picture courtesy of eaton corporation - docs.wbcsd.org · differentiates a microgrid from other...
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EXECUTIVE SUMMARY 04
1 What are low-carbon microgrids for C&I companies? 062 Commercialbenefitsofmicrogrids 123 Environmentalandsocialbenefits 154 Finance: ownership models, project economics
and innovative capital sources 17
5 Policy and regulatory considerations 226 Technology options and on-site requirements 247 Next steps 34
BIBLIOGRAPHY 36
Contents
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4 | Microgrids for commercial and industrial companies
EXECUTIVE SUMMARYAn increasing number of commercial and industrial (C&I) companies are implementing low-carbon microgrids. A microgrid is a set of energy resources that can operate, if needed, independently from the electricity grid. Traditional microgrids relied on fossil fuels, but now low-carbon microgrids are emerging, which run with predominantly renewable power.
When can C&I companies use microgrids?
Microgrids meet the needs of a wide range of C&I businesses: ForC&Icompaniesinoff-gridareaswhorequiremicrogridsinordertomeettheirenergyneeds. ForC&Icompanieswithinconsistentenergysupplywhorequiremicrogridstoprovidereliableandaffordable
power. For C&I companies in areas with reliable grids who wish to improve the economics for self-production,
increasetheirresiliencyand/orloweremissions.
Motivation 1: Save on energy bills For C&I firms who already operate microgrids, switching to low-carbon resources lowers the cost of energy.Thefallingpriceofsolarphotovoltaic(PV)modulesandenergystoragehasledC&Ifirmstoaddrenewablegenerationsourcestotheirmicrogrids.TheintegrationofsolarPVintomicrogridsisparticularlyattractiveforfirmsusingdieselgeneration,assolarPVisnowcheaperthandiesel[1].
The rapid fall in prices of lithium-ion batteries also means companies are increasingly adding storage systems.Byusingstoragetooptimizeproductionandconsumption,C&Ifirmsreducepeakdemandchargesandlowertimeofuse(ToU)fees.Inaddition,addingstorageallowscompaniestocaptureadditionalvaluestreams,suchasparticipatingindemandresponseandfrequencyregulationschemes.
Why should C&I companies install low-carbon microgrids?
Motivation 2: Respond to increasing security and reliability needsIncreasing security concerns, mean more C&I firms are now considering building new greenfield microgrids. ForC&Ifirmsthatplantoincreasetheirenergydemand(e.g.convertingfleetstoelectricvehicles)or
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5 | Microgrids for commercial and industrial companies
constructnewproductionfacilities,thecombinedeffectoffallingcostsandincreasedreliabilityconcerns(e.g.morefrequentoutagesduetoextremeweatherevents)aredrivingthemtoconsidernewgreenfieldlow-carbonmicrogrids.Suchmicrogridsmixthebenefitsofrenewablegenerationsources,batteriesand,wherenecessary,fossilfuelssuchasgas,toprovideacost-effective,reliableandlow-carbonenergysupply.
How can C&I firms finance microgrids?
What about wider benefits?
Low-carbon microgrids have positive environmental and social impacts. Not only do low-carbon microgrids helpfirmsreducetheircarbonfootprint,buttheyalsoreducedieseluseinon-sitegeneration,whichisbeneficialbecausetheylowerlocalemissionsofharmfulpollutants.Inoff-gridandunreliablegridareas,C&Imicrogridscanprovide local employment opportunities, both directly at the site and through increased economic activity from additionalpowersupply.Finally,inareaswheretheprojectcouplesC&Iusewithincreasedresidentialaccesstoenergy,keroseneuseisreducedinhouseholds,improvingindividualshealthandsavinghouseholdsmoney.
Motivation 3: Reach renewable energy targets and reduce greenhouse gas emissionsFor firms with renewable energy targets, zero-carbon microgrids, relying solely on renewable energy and storage, are emerging as a solution. Inrecentyears,manyhigh-profilecompanieshavesettargetsofusing100%renewableenergy.Forthesefirms,switchingtoazero-carbonsolarandstoragemicrogridcanbeattractive.Whilecasesofzero-carbonmicrogridsarecurrentlyrare,thesesystemsarelikelytobecomemorecommonasstoragepricescontinuetofall.
Innovative finance schemes allow companies to benefit from microgrids without significant upfront investment. IndependentPowerProducers(IPPs)andinvestmentfundscanfinanceprojectswithC&Ifirmsactingasanenergyoff-taker.BysigningaPowerPurchaseAgreement(PPA)andcommittingtopurchaseacertainamountofpower,C&Ifirmsdonthavetoraisetheupfrontcapitaltopayfortheinstallation.C&IPPAsareaglobalbutrecentdevelopment,andwidelyusedcontractstandardsarestilltoemerge.Signinglong-termPPAsrequireslong-termregulatoryclarity,whichcanbechallengingwheregovernmentsareonlybeginningtodevelopmicrogridpolicies.
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1.1 DEFINITION
A microgrid is characterized by its ability to function in island mode. This means the C&I facility can still produce and use energy, even when not connected tothemaingrid.Theabilitytoisland
1 What are low-carbon microgrids for C&I companies? Definitionandmainusecases
differentiatesamicrogridfromothersimilarconcepts which do not necessarily need to operate autonomously, such as on-site renewablegeneration.Box1providesatechnicaldefinitionofamicrogrid,whileFigure 1 provides a simple diagram of amicrogrid.Figure 1: Basic diagram of a C&I microgrid
Low-carbon microgrids are defined as those microgrids that use renewable energy sources, for a significant part or all of their energy supply. Microgrids are not necessarily low-carbon, and historically relied on fossil fuels-predominantlydieselgenerationassets.
