How to Make Microgrid Economics Work: DistribuTECH

Feb. 2, 2017
Microgrids often are viewed as premium projects, nice to have but who can afford them? Turns out making microgrid economics work is increasingly possible.

Microgrids often are viewed as premium projects, nice to have but who can afford them? Turns out making microgrid economics work is increasingly possible. It’s a matter of ‘stacking value.’

That was one of the key messages from a panel on microgrids that drew a standing-room only crowd Tuesday at DistribuTECH, a major electric industry trade show in San Diego this week.

“If you ask customers, do they want a microgrid, everybody wants a microgrid, they just don’t want to pay for it,” said Tony Tewelis, director for distribution operations & maintenance at Arizona Public Service, to the audience of about 150 energy industry insiders.

The problem lies less in the cost of the microgrid and more in a lack of understanding about how to ‘pencil’ the project, according to several speakers.

“When you stack up all the values at some point it makes sense,” said Neeetika Sathe, vice president of corporate development and smart grid technologies at PowerStream, an Ontario utility that recently merged with Enersource and Horizon Utilities to become Alectra.

The stack of values will vary from facility to facility, hence the tendency for microgrids to be customized undertakings. As an early step in the , developers or utilities evaluate a facility for potential value stacks.

The potential values are many. The microgrid might avert outages, shave demand peaks, participate in demand response, avoid the need for construction of more expensive infrastructure, better manage on-site resources, use the heat byproduct from electric generation, reduce emissions, offset the intermittency of renewables, leverage energy market pricing, or tap into incentives.

Shiv Mani, a senior policy analyst for the Federal Energy Regulatory Commission, was incredulous when he first read about the economics of the microgrid at an HP Hood facility in Winchester, Virginia.

Google HP Hood and microgrid

“You can Google this — that will be the easiest way to find out — HP Hood and microgrid. I didn’t believe it when I read that there could be a microgrid that was economic and that would fund itself, essentially,” he said.

To verify, FERC staff invited the developer to their offices in Washington, D.C. to explain the project. “They went through their presentation. It is for real,” he said. “The math worked out.”

Reliability was important to the dairy facilities. Even a momentary outage forces the facility to cease production and sterilize equipment, a costly interruption. But it turned out that reliability wasn’t the ultimate economic driver. The microgrid penciled based on its ability to leverage transactions with the grid.

Meanwhile in Canada, PowerStream has quantified similar microgrids for customers. Sathe described a plastics business in Woodbridge, Ontario that must spend hours cleaning material that gets stuck in its machinery if a power outage disrupts operations.

“When they buy these highly automated machine systems, the OEMS don’t tell them how little tolerance it has to any kind of voltage sags,” she said.

Such disruptions can lead to lost orders and increases in the manufacturer’s insurance. So averting these losses represents one level of value. But that is the starting point, she said. More values can be stacked. For example, the plastics company has a mandate to increase sustainability. Adding solar to the microgrid can help the company achieve the goal. And the microgrid’s intelligence can manage the solar for maximum advantage to the plant.

Microgrid economics works particularly well for certain customers when the system includes combined heat and power (CHP). With CHP, microgrids for hospitals, nursing homes, and recreational community centers become “a marriage made in heaven,” Sathe said.

“It’s two for one. The facility gets electricity, puts the heat byproduct to good use, and achieves tremendous efficiencies,” she said “And given the natural gas spark spread, the economics of the solar and natural gas carries it through the rest of the microgrid components.”

Sathe also described a 20-home microgrid installed by PowerStream. The customers save money on their bills, gain on-site outage protection and “the bragging rights of doing the right thing for the planet.”

The utility system also gains value by aggregating the homes into a virtual power plant. “Think of them as minions running around; if you orchestrate that army of minions, you can get a virtual power plant that you can dispatch and use in a way that alleviates issues on the system side and generates value.”

Another benefit of microgrids made up of multiple homes  —  they are scalable. You can add a few at a time, without making a huge capital outlay, Sathe said.

Microgrid Knowledge is at DistribuTECH this week. Follow our coverage by subscribing to our free newsletter

About the Author

Elisa Wood | Editor-in-Chief

Elisa Wood is an award-winning writer and editor who specializes in the energy industry. She is chief editor and co-founder of Microgrid Knowledge and serves as co-host of the publication’s popular conference series. She also co-founded, where she continues to lead a team of energy writers who produce content for energy companies and advocacy organizations.

She has been writing about energy for more than two decades and is published widely. Her work can be found in prominent energy business journals as well as mainstream publications. She has been quoted by NPR, the Wall Street Journal and other notable media outlets.

“For an especially readable voice in the industry, the most consistent interpreter across these years has been the energy journalist Elisa Wood, whose Microgrid Knowledge (and conference) has aggregated more stories better than any other feed of its time,” wrote Malcolm McCullough, in the book, Downtime on the Microgrid, published by MIT Press in 2020.

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