Microgrid Costs: What Accelerates and What Inhibits a Microgrid Project?

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Tom Poteet, vice president of corporate development at Mesa Solutions, explores how microgrid costs can both drive and inhibit microgrid projects.

Mesa Solutions

Tom Poteet, vice president of corporate development at Mesa Solutions Source: Mesa Solutions

People usually focus first on the questions of what is a microgrid, what does it do, and what does it cost? Here’s a much better first thought: “Yes, we could get a microgrid, but why would we want one?” The answer to that second question varies more than you might think. The reason it varies is because every site and every power consumer is slightly different.

To get to “why,” a potential microgrid champion might have any of a variety of goals in focus:

—We need a power solution that is routinely more reliable than standard utility service.

—Our function is so critical that we require a resilient standby solution just in case our otherwise reliable utility service does go down.

—Utility demand charges are our most important expense to mitigate.

—We want to take advantage of the incentives offered by our deregulated power market.

—We want to utilize renewable resources.

We want all of the above.

microgrid project

Source: AdobeStock, courtesy of Mesa Solutions

So, you’ve looked at the categories above and figured out where you are on the power requirements spectrum. Now you must think about the posture of your organization with regard to these issues:

  • Do we have capital that we want to spend upfront for a new power solution?
  • How much risk are we comfortable with to obtain a potential reward?
  • What length of contract would we agree to?
  • Are we willing to allow our load to be controlled to achieve maximum optimization?
  • Does our interest in renewables transcend economic considerations?

You may be asking yourself, “Why can’t this be simple? Aren’t microgrids supposed to be plug and play by now?” The answer is, well, sort of. Generation sources, energy storage elements and control systems are much more communicative with each other than they were five years ago, but that’s not the same as knowing what mix of resources is just right for your unique requirements. You still need a human to help figure that out. Once you have fairly clear thoughts on the issues above, then you can start evaluating specific cost options. It’s important to work with a knowledgeable partner/provider to get to the right mix.

Here at Mesa Solutions, we field a lot of inquiries about solar, so let’s start with that. Even though the manufacturing costs of solar material and panels continue to decline (supply shortages notwithstanding), the cost of an installed array of ground based panels is still around $2,000 per kilowatt in many parts of the contiguous United States. A good designer can take your specific location and calculate an estimate of the amount of kilowatt hours you can expect on an annual basis from such an array, at which point a cost/benefit discussion can occur. Interestingly, sometimes customers will say something to the effect of “provide the firm power solution I need and then spend $X from my ESG budget for solar panels.” Our team always shows them the economics, which, in addition to the microgrid elements, also depend on the cost of fuel and the cost of utility power at their location.

Natural gas generators can be purchased for around $700 to $1,000 per kilowatt, free on board (FOB) USA. Rental costs vary widely and are a function of the number of annual hours of planned runtime, maintenance requirements, and telemetry and remote control features.

microgrid costs

Source: AdobeStock, courtesy of Mesa Solutions

Microgrid controller cost is, among other things, a function of how many elements you need to control. For up to 30 elements, controllers generally cost in the range of $50,000 to $90,000. Costs go up from there and can reach an order of magnitude of $500,000. For many common scenarios, it may be possible to control the microgrid with only the generator controller, so that’s an important question to resolve early.

Battery costs vary depending on current discharge rates, i.e., normal or rapid, and the desired length of discharge coverage time. But a good budgetary number to keep in mind is $300 to $400 per kilowatt for an hour of normal discharge time.

The way that all these costs can be bundled is a conversation all on its own. The most typical arrangement is one that looks like a no-capital-upfront lease agreement that covers the cost of all the installed equipment plus ongoing maintenance and data services. Often, those contracts are referred to as “microgrid as a service.”

If your organization is considering a microgrid — and you have the means — it is a great idea to visit a microgrid site and see one in action. But if you can’t go see a microgrid, at least make sure that you work with partners who understand your requirements and care about gaining your trust.

Tom Poteet is vice president of corporate development at Mesa Solutions, a power solutions company. Mesa specializes in the manufacturing, sales, leasing and operations of natural gas and liquid propane-powered mobile and stationary generator sets and microgrids.

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  1. As battery plants ( Giga plants ) are built to push out the cost effective adoption of electric ‘transportation’ around the World the ancillary large scale use of energy storage in the residential, C&I and community CCA micro-grids will bring costs down to the point of one’s home solar PV plus smart energy storage system can be configured as a 12kW nominal and 20kW surge home system with a large solar PV array of 20 to 30kWp and anywhere from 60kWh to 150kWh energy storage. With the ability of smart circuit breaker panels and controllers, one can configure a home resiliency system that can power the home most of the time and become grid agnostic.

    Prices for utility scale energy storage systems installed are like pulling hens teeth. A few articles have suggested that these very large scale energy storage projects like Moss Landing in Monterey CA, was around $359/kWh installed for all of the TESLA Megapacks needed to fulfill 400MW/ 1,200MWh of final build out of this project. The Elkhorn project just down the road from Moss Landing is said to be a build out of 1,500MW/6,000MWh to be online by 2025. We know that in 2010 and 2011 the cost for Lithium Ion energy storage in the utility scale was running at $1,100/kWh for battery cells alone. Now there is CATL that claims they can make battery packs for around $87/kWh, going that extra few (inches) to assemble a smart inverter/charger, electrical and battery cabinet with all of the appurtenances of BMS, perhaps temperature control as well as charge/discharge control and fire suppression in one micro-grid unit could be had at the residential cost of $350/kWh installed for relatively large systems. This will change the way residential adopters, small business concerns and C&I entities look at their overhead energy costs and the best way to handle these costs from then on.

    IF just half of the predictions of battery chemistries, costs and energy density are true, by 2025, then utilities are in for a very rude awakening as the rote utility becomes agnostic backup for distributed micro-grids across the U.S..

  2. Rob Blatecky says:

    Good info except cost of equipment and installing 1MW of solar is now ~$1000/kW, not $2000/kW. Curious too what system size and install costs details make up your natural gas generator estimate of $700-1000/kW.