Microgrids are moving from niche resilience projects to mainstream business infrastructure as companies confront mounting pressure from extreme weather, aging electricity networks and soaring power demand from AI and data centers.
This shift is creating a new category of risk that blends traditional property exposures with emerging technologies and evolving business interruption concerns.
The trend comes as utilities and large power users race to strengthen grid resilience. US microgrid capacity was expected to reach around 10 gigawatts by the end of 2025, according to the US Department of Energy - more than double the 4.4 GW installed across 692 sites at the end of 2022, according to the Center for Climate and Energy Solutions.
Growth is being fueled by data center expansion, longer waits for grid connections, and increasing concern over weather-related outages.
Paul Brown (pictured), managing partner at The Baldwin Group, believes the changing nature of weather risk is one of the biggest drivers.
"We are seeing some extremes, but we're also seeing the weather move," Brown said. "It's not just that the weather is becoming more extreme, it's also appearing in places that aren't prepared."
He pointed to regions east of traditional Tornado Alley, including Arkansas, Tennessee and Alabama, where communities and infrastructure have historically faced fewer severe convective storms. He drew a comparison with the renewable energy sector, where moving solar assets into hail-prone parts of Texas exposed developers to a hazard the industry had underestimated.
"As the climate continues to evolve, people need to think about what could be next for infrastructure needs, not just what has historically happened," Brown said. "We got caught in that trap when we expanded into renewables in certain hazard-prone areas. We simply didn't appreciate the hazards we were building into."
While power generation facilities themselves have generally become more resilient, Brown said the greater vulnerability lies elsewhere.
"The power generation assets themselves generally perform well through hurricanes and earthquakes," he said. "Transmission and distribution networks are much more exposed because they're largely above ground and they're aging."
Population growth across the Sun Belt is further increasing strain on those systems. When something goes wrong in a fast-growing region such as South Texas, Brown noted, it now affects far more people than it would have a decade ago. Combined with the explosive growth of AI infrastructure, many regions are beginning to question whether existing grid capacity can keep pace.
When asked whether AI is creating new capacity deficits, Brown said: “I think it does, regionally. These facilities are enormous users of electricity. As all of us integrate AI and digital technologies into our businesses and daily lives, we're consuming more and more electricity."
Rather than relying solely on public utilities, many hyperscale operators are increasingly investing in dedicated generation or behind-the-meter power systems. Brown said some projects are being designed to initially serve data centers before eventually supplying excess electricity back to the grid.
His team is working on one such project in the western US that will run behind the meter for a data center for several years before interconnecting with the local utility around 2031, at which point surplus power will flow onto the grid. "We're seeing collaborative solutions emerge," Brown said.
For many businesses, the growing concern is not simply whether electricity can be generated but whether it can reach facilities when needed. "If we can generate electricity but can't transport it where it's needed, that's where the problem lies," Brown said. "The pressure that puts on businesses and communities is really the contingent business interruption aspect."
That concern is accelerating investment in battery storage, rooftop solar, small-scale gas turbines and other distributed energy resources, aided by falling costs and better-performing storage technology.
"These technologies are beginning to converge into what we think of as microgrids," Brown said. "We're seeing companies bring those solutions to food processors, critical manufacturers and businesses that need to remain online 24/7."
Industry momentum reflects that trend. Utilities including PG&E have expanded community microgrid programs in California, while Texas lawmakers have approved a $1.8 billion fund supporting microgrids at critical infrastructure such as hospitals and water facilities.
Major technology companies including Google and Vantage Data Centers are also investing heavily in behind-the-meter generation to secure reliable power supplies.
Although insurers are broadly familiar with distributed generation, Brown said microgrids introduce more complex underwriting considerations because multiple technologies are often co-located alongside critical operations.
"Insurers generally view them as a co-location risk," he said. "If you have a small industrial turbine, battery storage and solar all operating together at one location, the underwriting question becomes: what business is that system supporting, and how closely integrated are they?"
Energy storage systems located within residential developments create additional concerns around human safety and fire exposure.
Rather than viewing microgrids negatively, insurers are evaluating how the surrounding property could affect the system and vice versa.
"Insurers look at what's adjacent to the microgrid, what technology is being used and what liabilities exist both ways – how surrounding risks could affect the microgrid and how the microgrid could affect neighboring properties," Brown said.
He added that the technology mix matters as much as the location. Some components like fuel cells draw more scrutiny than others such as solar, batteries or gas turbines, according to Brown. It is the kind of risk the sector already understands from refining and hospital settings, he said — the difference now is how many more locations, from warehouses to food processors, are adding on-site generation.
At the same time, insurance capacity continues to vary across the energy sector. Brown described transmission and distribution infrastructure as the weakest segment of today's market. However, he noted that exposure is often absorbed through regulated utility structures and varies sharply by state, from hurricanes in Florida to earthquake risk in California.
Conventional generation, meanwhile, remains resilient, and energy storage has held up better than many expected in hurricanes, floods and windstorms.
Solar remains the area insurers watch most closely. Brown said industry studies continue to show that a significant share of renewable energy claims stem from solar and convective storms, even as module design, glass thickness and stow technology have improved. Projects built during the rapid 2019-to-2021 expansion, which sometimes lack those resiliency features, continue to struggle.
Newer, well-engineered projects are faring better. "Fortunately, we're beginning to see some pricing relief," he said. "Through the first half of the year we've been able to secure somewhat broader coverage and more favorable terms for well-designed projects with strong risk management protocols."
As businesses increasingly invest in on-site power to improve resilience, insurers are likely to treat microgrids less as specialist energy risks and more as an integral component of commercial property underwriting. The challenge will be balancing the resilience benefits against the additional technology and fire exposures these systems introduce.
