Microgrid Costs, How to Lower Them and What They Mean for the Sector’s Growth

May 25, 2021
Factors like generation choice, battery size and interconnection upgrades affect microgrid costs, but there are ways to manage them so projects can move forward with satisfied customers, according to panelists at a Microgrid 2021 conference session called “Why Does a Microgrid Cost What It Costs?

Factors like generation choice, battery size and interconnection upgrades affect microgrid costs, but there are ways to manage them so projects can move forward with satisfied customers, according to panelists at a Microgrid 2021 conference session called “Why Does a Microgrid Cost What It Costs?”

A 2018 study by the National Renewable Energy Laboratory found that microgrids for commercial and industrial customers in the US cost about $4 million/MW, followed by campus/institution microgrids at $3.3 million/MW, utility microgrids at $2.5 million/MW and community microgrids at $2.1 million/MW, according to Peter Asmus, research director at consulting firm Guidehouse Insights. He is one of the report’s authors and the panel moderator.

Microgrid costs have fallen since the study was conducted, but the report’s findings still give a sense of what microgrids cost, Asmus said.

What drives microgrid costs?

Several factors affect the ultimate price of a microgrid, including how much generation and battery storage is used and whether upgrades need to be made to meet electrical safety codes, said panelist John Westerman, director of project development and engineering at Schneider Electric.

Decisions around the microgrid’s size may be driven by how long a facility needs to be islanded if there’s a power outage and exactly which operations need to keep running through the outage, he said.

Also, the choice of generation affects costs, Westerman said, noting that distributed renewable energy can be a more expensive choice.

Utility interconnection requirements can affect a project’s cost, too. “Once you put multiple generating resources behind the meter, the utility really gets involved and scrutinizes everything that you’re going to be doing,” Westerman said, noting additional studies can be required that must be planned for in a project’s budget.

Modularity can reduce costs

The panelists agreed that modular and standardized microgrids can drive down costs.

“There are ways to have prepackaged systems, and if vendors define what the attributes of that system look like so that it meets customer’s expectations, then there’s a solution there that will fit,” Westerman said.

Modular microgrids would work well for small critical facilities like fire stations, schools and shelters, he said.

Smart switch gear and a microgrid’s controls can be preconfigured before arriving on-site so 90% of all issues that arise during a system integration have already been addressed, according to Westerman.

Historically, microgrids used utility-scale technology that was downsized, making it more expensive per unit, according to Bruce Nordman, a research scientist at the Lawrence Berkeley National Laboratory.

“The future lies in making microgrid technology more modular, widespread and inexpensive so that people could ideally, at least for our residents, go to the store and buy some generation or buy some storage and bring it home and plug it in,” Nordman said.

How to meet global microgrid demand

The cost of installing microgrids is a critical issue, with the World Bank projecting that about 200,000 microgrids will be needed in emerging markets by 2030.

Roughly 800 million people do not have electricity, and 2.7 billion only have access to low levels of power, according to Manoj Sinha, CEO of Husk Power Systems, a company that develops solar-based nanogrids and microgrids in Africa and India.

Sinha called for “building from the bottom” to optimize microgrid design and lower the cost of equipment.

“If you do not have your costs below $2 million per megawatt, it is going to be too expensive for customers that we are trying to serve,” Sinha said.

The solution is to have a modular design, according to Sinha. Husk’s system is largely plug-and-play so that even a technician fresh out of college can install it in less than a couple of days, he said.

“That’s how simple we have to make the minigrids, at least in that emerging market that we operate in so that we can expand [quickly],” Sinha said.

In the US, there are many challenges to setting up multicustomer microgrids, including regulatory and legal issues, which makes them more expensive and unwieldy, according to Nordman.

A better approach is to create a single-customer microgrid and when distributed energy resource management systems become more sophisticated move to multicustomer microgrids, he said.

“That’s the principle of starting small and then scaling up,” Nordman said.

Making microgrids bankable

Capital needs to flow into microgrid markets so the global sector can grow quickly, according to Sinha.

About a dozen years ago when solar cost $5/W, it wasn’t bankable, which lead governments to step in with subsidies and supportive policies, he said.

Sinha said government incentives are becoming available in the minigrid and microgrid segment in emerging economies, but, ultimately, it is the cost of delivered energy that is going to make microgrids a bankable financial asset.

With solar prices down to less than 20 cents/W and lithium-ion batteries going below $200/kWh, it is possible to cost effectively deliver energy in the countries where Husk operates, according to Sinha.

Even so, microgrids aren’t yet appealing to banks, Sinha noted. However, development banks can provide capital and take on risk to get microgrids over the transition to becoming mainstream, he said.

Microgrid 2021 continues through June 3. Register for new sessions or to replay previous presentations at Microgrid 2021 free of charge through June 3. Microgrid 2021 is a virtual conference.

About the Author

Ethan Howland

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