Financing Microgrids: Why is it so Important?

May 7, 2018
In this week’s Industry Perspectives, Chris Evanich, manager of microgrids at S&C Electric, explores financing microgrids and the different options available to today’s businesses.

In this week’s Industry Perspective, Chris Evanich, manager of microgrids at S&C Electric, explores financing microgrids and the different options available to today’s businesses. 

Chris Evanich, manager of microgrids, S&C Electric

It is not uncommon for someone to have a great idea but then hit a funding wall when trying to make the idea a reality. The television show Shark Tank is a great example of how we’ve tried to break down that wall. The show is focused on connecting people who have great ideas with investors.

The ideas presented on Shark Tank typically focus on consumer products. But it got me to thinking—who is helping fund the larger ideas out there that affect power distribution, such as microgrid projects? Microgrids are a great idea, but often organizations deciding on a microgrid run into capital constraints and issues financing microgrids.

Organizations today use three common funding methods for financing microgrids. The first is a bank loan similar to what someone would use to purchase a home. The second option is a lease, where a third party owns the assets while the microgrid owner controls the site and system. In this situation, the microgrid owner makes payments on the lease for a set number of years, similarly to what someone would do when leasing a car. The third option is a power purchase agreement (PPA). With this funding option, a third party, often an investment firm, owns the microgrid assets and provides the benefits of the system to the microgrid owner at no cost up front. The owner of the microgrid, often a utility, then pays this third party for the power it consumes.

Investment firms bringing capital to projects have transformed the microgrid industry by facilitating the deployment of more projects, resulting in more reliable power around the world. A loan for a home or a lease payment for a car makes a large capital purchase accessible, and the same can be said for microgrids. Thanks to an increase in third-party firms willing to invest in power reliability that’s improved through microgrid projects, the power industry is seeing greater change than ever before. They see how microgrids help avoid costly power outages.

This week, Microgrid Knowledge is hosting the third annual Microgrid 2018 Conference in Chicago. Along with presentations on regulatory updates and deployed microgrid projects, as well as tours of active microgrids, the conference will include a financing program. This program provides a unique opportunity where microgrid managers can meet with investors who can provide capital for their projects. I hope to see you in Chicago!

 Chris Evanich is manager of microgrids at S&C Electric. 

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