Low-carbon
energy supply
C&I facilitiesA microgrid must be
able to island, i.e.
function without
the grid
Storage system (e.g. battery)
Charge/discharge
PCC
Point of
common
coupling
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7 | Microgrids for commercial and industrial companies
Technical definition of a microgrid
The US Department of Energy defines a microgrid as a group of interconnected loads and distributed energy resources within clearly defined electrical boundaries that act as a single controllable entity with respect to the grid. A microgrid can connect and disconnect from the grid to enable it to operate in both grid-connected or island mode. This is the definition used throughout this report.
In recent years, hybrid solutions have emerged, integrating a mixture of renewablesources(e.g.solar,wind,hydropower),withfossilfuel-basedsources.Fallingcostsofstoragearenowallowing for further levels of renewable penetration.Addingrenewableenergysignificantlyreducesthecarbonfootprintof existing microgrids, as diesel generation emits 24 times more greenhouse gases (inCO2e)thansolarPV[2].
1.2 MAJOR USE CASESThis paper studies three major use cases: C&I microgrids are commonly used in off-gridareas(usecase1)andinareaswith unsatisfactory and intermittent grids(usecase2).Microgridsinareaswith reliable grid supply have historically only been used for facilities with high security needs, such as airports or militarybases.However,anincreasingnumberofC&Ifirmsareimplementingmicrogridstoimproveeconomics(usecase3).Thesethreemajorusecasesfor microgrids are discussed below, andillustratedwithcasestudies.
USE CASE 1: No grid access - facilities with zeroaccesstotheelectricitygrid,currentlyrelying on fossil fuels
Microgrids can meet energy needs of C&I companies in areas of the world that remain off-grid. In Africa, in Small Island States, and even in sparsely populated developed countries such as Australia, many industries are far from themaingrid.ForC&Ifirmsoperatinginthese areas, a microgrid is the only way toobtaintheenergytheyrequire.Thefalling cost of renewable energy and, more recently, storage technologies, as well as fluctuationsinoilprices,havedrivenmorefirmstoadoptlow-carbonsolutions.
Especially for extractive industry, low-carbon microgrids offer new opportunities: Mines are often in locations far away from population centers but have substantialpowerdemands.TheDegrussaMine in Australia has historically had a 19MWmicrogridpoweredbydiesel. Whenthefirmchosetoexpandin2013,they added 10 MWp of solar capacity and a6MW/2MWhenergystoragesystem.
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Case study
ESSAKANE MINE Burkina Faso, to be commissioned by the end of 2017
End-user: IAMGOLD
PPA agreement with EREN RE - AEMP
Extractives (gold mine)
Energy security
Allows the mine to be fully autonomous, despite long distance from the nearest grid
Cost savings
Decreases fuel consumption by around six million liters
Sustainability
Decreases CO2 emissions by 18,500 tons per year
OtherCreates a number of local jobs during both the construction phase and its ongoing operation
Existing
Upgrade
15 MW PV
USER CASE BUSINESS CASE
ASSETS
Off-grid
55 MW oilpower plant
55 MW oilpower plant
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Case study
USE CASE 2: Unreliable or unsatisfactory grid connections - facilities connected tointermittentorinsufficientgridpower
Reliable energy is important for C&I businesses in areas of weak grids. Power outages cost African countries an estimated 1-2%oftheirannualGDP[3].InTanzania,their cost amounts to around 15% of annual sales[3].InIndia,LatinAmericaandeveninrural areas of some developed countries, unreliablegridsalsonegativelyaffectC&Icompanies.MicrogridshelpC&Ifirmscopewithalackofreliablepower.Currently,dieselgeneratorsarethemostcommonbackupsystem.In2015,25GWofdieselgeneratorsweresoldforbackupgenerationworldwide[4],whichactasbasicmicrogrids,turningonwhenthegridisdown.Alargeopportunityexists to replace these generation sets with low-carbonmicrogrids.
In urban areas, C&I firms are now implementing low-carbon microgrids, particularly in commercial facilities requiring consistent power such as hospitals and malls.
ABB LONGMEADOW PARK Johannesburg, South Africa,
completed in 2016
Owner, project developer and end-user: ABB
Industrial facility
Energy security
Production keeps running even during grid power outages
Cost savings
Achieves 25% savings in energy costs (from USD $610,000 to $460,000)
Reduction in peak demand charges
Sustainability
Decreases CO2 emissions by 1,000 tons per year (estimated)
Existing
Upgrade
750 kW solar
1 MVA/380 kWhPowerStore
USER CASE BUSINESS CASE
ASSETS
Unreliable or unsatisfactory grid
4 x 750 kVA backup dieselgenerators
Grid Grid
4 x 750 kVA backupdiesel generators
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Case study
Examples include the Hpital St-Damien in Haiti,whichcombinesa0.65MWofrooftopsolar,a0.65MWdieselgeneratoranda 500kWlithium-ionbattery,toprovideallenergyneedsforthehospital.However, high cost of land in cities prevents the development of industrial-scalelow-carbonmicrogrids.
