Understanding the Energy-as-a-Service Model for Microgrids

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Although introduced only a few years ago, the energy-as-a-service model for microgrids is growing quickly. Already, nearly one-quarter of microgrids use the agreements.

Energy-as-service agreements operate under the premise that risk should not be placed upon the microgrid host. Beyond that, they can be highly customized to the host’s energy need, goals, local regulation, and available energy resources. In fact, a key to successfully implementing the model is understanding clients’ needs, desires, goals and energy objectives.

An energy-as-a-service model can be applied to a microgrid that is large or small, simple or complex. The host may require only electricity or both electricity and thermal energy.

In addition, some of the existing electrical equipment may need to be replaced or may no longer meet code. These can all be addressed within the EaaS.

The host might already have energy infrastructure — such as solar panels or back-up generators — on site and may want to incorporate them into the microgrid. Or microgrid design may start fresh.

Either way the energy industry team will consider the host’s energy demand, operational needs and long and short-term goals in designing the microgrid. A university with a zero-carbon commitment, for example, may want to include renewable energy in the microgrid. A manufacturer that uses thermal energy in production may benefit from combined heat and power.

Almost all facilities achieve cost and environmental benefits from energy efficiency and building optimization. So that’s often a starting point for microgrid development. By reducing a facility’s energy use, the energy team immediately lowers the host’s costs and designs a microgrid that is the right size for the facility.

Source: Navigant

Microgrid construction is flexible — no need exists to build the project all at once; it may be staged over time. If the host expands its operation at a later date — perhaps a business park adds more buildings—new microgrid capacity can be added. This flexibility also allows the microgrid to incorporate new technologies. As improved components come into play, the microgrid can be updated.

Contracts for energy-as-a-service

The energy-as-a-service model operates like a power purchase agreement. The host makes payments as recurring, short-term operating expenses, not long-term capital expenditures. Host payments to the owner continue as long as electrical services are rendered, with the length of services specified in the contract.

This is similar to the way the host would contract with the utility for electricity. But in this case, the host instead contracts with a third-party microgrid services provider for a specified set of energy services. The services are typically paid monthly but can be arranged under different terms. The payments also have flexible structuring arrangements. Depending on the needs of the customers, EaaS payments can be in a traditional delivery model (kWh) or a flat-rate subscription model, much like a phone plan. The agreement can span in duration from a one-year recurring term, with or without specific options to renew, to longer terms of 20 years or more. Guarantees are written into the contract ensuring that the host will continue to receive power if the central grid fails.

Most microgrids in North America are connected to the central utility grid. This allows the host to receive power from the microgrid or from the utility — whichever is most advantageous at any given time.

For example, the host will take electricity from the microgrid when the central grid experiences a power outage. Or it may rely on microgrid output if the grid is under strain, such as during summer afternoons when power prices rise. At other times, if allowed, the microgrid owner sells the microgrid’s idle capacity to the local utility or wholesale market.

Source: Schneider Electric

Microgrids as valuable partners

EaaS agreements can designate that the monthly service fees be performance-based, another attractive benefit to the host. As such, the payments are influenced by pre-established performance indicators agreed upon with the EaaS provider. Hence, EaaS contracts can be highly customized to include the host’s needs and concerns for reliability and other issues.

Further, EaaS agreements can be structured so that the host participates in any additional revenue opportunities that result from the microgrid.

Microgrids enhance the reliability and cost-effectiveness of electric power for communities, organizations and businesses. As microgrid financing tools become more sophisticated, the number and style of opportunities for microgrid development increase.

Microgrids are no longer just seen as a tool to provide reliable power to critical facilities during blackouts. They are increasingly seen as valuable partners — from the utility to the home — in the drive to produce dependable, affordable and flexible electricity customized to suit diverse demands. Now, by incorporating EaaS, these microgrid benefits have become available to a broader range of businesses and institutions.

To see how all this comes together in practice, we will look at real world microgrid project development and operations in the sixth, and final, chapter of this report.

Report series courtesy of Schneider

Catch up on the first three articles in the series below:

• Microgrid Drivers and Obstructions: What’s Moving the Dial on the Market?
• Four Megatrends Changing Energy Decision-making & Opening the Door to Microgrids
• Securing Microgrid Benefits without the Risk

For more on Energy-as-a-Service Model microgrids, see the full special report, “The Financial Decision-Makers Guide to Energy-as-a-Service Microgrids,” courtesy of Schneider Electric, downloadable free of charge.