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Nanogrids: A Whole-Building Approach to Distributed Energy Resources

By Eric Wallace

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 to not only to combat climate change through reduced carbon emissions, but also to increase grid resiliency and reliability. This is needed not only in the state of New York, but across the northeastern US as climate change leads to a greater frequency of extreme weather events like Hurricane Sandy.

While all can 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 comparable to the grid as a whole. Whereas communities are being developed into microgrids, a building can act as a standalone nanogrid.

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

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.

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. [Alternatives exist to fossil fuels – ed.] 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.

The downside to CHP, of course, is that it burns fossil fuels and therefore emits carbon dioxide. And while it is possible to burn biofuels for CHP, units that run on natural gas and/or diesel are far more common. There are, however, a few mitigating factors for these emissions. Firstly, because the waste heat of the CHP plant is captured and used to heat water, some of the emissions are offset by a reduction in emissions from the boiler. Additionally, although a natural gas CHP plant emits more CO2 per unit energy than a combined cycle natural gas plant, some of this efficiency loss is offset because the energy is being produced at the point of use and therefore bypasses any losses in transmission and distribution. Lastly, the impact of a CHP plant on overall emissions will depend on the regional energy mix; a natural gas CHP plant could result in a net reduction of greenhouse gas emissions if installed somewhere with a high percentage of coal power, but would likely increase emissions somewhere that relies primarily on natural gas, nuclear, and/or renewables.

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.

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].

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].

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].


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. The results of this initiative could have an impact on the deployment of DERs across the country, particularly in areas like the northeast where grid resiliency will become more and more important as the effects of climate change are felt.

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.2015,
  1. 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.
  1. Derewonko, P., and J. M. Pearce. “Optimizing Design of Household Scale Hybrid Solar Photovoltaic + Combined Heat and Power Systems for Ontario.” NSERC Canada.
  1. Erikson, J. David. “CHP – A Foundation for Microgrids: Implications of CHP Deployment for Microgrid Implementation in California.” California Energy Commission CHP Workshop. 14_workshop/presentations/08_CHP_A_Foundation_for_Microgrids_Dave_Erickson_and_Jim_Reilly.pdf.
  1. 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,
  1. Fu, Ran, et al. “U.S. Solar Photovoltaic System Cost Benchmark: Q1 2016”. National Renewable Energy Laboratory, September 2016,
  1. Hebner, Robert. “Nanogrids, Microgrids, and Big Data: The Future of the Power Grid.” IEEE Spectrum: Technology, Engineering, and Science News, 31 Mar. 2017,
  1. Shrestha, Achyut. “Net Metering.” Database of State Incentives for Renewables & Efficiency, 8 Apr. 2017,
  1. Teleke, Sercan. “Nanogrids with Energy Storage for Future Electricity Grids.” IEEE-PES.

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