Outside urban areas, industrial users are integrating larger quantities of renewable energy, given the lower cost of land. Microgrids are commonly used by large industrial companies situated inareasofweakgrid,especiallyinthecasewhereagridoutagewillincursignificantcosts.Forexample,theSNIMironoremineinMauritaniacombinesa4.4MWofwindwith 16 MW of diesel generation, which are integratedintothegridinfrastructure. The grid cannot fully satisfy the needs of the ironoremine,sothefirmreliesonadditionalpowersuppliedbythemicrogrid[5].
Industrial facility
Energy security
Prevents the medical manufacturing plant from suffering production losses due to the disruption of the sterilization process during power outages
Cost savings
Significant savings from prevention of production losses
5% reduction in energy bills from peak shaving
Sustainability
Reduces national use ofgas peakers
Existing
Upgrade
276 kW solar
500 kW/ 1 MWhbattery
USER CASE BUSINESS CASE
ASSETS
Unreliable or unsatisfactory grid
2 x 750 kVA backup Diesel generators
Grid Grid
ESTABLISHMENT LABSCosta Rica, commissioned in 2016
Owner and end-user: Establishment Labs
Project developer: Demand Energy/ENELand Rio Grande Renewables
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USE CASE 3:Reliableandsufficientgridsfacilities requiring autonomous functioning, and/orlookingforlow-carbonenergysupplyfor environmental and economic reasons
Historically, energy users with high security concerns have been the main beneficiaries of microgrids in reliable grid areas. In developed countries, power outages are extremely rare - meaning, microgrid investments were typically due to an assessment of long-term security risksratherthancostreductionstrategies.Hence, customers with highly critical power requirements - such as military facilities, data centers, hospitals and airports - have implementedmicrogridsformanyyears.
C&I firms in areas of high grid reliability and capacity are increasingly considering microgrids with renewable power and advanced batteries, given the improving economics of using storage, the increasing focus on renewable use and increasing needs for energy security. Initial projects were installed in more developed, more liberalizedenergymarkets,suchasintheUnitedStatesandEurope.Indeed,35%ofbusinesses in the United States who have sufferedincreasedenergyoutagesindicate
they have considered implementing or participatinginamicrogrid[6].Examplesinclude the Navy Yard project in Philadelphia
which combines 6 MW of natural gas engines with 2 MW PV and 1 MW of battery storage to providepowerfor120companies[7].
Case study
Commercial facility
Energy security
Powers the building in emergency grid outage cases (natural event, etc.)
Cost savings
Saves 5% of energy costs (estimated)
Optimized performances based on integration of weather forecast and available storage capacities (e.g. electric vehicles)
Sustainability
Reduces greenhouse gases emissions the equivalent of those produced by more than 2,400 passenger vehicles a year
Existing Upgrade
448 kW solar
500 kW/ 1 MWh batteryBackup natural gas generator
USER CASE BUSINESS CASE
ASSETS
Reliable grid
Grid Grid
BOSTON ONE CAMPUSBoston, United States, commissioned in April 2017
End-user: Schneider Electric
PPA agreement with Duke Energy (REC Solar)
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The commercial benefits of microgrids for C&I companies are multiple: They improve security of supply, lower energy bills, increase long-term electricity cost visibility and reduce environmental tax burden. Indeed, these benefits are expected to lead to strong market growth, with the C&I microgrid market predicted to amount to USD $18 billion globally by 2026 [8].
2 Commercialbenefitsofmicrogrids
2.1 SELF-RELIABILITY AND SECURITY OF SUPPLY
The ability to run in island mode is the principal benefit of a microgrid for an off-grid facility. However, grid-connected companies can also desire autonomous energy supply.
Firstly, for businesses in areas of unreliable grid, microgrids make economic sense as they avoid costly production interruptions.
In India, 61% of companies surveyed sufferedmorethan10%lossinproductionduetopoweroutages,affectingrevenue[9].Moreover,inhotels,mallsandotherservice sector facilities, power cuts may substantially reduce customer satisfaction.
In addition, for those C&I firms with high security concerns, establishing microgrids allows firms to protect critical functions, in case extreme events damage the grid. C&I companies may require certain
critical assets to continue functioning 24/7(e.g.adataserver,aresearchlab,ahigh-securityITsystem,prisons).Evenahighly reliable grid may occasionally have power outages, for example due to extreme weatherevents.DuringHurricaneSandyin2012, the only facilities still running were several microgrids, such as the one at PrincetonUniversity[10].Moreextremeweather events due to climate change are likelytoencouragemoreC&Ifacilities toimplementmicrogrids.
Finally, low-carbon options can offer more security than diesel (or other fossil fuel) generation sources. Diesel often needs to be imported, meaning companies are vulnerable tonational/regionalfuelstock-outs.
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2.2 CHEAPER ENERGY COST AND PRICE VISIBILITY
Falling solar and storage costs mean C&I microgrid owners are switching to low-carbon energy sources. Globally, solar costs fell by more than 60% between 2009 and2015[1],whilelithium-ionbatterycostsreduced by more than 50% from 2013-2016[11].Thepriceofsolarisexpectedtofall further, and wind and hydro solutions nowalsooffermorecompetitivepricesthandiesel.Bycontrast,dieselpricesarenotlikelytofall.
