Using the Value of Resiliency to Support Financing a Multi-DER Microgrid

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Concord Engineering VP Michael Boswell explores the potential of the multi-DER microgrid, and the financing options making this strategy a viable option for today’s energy needs. 

Multi-DER Microgrid

Michael Boswell, vice president, distributed generation, Concord Engineering

Stepping into Mr. Peabody’s Wayback Machine from Rocky and Bullwinkle and then stepping out in the not too distant past, there was a time when PV Solar projects were considered difficult to finance.

Along comes this idea of a solar PPA, and lo and behold financing of solar becomes easy to understand, easy to price and easy to finance. To the financier and project owners, the solar PPA was a secured year-over-year revenue stream over a defined term and projects began to flow.

So, what does this have to do with a multi-DER microgrid? Much has been made of the “value stack” of a multi-DER microgrid. The revenues and economic benefits coming from multiple possible sources such as:

  • Direct power sales from easily understood DER like PV solar
  • Energy savings or energy services for CHP
  • Shared energy savings possibly
  • ISO level programs like spinning reserve, capacity
  • LDC programs such a demand response
  • Ancillary revenues from battery energy storage
  • Grid arbitrage

And then there is of course the ephemeral resiliency and what that may mean or how it may be valued — the valuation sometimes being implied or intuited but doesn’t necessarily result in a hard money revenue or benefit stream needed to pay for the invested capital.

All of this makes the accounting messy and adds risk and uncertainty to the “value stack.” In general, the higher the level of uncertainty over covering the nut as it were, manifests itself as something disagreeable like a higher the rate of risk adjusted return. To put it simply, hard contracted revenue streams like a PPA or thermal energy take or pay structures are less risky than potential revenues streams that may be regulatory or benefit based such as ancillary or capacity markets. The multi-DER microgrid needs more secured revenue streams. Kind of like the solar PPA.

So, what does all of this have to with resiliency? It is often said that a resilient microgrid is akin to an insurance policy. If so, it is fair to say that most insurance policies are not free. The insured entity with the cost of the insurance policy being derived from some actuarial gymnastics that consider the cost to the policy holder that would be incurred for the insured event.

Can resiliency be valued and somehow turned into secured revenue stream? Possibly. When a “resiliency capacity payment” is a component of the microgrid commercial arrangement, then resiliency can become a secured warrantable revenue stream. The payment is simply an agreement between the host and financer that resiliency is valued at some defined amount that shows up to the financer as secured revenue stream.

So, what does all of this have to with resiliency? It is often said that a resilient microgrid is akin to an insurance policy. If so, it is fair to say that most insurance policies are not free.

The value, or cost of the “resiliency capacity payment”, could be derived from the cost to the project host of disruption in grid energy and likelihood of the disrupting event or events. It could simply be an acceptance that the host values resiliency and is willing to pay for it— not unlike backup power generation.

Here’s a simple example to illustrate this concept: Assume a host has is susceptible to a grid outage in excess of one hour and that the host experiences a grid loss affecting operations once every two years. During that time the cost to the host is $ 250,000 per grid loss event. One can now value resiliency. Let’s say that an onsite multi-DER energy solution includes PV solar and CHP and with attendant power purchase agreements. But to tie it all together into a resilient island capable microgrid, we require additional capital expense for engineering, a controller, switching, relays, etc. How is additional cost financed? Through a “resiliency capacity payment” that covers the cost of the engineering and systems to make a resilient microgrid and spread out over the term of the project.

This is a brief and convenient simplification, but parsing the value of resiliency and converting it into a tangible benefit will go a long way to making microgrid financing as transparent as our old friend the solar PPA.

Michael Boswell is vice president, distributed generation at Concord Engineering.

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