The software company OATI's new digs near the intersection of Interstate 494 and Hwy. 100 in Bloomington are rather unremarkable from the outside. Only the word "Microgrid" emblazoned on one side gives a clue to what's inside.

The building's power systems are part of an upheaval in the electricity world. OATI, which sells software to energy companies and runs data centers, has built a microgrid in Bloomington, one of the first in the Midwest.

The microgrid is a self-contained power plant. OATI will produce energy for all of the Bloomington building's needs, from keeping the lights on to cooling row after row of servers.

The building is connected to the overall electrical grid, and can still draw power from Xcel Energy, the region's dominant electricity supplier. But OATI's microgrid will have the ability to "island." If a storm ravages the grid around it, OATI will still be churning out electricity.

"We're a data center company," said Dave Heim, OATI's chief strategy officer. "We need resiliency the utility can't give us. They can't promise 100 percent power all of the time and we can't expect them to. And there's massive costs involved with an outage."

Microgrids are part of a growing trend toward "distributed energy," power that's produced independent of a traditional utility. Distributed energy is used by its producer, but is sometimes also sold to a utility and put back onto the general grid. In other words, electricity flows two ways, not one.

Solar installations — from rooftop arrays to community solar gardens — are the most popular form of distributed energy. Microgrids are a considerably smaller phenomenon, but they are growing.

Growing option

About 1.65 gigawatts of microgrid capacity was online in 2016's third quarter, a number expected to increase to 4.3 gigawatts by 2020, according to GTM Research, an energy market researcher. A gigawatt is 1 billion watts.

To put that in context, Xcel's massive coal generation plant in Becker, Minn., alone has a capacity of about 1.9 gigawatts. So, microgrids are indeed small-scale.

But they are critical for institutions with very low tolerances for power failures: high-tech companies, the military and universities. A major retooling of the University of Minnesota's energy systems is expected to create a microgrid by next spring.

"The main driver we see for microgrids is resilience," said Michael Burr, the Little Falls, Minn.-based director of the Microgrid Institute, a research and consulting firm.

Corporations and other institutions have produced some of their own power for decades. And microgrids have long produced electricity for remote places — think outback Alaska — that the overall power grid simply doesn't reach.

But OATI's microgrid in Bloomington — which could also be called a nanogrid because it's limited to one building — is a part of a new generation. The modern microgrid has better control technology: the ability to move on and off the grid seamlessly. And it often incorporates renewable power sources — at a time when companies and universities are demanding more green energy.

The cost of wind and solar equipment also has been falling sharply in recent years. The cost of battery technology has come down, too, though it still has a way to go.

OATI, which stands for Open Access Technology International, designed its Bloomington data center to be commercially viable as well as electrically reliable. "A lot of times, it costs less money to make your own power than to buy it," said Heim, the chief strategy officer.

The company said Bloomington is a "multimillion-dollar" project, but declined to specify its investment.

24 hours a day for OATI

OATI was created in 1995 by five former executives of Control Data's energy management division. Today, the company employs nearly 1,000, and while it won't divulge revenue, Inc. Magazine in its 2014 list of the fastest growing U.S. companies said OATI then had $67 million in sales.

The company specializes in "software as a service": It licenses software and then centrally hosts it on its own servers. The company provides all sorts of services for utilities and other energy companies, from helping to manage digital smart grids to tracking electricity as it speeds across the grid.

Currently, OATI has data centers at its northeast Minneapolis headquarters and in Plymouth. The latter will be replaced by the new 110,000-square-foot building in Bloomington.

At the heart of OATI's microgrid is a 600-kilowatt natural gas-fired micro turbine that fuels a system simultaneously creating electricity and thermal energy for heating and cooling.

The site has solar panels that can produce up to 180 kilowatts of power and wind turbines with a capacity of 24 kilowatts.

There's a 1,500-kilowatt backup diesel generator, too, a common last resort for power at hospitals and other large institutions. But at OATI, power will essentially be produced 24 hours a day; the microgrid isn't just a backup.

The setup should also help OATI's business: The company sells software into the microgrid market, so its Bloomington operation is effectively a demonstration site. "We're offering this as a kind of example," Heim said.

Universities: major players

Interest in microgrids has been highest in California and the Northeast, where power rates are higher than in the Midwest.

Hurricanes that have battered the East Coast in recent years also have played a part, said the Microgrid Institute's Burr.

The dayslong outages from Hurricane Sandy in 2012 spurred the creation of state-sponsored microgrid programs in Connecticut and New York, where the focus is on municipal microgrids.

During Hurricane Sandy, Princeton University's microgrid proved to be a successful model. The microgrid, which generates electricity from a natural gas turbine and solar panels, kept the juice flowing to critical buildings on the New Jersey campus.

The University of Minnesota is undergoing a major upgrade of its heating and cooling systems, a project that will make part of the campus a microgrid.

The $113 million undertaking, due to be completed in March, includes a combustion turbine able to generate 22.8 megawatts of electricity. Waste heat from the turbine generates steam for heating and cooling, the same process OATI is using in Bloomington — but on a much larger scale.

"The East Bank of the campus being served by this generating system is a microgrid," said Jerome Malmquist, the U's energy management director.

Unlike OATI, the U will use its microgrid more as a backup system. If the grid around it goes down, "we would definitely be able to hold up the hospitals and critical research labs on the East Bank," Malmquist said.

At the University of St. Thomas in St. Paul, engineering professor Greg Mowry is creating a microgrid on a much smaller scale. It's essentially a research project; engineering students will work on it. Components of the 250- to 500-kilowatt microgrid include biodiesel generators, solar panels and batteries.

Mowry said the three-year project will help determine the viability of a full-scale microgrid at St. Thomas.

Utilities come around

Xcel Energy, through its renewable energy fund, ponied up $2.1 million for the St. Thomas project. Minneapolis-based Xcel is working on a microgrid in a more direct way in Colorado: a $6.7 million demonstration project that uses solar and battery storage.

The microgrid will be used by Panasonic at its office in Denver, as well as to support Xcel's distribution grid.

Utilities have begun warming up to microgrids in the past few years, after first seeing them as a potential safety hazard and a competing source of power, analysts said.

Microgrids created by utilities can be cheaper than building new substations or transmission lines to bring in power from afar, analysts said. And microgrids created by third parties like OATI can actually help a utility better manage electricity flows on its grid.

"Is it a threat or is it complementary to a utility?" asked Burr of the Microgrid Institute. "It can be both, depending on where you sit."

Mike Hughlett • 612-673-7003