Adding storage can reduce peak demand charges and time of use (ToU) charges, further reducing energy bills. In many geographies,C&Ifirmspayanamountforthetotalenergyconsumed(inMWh),andforthepeakdemand(inMW)theyuse.Wherethesepeakdemandchargesaresignificant,such as in certain US states, a microgrid withastoragesystemcanprovidepeakshaving(usingself-generatedstoredenergywhenconsumptionishighest),substantiallyloweringdemandcharges.Inaddition,wherepowerismoreexpensiveatdifferenttimesoftheday(i.e.whereToUchargesareinplace),storage,coupledwithanenergy management system, can use self-
produced energy when power is expensive, and store when power from the grid is cheap.Figure2illustrateshowmicrogridscan reduce ToU charges by using stored energywhenelectricitypricesarehigh.
The long-term pricing of renewable energy solutions is less volatile than diesel generation, particularly if the C&I firm locks in a price with an external provider. C&IfirmsmaysignaPowerPurchaseAgreement(PPA)withanoutsidefinanceparty,andthusachievealowenergy price over the long-term
Figure 2: Schematic explanation of reducing time of use (ToU) charges through energy storage
(seeSection4).Bycontrast,dieselpriceswilldependonfluctuatingoilprices. Due to the complexity of microgrids, standardizedPPAsarestillindevelopment.
2.3 EXTERNAL REVENUE STREAMSOther than reliability needs and the desire to reduce energy bills, several other revenue streams can further improve the economiccaseforlow-carbonmicrogrids.In addition, new emerging technologies may advance the business case for microgrids inthefuture.
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tari
Microgrid uses energy storage to
manage peak demand, avoiding
using grid at high tari periods
Firm only uses
grid/generator
when taris
are low
Self-production highest
during middle of the day
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For grid-connected microgrids, C&I companies can benefit from providing support services to the electricity grid. Regulators and grid operators are balancing the power grid by using mechanisms such as demand response programs or frequency response markets.Theygivecompaniesincentiveto provide additional power to - or reduce consumption from - the grid at peakperiods.ThisreportcoverstheseopportunitiesindetailinSection4.2.2.
In off-grid areas, C&I companies can sell excessive power to nearby customers. Iftheoff-gridfacilityisnearalocalcommunity,theC&Ifirmcanselladditionalpower to local households and businesses thatalsohavenoaccesstothegrid.Whileremote, low-income communities might havelowabilitytopay,recentmarketexperienceintheoff-gridenergyaccesssector demonstrates households are willing topayforenergythatismoreaffordableandmorereliablethanfossilfuels.C&Ifirmscan develop innovative business models thatjointlybenefittheircompanyandthenearbycustomers.
Finally, new disruptive technologies, such as electric vehicles may increase the economic case for microgrids. As electric vehicles reach scale, this will resultinconsumersdemandingsignificantamountsofadditionalpower.Ratherthanthedistributionsystemoperator(DSO)adding more generation units and grid infrastructure,orC&Ifirmspayingmoreindemand charges, local authorities and C&I firmsmayinsteadprefertodeveloplocalmicrogrids.Inaddition,electricvehiclescan be used for grid balancing, using locally produced energy when it is available, rather thanrelyingonthemaingrid.However,business models for electric vehicles in microgridsareyettoemerge.
2.4 ENVIRONMENTAL TAX REDUCTION AND ACHIEVEMENT OF RENEWABLE ENERGY TARGETS
Low-carbon microgrids help companies reduce their environmental tax burdens, while advancing their progress towards renewable energy and greenhouse gas emission reduction targets. In jurisdictions
withcarbonpricing(e.g.EUEmissionsTradingSystemorUKcarbonfloorprice),moving to a low-carbon microgrid reduces afirmscompliancecosts.Inaddition,manycompanies have set internal carbon prices, or have set targets for reducing emissions undertheGHGprotocol.Microgridsrunning primarily on renewable sources can reducecompaniesGHGProtocolScope1emissions(forthosealreadyself-producingenergyfromfossilfuelson-site),andScope2emissions(forthosehistoricallyimportingfromthegrid).
Many multinationals have set ambitious renewable energy goals, and low-carbon microgrids help firms achieve their targets. Almost half of the largest companiesintheU.S.haveestablishedclean-energytargetsforthemselvesincludingmanywhoareaimingfor100% renewable production, such as industrialpaintproducerAkzoNobel,carmanufacturerBMWandtheworldslargestbrewingcompany,InBev[12].Establishinglow-carbonmicrogridsallowsfirmstoswitch to cleaner energy sources, helping themtoreachtheirtargets.
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15 | Microgrids for commercial and industrial companies
Implementing microgrids also has positive social and environmental impacts. Firstly, shifting existing microgrids from diesel-based to renewable energy sources reduces local pollution. Secondly, the widespread introduction of new low-carbon microgrids will reduce global fossil fuel-based generation. Finally, providing increased amounts of reliable energy in weak grid and off-grid areas can improve local economic growth and provide access to energy.
diesel microgrids need to regularly transportsubstantialamountsoffuel.By using self-generated clean energy, these regular deliveries will be reduced, loweringlocalenvironmentpollution.Thisisparticularlyrelevantinoff-gridareas, where facilities are located far fromthedieseldistributionnetwork.
In the long-term, scaling up microgrids will reduce the need for centralized fossil fuel power plants, especially peaking plants. For now, microgrids are not widespread enoughtomakeasignificantimpactonglobalfossilfueluse.However,implementationatscalewillreducetheoveralluseoffossilfuels.In particular by using storage, microgrids can reduceimpactonthegridatpeaktimes,andcan therefore avoid the construction of new fossilfuelbasedpeakingplants.
