Distributed generation sources form the concept of microgrid. If the microgrid is not isolated in the rural area, it is the smaller networks within the main grid. One of the purposes of the microgrid is to provide uninterrupted energy to consumer loads.

A microgrid can consist of a combination of fossil fuel generation, renewable energy sources and energy storage systems, as well as electric vehicle charge/discharge structure and consumer loads. The use of renewable energy sources is important for a microgrid. A microgrid containing distributed generation can be connected to the main grid. The feature of the microgrid is that when it is separated from the main distribution network for some reason, it can make islanding, that is, it can work in island mode. Considering this feature, the microgrid operates in island mode(off-grid) or on-grid.

In cases where generation is sufficient for consumption, the microgrid can operate in island mode stably. In case of under generation, it will be connected to the main grid, in case of over generation, energy storage or the main grid connection will be required.

The energy storage system acts as a standby backup in the microgrid. The microgrid is not expected to be in continuous operation like the main grid. According to the imbalance of the load, the generation sources in the microgrid are either sufficient or not. In the microgrid it may be necessary to disconnect the loads. In this case, non-critical loads in the microgrid can be phased out for supply-demand balance.

From the main grid side, the microgrid is just a controllable load. The main grid can disconnect the microgrid when needed. When the main grid needs the generation resource, the microgrid can be connected by the main grid.

A traditional grid or a large grid can become a smart grid. There may not be an alternative energy source in the smart grid. Microgrid is an application of smart grid.