The Shape of Microgrid Financing Begins to Reveal Itself

March 5, 2015
The shape of microgrid financing is beginning to emerge as pilot projects come on line and the industry models itself after successful approaches used by solar firms. The University of Bridgeport offers a recent example.

The shape of microgrid financing is beginning to emerge as pilot projects come on line and the industry mimics successful approaches used by solar firms.

FuelCell Energy’s recent sale of a university microgrid to NRG Energy offers a recent example.  The Connecticut-based fuel cell manufacturer sold the 1.4 MW university microgrid to the generation giant in late February. NRG will place the project into a yieldco, the first ever for a fuel cell.

The all-cash deal is structured under a power purchase agreement arrangement, a financing method that aided the dramatic rise of solar photovoltaics over the last decade.

The University of Bridgeport will buy the fuel cell’s electricity and heat under a 12 year PPA with a possible seven year extension. PPAs create tax benefits that draw investors. The tax-exempt university cannot take the federal investment tax credit available for fuel cells. But a private investor can, in this case NRG Energy.

As noted by FuelCell Energy, the deal allows each participant to receive the specific benefits that are important to them, and turn those that they do not need over to other parties to the deal.

The university receives clean and reliable on-site power at a known cost. In return, it acts as a credit-worthy buyer of the project’s output. As a project investor, NRG receives consistent financial returns that are not dependent on weather or time of day. Meanwhile, FuelCell receives recurring  revenue for operating and maintaining the fuel cell for the length of the deal.

“This project is a compelling model where the university pays NRG Yield for the clean power it receives while averting the need to invest in the power generation asset itself,” said Michael Bishop, FuelCell Energy chief financial officer. “The university also benefits by enhancing the resiliency of its power supply in a low carbon manner that is almost completely absent of the pollutants that generate smog, acid rain and that can aggravate asthma.”

The project will serve 80 percent of the campus, including the student center, the dining hall, the recreation center, two dormitories and the on-campus police station.  It s scheduled to be in operation this month.

The university won $2.2 million in funding through Connecticut’s second microgrid grant solicitation. Another grant winner, the town of Woodbridge, found another approach to financing, in its case through a utility partnership, described here.

Meanwhile, solar plus storage companies are coming up with their own variations on microgrid financing.

ViZn Energy Systems, which offers flow battery systems for commercial, industrial and utility microgrids is partnering with LFC Capital, an equipment leasing and financial services company, to offer traditional operating leases with ownership options after six and seven years. The structure is designed to appeal to companies that can benefit from a federal tax credit, or want energy savings and off-balance sheet accounting without a long-term commitment to a PPA.

The partners expect to provide as much as $5 million per project. LFC Capital also encourages the use of a follow-on loan as a way to conserve cash and maintain low monthly payments.

The ideal project for the financing package is a 50 kW to 1,000 kW solar PV installation requiring 80 kWh to 500 kWh of energy storage, according to the companies.

Track microgrid financing deals by following us on Twitter @MicrogridNews.

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 RealEnergyWriters.com, 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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