3.1 ENVIRONMENTAL BENEFITSReplacing diesel generation leads to reduced air pollution and health benefits for local residents. Diesel engines release a wide range of harmful substances, including soot, nitrogen oxide and carbon monoxide [13].InNigeria,thetriplingofasthmaratesin recent years has been attributed to dieseluse[14].Switchingtoarenewableenergy solution can reduce these local environmentalimpacts.AmicrogridonthePortuguese island of Graciosa reduces
overall environmental impacts by 43% by switchingtolow-carbonsources[15].
In cases where low-carbon microgrids replace coal-firedgeneration(typicallyforcombinedheatandpower),flyashpollutionfalls.Wheremicrogridsusewood-firedboilers,microgridsreducelocaldeforestation.
A low-carbon microgrid can also lower transport emissions, particularly in off-grid areas. Companies using
3 Environmentalandsocialbenefits
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3.2 SOCIAL BENEFITS3.2.1 Access to energy for local businesses andhouseholdsinoff-gridareas
Microgrids increase local economic growth when providing access to energy for productive use. Inoff-gridareas,microgrids with C&I companies as anchor clients can provide energy to smaller local businesses.Givinglocalcommunitiesaccesstoenergyoffersahostofdevelopmentopportunitiesandbenefitswhichextendbeyondacompanysdirectareaofinfluence.Potential customers for productive use of energy range from farmers and food processers to shop owners, restaurants, workshopsandserviceproviders.Forexample, at the Zangamina Power Limited microgrid in Zambia, the microgrid is shared betweenanchorbusinesses(afarmerandtwotelecomtowers),smallbusinesses(welders,hammermills,bakeries,coldrooms,etc.)andaround500households[16].
Access to energy can also improve health, education and financial inclusion for low-income households. 1.2billion people worldwide live without access to theelectricitygrid[17].Typically,thesehouseholdsrelyonkerosenefortheirlightingneeds.
Byprovidingcleanandaffordableenergyto local populations, low-carbon microgrids canleadtobetterhealthoutcomes(fewerpremature deaths from indoor air pollution [18])andeducationalbenefits(lightingatnight allows to study in the evening; less time isspentcollectingwood).Advancesinhealthandeducationareimmenselybeneficialforeconomicandcommunitydevelopment.
Extending access to energy through inclusive business models benefits microgrid operators too. Productive energy use by local business secures minimum energydemand,reducestheriskofrevenuelossandcreatesadditionalrevenuestreams.Extending access to energy to households canalsoleadtonewmarketsandabroadercustomerbase.Aninitialfocusonbusinesscustomers and recruitment of households in a second phase can be a useful strategy inthiscontextthisiscalledtheABC(anchor,business,community)model[19].
Construction and operation of low-carbon microgrids can provide direct local employment. Compared with using small diesel generation units, low-carbon microgrids provide increased local employment.Firstly,attheconstructionstage,localworkersarerequiredtoinstallsolar panels, or assist with construction
ofmini-hydroplants.Secondly,duringoperations,companiesemploylocalfirmsto maintain the equipment, for example keepingsolarpanelsfreefromdustanddirt.
3.2.2 Community resiliency
Increasingly, communities wish to be more resilient, to improve their self-sufficiency and to protect residents from outages in the electricity system. Communities who depend on an unreliable grid, or are vulnerable to extreme weather events,canbenefitfrommicrogrids.The state of Massachusetts has set up a USD $40 million fund to support resilient microgridprojects[20].OtherAmericanstatesareworkingontheirownschemes,includingRhodeIslandandNewJersey[21].
For DSOs, microgrids reinforce the grid infrastructure in case of a power outage. On-grid microgrids provide constant power to a limited number of connected customers.Thesegrid-connectedcustomers(notowningamicrogrid)maybewilling to pay a premium for ensuring they areapartofareliabilityzone,wherethegridisalwaysavailable.Themicrogridownercould receive additional revenue from the DSOforprovidingthesereliabilityzones.
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Low-carbon microgrids require relatively high levels of upfront investment. Several external finance options exist for C&I firms to reduce the upfront payment. In addition, subsidies and new regulatory schemes are emerging to support distributed energy including microgrids. New innovative finance solutions may also drive down microgrid investment costs.
4.1 FINANCING AND OWNERSHIP MODELS
Different finance and ownership solutions have emerged to facilitate development, construction and operation of low-carbon microgrids. Finance can be a barrier for developing low-carbon microgrids, as projects are relatively capital-intensive, with small operations andmaintenancecosts.Whenelectricityis purchased from the grid, most costs are
invoicedinmonthlyenergybills.Foranoff-griddieselgenerationmicrogrid,mostexpenditure will be in regular purchases offuel.Bycontrast,acombinedsolarPVand storage solution requires high initial investment, followed by very low operations andmaintenancecosts.Assuch,itisessentialtofindwaystospreadthefinancialburden for C&I companies over the operation periodofthemicrogrid.
Renewable energy development and financing are not a core competency of C&I firms, leading them to often choose to externalize finance. C&I companies tend to be focused on their main product or service, rather than on energy production.Energyisameanstomeettheir business goals and most companies looktooutsourcetheenergycomponentof their business, while being mindful that thechosensolutionsfittheirenergyandsustainabilitystrategies.
