Microgrid economics is determined by a mix of costs and revenue factors, according to a panel of experts at the Microgrid 2021 conference who explained how to think about making the financials work on what can be complex projects.
“The use of financial resources to make these projects go is always a paramount concern for developing the projects, buying the projects, operating them,” said Ken Horne, director of energy, sustainability and infrastructure at Guidehouse, a consulting firm, and the panel’s moderator.
Factors affecting a microgrid’s returns
One of the issues affecting a project’s return centers on the types of technology that are used, according to Zachary Bradford, CleanSpark CEO.
Microgrid systems need to be “future proof” with hardware that communicates effectively in standard formats so it can function in a changing environment, Bradford said during the discussion “Crunching the Numbers on Microgrids” on May 18.
“If the utility changes your rate structure, it can move with it,” Bradford said. “The cheese can get moved by utilities in a variety of ways, and you need to be able to move with it.”
Load management can also affect a project’s potential return, according to Peter Lilienthal, global microgrid lead for UL’s Homer Energy, which designs software for microgrids and distributed generation.
Energy efficiency can improve returns, but distinguishing critical loads from noncritical loads can also help downsize the project and improve returns, Lilienthal said.
Microgrids often have flexible loads, such as water pumping, he said. Looking ahead, electric vehicles have the potential to add a lot of flexibility to a microgrid, potentially reducing the size of the battery that’s needed. That flexibility “can be hugely valuable,” Lilienthal said.
Grid resilience can provide qualitative benefits, according to the panelists.
EDF Renewables begins its analysis of resilience benefits by looking at how a microgrid’s generation and battery systems can save money when connected to the grid, a factor that will change depending on geography and a utility’s tariff, said Michael Robinson, the company’s associate director for microgrids.
Watch this and other Microgrid 2021 discussions on replay free-of-charge through June 3 by registering here.
Then EDF looks at how a microgrid can reduce backup generator runtimes during a power outage, leading to fuel savings, reduced operations and maintenance costs as well as a drop in greenhouse gas emissions, he said.
A microgrid could also prevent the loss of products while maintaining continuity of business operations, according to Robinson.
Thomas Hawes, S&C Electric business development director, said higher upfront capital costs can sometimes lead to lower ownership costs.
“You look at the efficiency of the unit, how long the asset will last, the operations and maintenance — so you can really drive down the total cost of ownership sometimes with the higher capital cost,” Hawes said.
More expensive equipment may make it possible to earn revenue in power markets, lowering the overall cost, he said.
Finding the right location
When thinking about a good environment for microgrids, high electricity prices is a good starting point, according to Rob Hong, Sapling Financial Consultants CEO.
Also, it helps if there are lots of demand response programs the microgrid can participate in as well as opportunities to sell ancillary services to the grid or net metering, he said.
State financial incentives, such as for combined heat and power, can boost a project’s business case, Hong said. Favorable general conditions like good sun or wind also help create a good place for a microgrid, he added.
With behind-the-meter systems, EDF Renewables looks for areas with high energy costs where utility bills can be lowered during regular grid connected operations, according to Robinson.
And from a resiliency point of view, ideal locations are in areas that experience regular power outages, and potential customers are ones that are very sensitive to power quality and the loss of power, Robinson said.
Thomas Hawes, S&C; Ken Horne, Guidehouse; Zachary Bradford, CleanSpark; Peter Lilienthal, Homer Energy; Rob Hong, Sapling; Michael Robinson, EDF
Defining the value of resiliency
One of the benefits microgrids can offer is diversified fuel sources, especially for renewable microgrids, EDF’s Robinson said.
Resiliency can also be measured in the value of not having power outages, he said.
“If you’re looking to cover an outage for weeks, it’s going to be a very different calculation than if you’re looking to cover an outage for an hour or two while your facility shuts down,” he said.
Emerging microgrid customer classes
“Ideally, you want the customer to write a check for nothing, keep their operating expenses at or below where they are and have increased reliability, integrate renewables and have a better commodity portfolio for energy.” — Thomas Hawes, S&C
There are new types of microgrid customers to go along with stalwarts like data centers and utilities, according to the panelists.
Momentary power outages, which can occur monthly, can cost sophisticated distribution centers more than $100,000 per outage, according to S&C’s Hawes.
“With packages going one per second through a warehouse getting scanned, it’s very, very sensitive technology,” he said.
Indoor hydroponic farms, which can be a million square feet with a 10-MW lighting load, can see their crops destroyed by a power outage, Hawes said, noting that an indoor farm can also use carbon dioxide from a microgrid running on a combined heat and power unit.
Teaching customers about microgrid economics
“The whole idea is basically showing how you’re going to save them money or make them money.” — Rob Hong, Sapling
When showing a customer the benefits of a microgrid, Sapling Financial Consultants starts with the customer’s bill and energy use data, according to Sapling’s Hong. Then the company adjusts the data to show how shifting load using a microgrid might affect the bill or what the opportunities look like from selling electricity into the market, he said.
“We’re going to show the impacts of no longer thinking about or worrying about electricity and trying to shave that cost down as much as possible,” Hong said. “The whole idea is basically showing how you’re going to save them money or make them money.”
Some of the most important decisions in designing a microgrid include figuring out the length of power outage a customer can endure, according to S&C’s Hawes.
The other part is understanding financial structuring, incentives, rebates, grants and programs as well as market interaction to make a project work financially, he said.
“Ideally, you want the customer to write a check for nothing, keep their operating expenses at or below where they are and have increased reliability, integrate renewables and have a better commodity portfolio for energy,” Hawes said.
Underrated states for microgrids
Issues like utility tariffs, state regulation, weather, end use and competition all affect the attractiveness of states for microgrids, according to Horne, who asked the panel if there were any unexpected states that might be attractive for investment.
Bradford and Robinson said Florida, Hong selected Vermont, and Hawes tapped Pennsylvania.
Lilienthal was a booster for Alaska.
“There’s 200 utilities there that are burning diesel 24×7, and they’ve got experience with renewable microgrids, but they need more,” Lilienthal said. “There’s already a fair amount of activity.”
Microgrid 2021 runs through June 3, with upcoming sessions on microgrids and sustainability, remote microgrids and future technology.
