microgrids, a building can act as a standalone nanogrid.

Combined Heat and Power

Also known as Cogeneration, CHP is one of the most popular and cost effective DERs. A CHP plant, typically fueled by diesel or natural gas, is used to generate electricity. Simultaneously, the waste heat in the exhaust is used to heat water, typically for domestic hot water but can also be used for space heating, thereby reducing the load on the boiler plant [4]. In our nanogrid analogy, CHP is most similar to baseload power on the grid – traditional thermal resources like coal, nuclear, and natural gas. As is the case with many of these power plants, CHP plants are most efficient when operating continuously near full utilization.

CHP can be sized according to either the electrical or thermal loads of a building; however, the electrical efficiency of the machine is much more sensitive to utilization levels than the thermal efficiency. For example, one study found that electrical efficiency was four times greater at 100% vs 10% utilization, whereas the thermal efficiency only had a 4% difference across the same output levels [2]. Because of this, CHP is best designed to meet the baseline electrical demand of a building.

rooftop solar panels

Figure 1. Solar PV has seen drastic reductions in cost and is a key component of nanogrids.

Solar Photovoltaics

Solar PV costs have dropped dramatically over the past several years [6], supported by strong policy at the federal and state levels. Distributed PV systems, typically installed on building rooftops, convert sunlight into electricity, providing an excellent means for consumers to generate clean, renewable energy on site and reduce electricity bills. The output of these systems is greatest when the sun is at its peak, meaning energy production is not much different than a building’s load profile throughout the day. For this reason, solar PV on the building nanogrid is most analogous to flexible generation assets on the larger grid.

Available roof space and sun access are often the limiting factors in PV system size and production, but a PV system optimized to operate alongside a CHP plant would be sized according to the daily variable loads of a building. Although excess PV generation can be fed back to the grid, CHP greater than 10 kW (residential scale) is not eligible for net metering [8]. This means that without complex controls, the building nanogrid cannot feed power back to the main grid, requiring curtailment of CHP electricity generation and reducing overall efficiency of the nanogrid. Preventing this starts at sizing both the CHP plant and PV system appropriately for baseload and variable energy demand, respectively.

Figure displaying how battery storage can drastically alter a building's load profile and optimize nanogrid performance.

Figure 2. When paired with appropriate software, battery storage can combine multiple services to drastically alter a building’s load profile and optimize nanogrid performance [5].

Battery Energy Storage and Energy Management Software

Battery energy storage is another technology that is seeing significant cost reductions and is expected to play a larger role on the grid of the future. At the building level, storage can provide a number of services, including load shifting of solar PV generation to better match the variable demand profile, participation in demand management and/or response programs, back-up power, and much more. When paired with sophisticated software, multiple battery services can be stacked to combine revenue streams and improve the economic outlook of the system [5]. Therefore, battery systems and energy management software are essential to ensuring optimal performance of the nanogrid, acting as the central command hub of the building’s energy resources. By firming and shifting the PV output to match variable demand, and providing additional capacity for storing energy, a battery system can help the PV system reduce demand and keep a CHP plant operating at full utilization.



The REV initiative’s Value of Distributed Energy Resources (VDER) program is intended to be the next step beyond simple net metering, providing market-based incentives for deploying DERs that are beneficial to both consumers and utilities. The program is currently accepting proposed market structure plans from utilities and comments from the public, and the final rulings are expected to be made relatively soon, ideally leading to significant growth in DER development across the state.

Building nanogrids, comprising multiple DERs including PV, CHP, and storage, are exactly the type of systems that New York is hoping to encourage through the VDER program. Understanding both the policy and technological implications of the interactions between these various resources is essential for achieving optimal performance. When sized and configured properly based on the whole building’s energy needs, the nanogrid can perform at a better efficiency and provide more value than its components would independently.


Works Cited

1. Asmus, Pete. “Nanogrids Versus Microgrids: Energy Storage A Winner In Both Cases.” Forbes, 26 Oct.

2. Chen, X.p., et al. “A Domestic CHP System with Hybrid Electrical Energy Storage.” Energy and Buildings,
vol. 55, 2012, pp. 361–368., doi:10.1016/j.enbuild.2012.08.019.

3. Derewonko, P., and J. M. Pearce. “Optimizing Design of Household Scale Hybrid Solar Photovoltaic +
Combined Heat and Power Systems for Ontario.” NSERC Canada.

4. Erikson, J. David. “CHP – A Foundation for Microgrids: Implications of CHP Deployment for Microgrid
Implementation in California”. California Energy Commission CHP Workshop.

5. Fitzgerald, Garrett, et al. “The Economics of Battery Energy Storage: How Multi-Use, Customer-Sited
Batteries Deliver the Most Services and Value to Customers and the Grid”. Rocky Mountain Institute, October 2015,

6. Fu, Ran, et al. “U.S. Solar Photovoltaic System Cost Benchmark: Q1 2016”. National Renewable Energy
Laboratory, September 2016,

7. Hebner, Robert. “Nanogrids, Microgrids, and Big Data: The Future of the Power Grid.” IEEE Spectrum:
Technology, Engineering, and Science News, 31 Mar. 2017,

8. Shrestha, Achyut. “Net Metering.” Database of State Incentives for Renewables & Efficiency, 8 Apr. 2017,

9. Teleke, Sercan. “Nanogrids with Energy Storage for Future Electricity Grids.” IEEE-PES.


By Eric Wallace, Energy Engineer

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