Figure3describesthemajorfinancialandownershipstructuresavailableforfirmslookingtodevelopamicrogrid.
4 Finance: ownership models, project economics and innovative capital sources
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Case study: Upfront financing
For its new Boston Campus One headquarters in Massachusetts, Schneider Electric has developed a solar-gas hybrid microgrid, which required no upfront payment. Schneider signed a PPA with Duke Energy and REC Solar. Duke and REC will own and operate the microgrid under a 20-year agreement, with Schneider paying an agreed price for its energy. The business model has been described as microgrid-as-a-service. More details can be found in the Section 1.2.4.1.1Third-partyfinancing
Third-party financing removes the need to raise upfront investment for a microgrid. If C&I firms do choose a third-party to finance a microgrid construction, they will typically sign a PPA (Power Purchase Agreement) with the owner/developer.Thistypeoffinancialagreementcommits the C&I customer to pay a pre-set rate(incurrencyperMWhconsumed)for afixedperiod(typicallyrangingfrom 10to20years)forthegeneratedpower.
This rate will be typically lower than the rate offeredbythelocalenergysupplier.
In many cases, the C&I company will choose to entrust the entire development, financing, construction and operation of a microgrid to a single entity, typically the IPP (Independent Power Producer). This is the simplest solution for C&I customers, who contractually commit themselves to one trustedpartnerwhotakeschargeofall
Figure 3: Major ownership structures for a microgrid
IPP(1)
Infastructure
fund C&I
Customer
C&I
CustomerPPA(2)
Service
company
IPP case
Infastructure
fund
Self-
nancing
PPASPV
Owns
EPC
contractor Developer
C&I Customer
Service
company LTSAEPC
Developer
EPC(6)
contractorEPC
DeveloperEng.(3)
Eng.
Third-
party
nancing
Self-
nancing
Operation Financing ConsumptionConstruction
LTSA(4)
Development
(1) IPP: Independent Power Producer
(4) LTSA: Long-Term Services Agreement
(2) PPA: Power Purchase Agreement
(5) SPV: Special Purpose Vehicle
(3) Eng.: Engineering Services
(6) EPC : Engineering, Procurement, and Construction
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19 | Microgrids for commercial and industrial companies
stages of microgrid implementation and operation.Accordingtoarecentstudy,anIPP providing a solar-hybrid diesel solution can reduce MWh energy cost by 20-50% comparedtodiesel-onlymicrogrids[22].This option, however, leads to the least controloverthepowerplantsoperations,andthefirmishighlydependentonthequalityoftheserviceprovidedbytheIPP.Inaddition,theIPPwilltakethemajorityoftheeconomicreturnsfromthemicrogrid.
Alternatively, the C&I firm can divide the IPPs role between several entities while remaining within a third-party financing scheme.Forexample,afirmmayrely on an infrastructure fund for project financing,andcontractotherentitiestomanage the development, implementation andoperationofthemicrogridasset.TheinfrastructurefundandC&IfirmwouldlikelycollectivelysetupaSpecialPurposeVehicle(SPV),throughwhichthefundjointlyownstheprojectwiththeC&Ifirm.Although more complex from a contractual standpoint, these hybrid solutions are more adaptable over the lifetime of the project (e.g.theC&Ifirmcanbuybacktheprojectafterwards, or the customer can decide tointernalizeoperations).
The many additional benefits of microgrids outlined in Section 2 of this paper (e.g. reliability of supply), make financial structures for microgrids more complex than standard projects without island mode. Typically, in standard C&I renewable energy projects, the main objective for a project is reducing the energyprice.However,giventhemanybenefitsofmicrogridsbeyondcostsaving,financialstructuresformicrogridsaremorecomplex, as contractors will have to commit to performance levels in multiple areas (e.g.reliabilityand/orautonomy).
Currently, standardized PPAs for C&I microgrid PPAs do not exist. In the case of utility-scale projects, most countries nowhavestandardizedPPAs.SimilareffortsareunderwayforC&Iprojectstoprovideforquickernegotiationsandincreased clarity for investors, but no standardshavebeensetyet.
4.1.2Self-financing
C&I companies with sufficient financial capacity and the desire of ownership, may decide to finance their microgrid with their own funds. This applies particularlytoC&Ifirmswithverylowcosts of capital or in cases where a local authority is involved in the project, and abletoraisecheapfinance(e.g.through amunicipalbond).
In case of self-financing, C&I firms can choose to rely on external contractors, such as EPC (Engineering, Procurement, Construction) contractors who have the expertise to assist companies in the development and construction the microgrid.Typically,thefirmscontractedproject manager is responsible for design and development, while the EPC contractor carriesoutconstruction.Partneringwith external contractors through two differentcontractsleadstoadifferentriskdistributionbetweentheparties.
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During the operation phase, the C&I firm can sign an LTSA (Long-Term Service Agreement) with a service enterprise to operate and maintain the site. The service enterprise would guarantee a certain level of performance, which will be subject to penaltiesifnotmet.Thiscompanymayoften be the same as the contractor that carriedoutconstruction.
4.2 PROJECT ECONOMICSThe economic case for microgrids can be improved by subsidies, revenues from selling power to the grid and payments from providingstabilizationservicestothegrid. 4.2.1 Access to subsidiesGiventhemultiplepublicbenefitsofmicrogrids, local and national governments have implemented a wide range of subsidy programstosupportthem.
