This article explores key questions about microgrids and is written for those beginning the microgrid journey. It is part of Microgrid Knowledge’s About Microgrids series.
When Peter Asmus began helping three communities create community microgrids in California, a number of challenges cropped up.
First of all, proponents of the microgrids were idealistic and enthusiastic. But they weren’t very aware of the issues that could bog them down.
“What’s interesting about community microgrids: They have the broadest public support and are the most difficult microgrids to implement,” said Asmus, executive director of Alaska Microgrid Group.
The community members often don’t know how electricity works. They don’t know the rules that affect microgrids, such as the over-the-fence-rule, which makes it difficult to transfer power over a public right of way or street. And, as the number of stakeholders increases, so does the complexity of the project. People have different visions of what they’d like to see in a microgrid, said Asmus.
Like communities, companies pursuing microgrids also face challenges. Often, they’re not sure what they want in a microgrid. They often fail to plan for future technology or to view projects from a holistic standpoint, said Alok Singhania, a partner at Gridscape Solutions.
“Ninety percent of people we talk to have a vague idea of what a microgrid is, and 100% don’t understand what they [microgrids] do,” said Singhania.
To help companies and communities better plan, we’ve prepared this list of six key questions about microgrids.
Six key questions about microgrids to ask before you get started
1. What are your strategic goals for the microgrid?
Some organizations or potential users want 100% renewable energy. Some desire resiliency during outages. Others might be interested in reaping income by participating in energy markets. Or perhaps they’re looking for a combination of all these factors.
“That will determine how you want to pursue it and how you want to do it,” said Singhania.
2. What are the community or building consumption patterns?
It’s important to understand how your company or community uses energy and when peak demand occurs. How does demand change throughout the day and throughout the seasons?
“People need to understand consumption,” said Asmus. “How much do we pay for electricity and how does it change from summer to winter?”
3. How will you finance the project?
Communities and companies often assume that microgrids are too expensive. They fail to look into available financing or incentives. Some states offer incentives — such as California’s Self-Generation Incentive Program — which can help pay for a project. California also offers incentives to build microgrids in low-income communities disproportionately affected by climate change. Potential microgrid users should understand that numerous financing options are available. Companies and communities have the option of signing energy-as-a-service deals under which they pay little or no upfront costs. This is a good idea for capital-constrained businesses. A third party or microgrid developer owns and operates the microgrid and charges the customer per kWh, in much the same way a utility charges its customers.
Companies and communities can also seek out investors. For example, Georgia-based Solar Tyme USA is looking to fund the construction of a solar microgrid and solar power plant in Sierra Leone. The solar installation and development company hopes to raise $1.75 million in either debt or equity financing for the project.
4. How important is resilience and what are you willing to pay for it?
“A microgrid in many instances [but not all] will be providing a higher level of resiliency and reliability, but my experience is that users are not willing to pay significantly more for reliability,” said Fred Fastiggi, principal and managing director at Shoreline Energy Advisors. “They view it as a new and improved feature like adding whitener to a fluoride toothpaste, but they expect to pay the same price as they paid for toothpaste without whitener.”
It’s important to compare the microgrid’s cost per kWh to that of the incumbent supplier. Is it worth the extra cost if there’s a premium for reliability?
The most cost-effective solution might not provide enough resiliency. Or a high level of resiliency may be too expensive, said Singhania. Potential microgrid customers need to know what they’re willing to pay for resiliency.
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It’s also a good idea to identify how many hours of resilience are needed, said John Igo, vice president of business development for Mainspring Energy.
Are several hours enough, or does the company or community need days and weeks of resilience? You may want to look into multiple fuel options, in case one type of fuel supply gets disrupted during an outage or there’s fuel cost and supply volatility.
5. What technologies will be included in the microgrid?
Communities and businesses pursuing microgrids need to keep in mind that technology will likely change over the life of the microgrid. They need to future-proof the project. It’s critical to ensure the project can change over time to incorporate new technologies, according to Singhania. For example, potential microgrid users should identify an electric vehicle (EV) strategy. At first, EV charging could be included in a microgrid. But, over time, that will likely evolve to include EVs that provide vehicle-to-grid options.
You should be power agnostic, said Singhania. You may start with solar, but 10 years later you may want to integrate new technology. Be sure to take a holistic view.
“With distributed energy, there’s going to be new revenue sources to participate in the market. If you take only a piecemeal approach, you are leaving money on the table,” said Singhania.
6. How will the fuel for the distributed resources be purchased?
Users should want to have some control over the fuel component of the power cost. They may want to make their own purchases, rather than leaving it up to a microgrid operator, said Fastiggi. “A user should analyze and understand all pricing formulas that determine what they pay for microgrid power. This would include fuel, operations and maintenance, utility standby or other charges, credits for thermal production in the case of cogeneration or credits related to environmental benefits,” he said.
Asking the right questions and educating yourself, your company or your community will lead to the most successful projects, said Asmus.
“For community microgrids, a lot of this is education,” he said. “You have to be patient.”
This article, Key Questions to Ask about Microgrids before you Get Started, is part of our About Microgrids Series. Get the basics about microgrids by exploring this series.