Firstly, several government schemes provide direct grants to fund C&I firms microgrid development costs to increase community resiliency, or to meet local environmental objectives.InNewYorkState,theUSD$50millionNewYorkPrizeoffersuptoUSD$1millionperfirmtopayforfeasibilitystudies[20].
Secondly, governments support C&I companies through tax credits. Tax credits have been one of the support mechanisms for renewable energy, and schemes are emerging to support microgrids. For example, in the US, the
Commercial Property Assessed Clean Energy(PACE)programenablesC&Ipropertyowners to pay for energy upgrades, including the implementation of microgrids, through a reductionintheirfuturepropertytax.
Finally, public institutions are establishing debt facilities to help microgrid developers receive cheaper financing. Inparticular,C&Ifirmslookingtobuildmicrogrids in developing countries may be able to access debt from development financeinstitutions.Indeed,severalfundsexisttosupportthefinanceofoff-gridmicrogrids in Africa and other emerging markets.Forexample,theMicrogridInvestment Accelerator aims to provide USD$50milliontofinancedebtandequityformicrogridsinAfrica.
4.2.2 External revenue streams for grid-connected microgrids
Microgrids can often sell surplus power to the grid, assuming they are connected to a national grid and the appropriate regulatory frameworks are in place. Indeed, project developers frequently scope microgrid stations larger than
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necessarytosellpowerbacktothegrid.The regulator manages this injection of power to the grid through two mechanisms: feed-intariffsandnetmetering,whicharedescribedbelow.
With a set feed-in tariff, the microgrid operator will receive a payment for all power transferred into the grid. The national regulatory body usually determinesthisrate.Forexample,in Kenya, a country that has had a transmissionratepolicysince2008,thisrate depends on the installed capacity as well as on the renewable energy productiontechnology.AC&Imicrogrid,which has a photovoltaic power station between0.5and10MW,receivesafeed-intariffofUSD$0.2026perkWh[23].
Net metering is a common method to optimize revenues from self-production.Netmeteringhappenswhen the microgrid only pays for the netdifferencebetweenthepowerdrawn from the main grid and the power transmittedintoit.InPennsylvania,netmetering is available to customer-generatormicrogridsupto5MWthat
generatewithrenewableresources.Certain developing countries have developed net metering regulation, such asThailand[24],thoughimplementationisrelativelylimited.
In addition, microgrids can offer ancillary services to the main grid operator through frequency and voltage regulation.Frequencyregulationmarketsare emerging across developed countries to support grid operators manage short-termelectricityfluctuations.Similarly,demandresponseprogramsofferadditionalrevenue opportunities for microgrids which can store power or are able to reduce consumptionattimesofgridstress.Microgridscanalsoofferspinningandnon-spinningreservesthroughthemicrogridsbatterycapacityorbackupgeneratorsininstanceswhenthemaingridspowergeneratorsfail.Finally,microgridscanalsobe valuable for helping the national grid to black-startafterapoweroutage-aslargegenerators need outside electricity supply torestoreoperationsaftershuttingdown.For all those services, microgrids can obtain additionalrevenue.Theseadvantageswill typically only be available in more liberalized,developedmarkets.
4.3 INNOVATIVE CAPITAL SOURCESAlthough in their infancy, crowdfunding mechanisms for energy projects are expanding. Crowdfunding, a mechanism where multiple individuals provide micro-loans(ormicro-donations)toprojects,canreducetheinterestrateofthoseprojects.TheWorldBankestimatesthatthecrowdfundingmarketindevelopingcountriescouldexceedUSD$96billionperyearwithintenyears[25].Interest rates in developing countries tend tobehigh,loweringfinancialattractivenessofC&Iprojects.CrowdfundingallowsIPPstolowerthefinancecostofmicrogridprojects,therebyincreasingprofitability.
For example, Bettervest GmbH, a crowdfundingfirminGermany,recentlyprovided 200,000 in low-interest loans tobuildmicrogridsinIndia.TheseIndiancompaniesbenefitedfromaninterestrateof 6%, far lower than the average 15%+ loansusuallyfoundinIndia[26].
Community ownership can also provide finance to microgrids. Where a microgrid provides a supply of energy to both C&I companies and local households, community groups may be interested in financingtheproject.Byhavingparticipationfromlocalgroups,theseprojectsarelikelytoreceivegreaterpublicsupport.
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As C&I low-carbon microgrids are a recent evolution, regulatory frameworks are still being developed. Few countries have established specific national regulations to govern microgrids. This section explains the major regulatory topics surrounding microgrids.
5 Policy and regulatory considerations
5.1 LICENSES AND PPA REGULATIONSPrivate investors need to obtain the necessary permits for developing microgrids. Though sometimes onerous, several governments are streamlining these approval processes. Microgrids are often subject to the same complex regulatoryframeworksaslargepowerprojects(e.g.afullenvironmentalimpactassessment,multiplelayersofapproval).For small microgrids, some governments havespecific,simplifiedprocesses. InTanzania,forexample,minigridswith
a capacity of under 1 MW do not need to apply for a generation licence, while the government has developed a minigrid informationportaltomakethenecessarylicensingrequirementspublic[27].
In grid-connected areas, microgrids can be exempt from unbundling regulations. In many geographies, sections of the energy value chain have been unbundled - usually the generation and supply from the operation oftransmissionanddistributionnetworks.However, in a microgrid, one actor - usually the microgrid owner - carries out all of these
functions.Tosolvethisunbundlingchallenge,regulatorsareputtinginplacemeasures.For example, the European Union states that member states do not have to apply the usual unbundling rules to integrated electricityundertakingsservinglessthan100,000connectedcustomers.Europeangovernments are responding, and France has already introduced legislation allowing closed distributionnetworks.Finland,Austria,CzechRepublic and Flanders have also introduced similarpolicies[28].
Power Purchase Agreements (PPA) for C&I use are often subject to different regulations depending on geography. In the United States, individual states are involved in setting PPA regulation, even though the Federal Energy Regulatory
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CommissiondefinesaregulatoryframeworkforPPAs.FifteenstateshavepassedlawstoauthorizeandregulateC&Imicrogridagreements.Forexample,ArkansasauthorizesPPAstogobeyondfiveyearsonlyifthecommissionbelievesthat the costs involved are reasonable and if, among other aspects, it allows the customertosavemoney[29].
5.2 GRID CODES FOR INDEPENDENT NETWORKS
Microgrid developers need to seek clarification on grid codes, the rules that govern the interaction between the C&I microgrid and the distribution system operator (DSO) who owns the grid. Below are two example topics on which regulators areworkingtoclarifyDSOsobligations:1. Undermostregulatoryframeworks,
there is currently no obligation for DSOs to grant microgrids the right to reconnectaftertheyhavegoneoff-grid.In case of an industrial microgrid, this couldleadtosignificantrepercussionsfor an enterprise that could be potentially forced to cease production due to not being reconnected to the grid instantlyafterislanding.
2. The safety of maintenance engineers is a major challenge for electricity distributionnetworks.GridcodesrequireDSOstoknowinrealtimeifamicrogridscablesarefunctioningornottoavoidaccidents.DSOsandmicrogridsmust develop communication channels, andaprotocoltoensurenotificationsaremadeinatimelymanner.
In both cases, the regulator needs to adapt the grid codes to ensure they are suitable formicrogriddevelopment.
5.3 POWER INJECTION INTO THE GRIDFor on-grid sites, C&I microgrids can benefit from selling surplus power to the grid, if the government has implemented net metering or feed-in tariff regulations. Section4.2.2discussesthesepointsinmoredetail.
For off-grid sites, the arrival of the main grid represents a threat to a microgrids established business model, and companies need to be aware of regulations governing this process to give clarity to investors. If the national grid arrives in the microgrid area, local customers may choose
to switch their electricity purchasing from themicrogridtothenationalgrid.Inaddition,if regulation is not in place, the utility may not accept to purchase electricity from themicrogrid.Boththeseimpactswouldsignificantlyreducetherevenuesforthemicrogridowner.Inmanycountries,regulationrelated to grid extension is still unclear, which isholdingbackmicrogridinvestment[19].Nigeria, for example, has implemented a microgridpolicytodealwiththissituation[30].
5.4 IMPORT TARIFFSMicrogrid construction is likely to require imported goods, making import tariffs an important part of the project costs. Chinesefirmsmanufacturemorethan 60%oftheworldssolarPVmodules[31]. In addition, power control systems and energy management systems tend to be produced in industrializedmarkets.Therefore,particularlyin low-income countries, much of the required technologywillneedtobeimported.Severalcountries(e.g.KenyaandRwanda)havedevelopedazero-importtariffandzeroVATpolicy for solar products, given the high development importance of renewable energyprojects.C&Icompaniesareabletobenefitfromthisreductioninimporttariffs.
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24 | Microgrids for commercial and industrial companies
Low-carbon microgrids can use a variety of low-carbon energy sources, such as wind and hydropower, though solar PV is the most common given its modularity. The rapid fall in the price of storage means companies with reliability needs and ambitious environmental targets can now install solutions which only use storage and renewable power avoiding the need for any fossil fuels. This section explains these different technology dynamics.
6.1 GENERAL ARCHITECTUREConstructing a microgrid with renewable energy sources is technically complex for several reasons: Firstly, any existing system has to adapt to intermittent powergeneration.Secondly,maintainingthe power load regardless of weather conditions or other adverse events requires backupsupply,forinstance,intheformofbatterystorageorathermalgenerationset.
Thirdly, the microgrid requires computer software capable of intelligently managing a site with multiple production technologies, i.e.theEMS(EnergyManagementSystem)controller.Finally,islandingrequirestheability to disconnect and reconnect a site to the main grid on demand, and in a timely fashion.
Figure 4 depicts the general architecture of alow-carbonmicrogrid.
6.2 ENERGY SOURCESC&I microgrids can use both renewable andnon-renewablesources.ThissectionexploresthesetechnologiesandlooksathowC&Ifirmsareincreasinglyintegratingrenewablesourcesintotheirmicrogrids.
6.2.1 Renewable energy sources: Solar PV, wind, mini-hydro
The rapid decrease in the price of renewable energy production, particularly for solar PV and wind, has been a game-changer for the development of C&I microgrids. PV module prices decreased fromUSD$4/Wpinthefirsthalfofthe2000s to USD $2/Wp in 2010 and to below USD$0.5/Wptoday.Thisdecreaseledto
6 Technology options and on-site requirements
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anequivalentdecreaseinthelevelizedcostof energy with the most recent utility-scale projects negotiating PPAs of around USD $40-50/MWh in a wide range of regions (California,SouthAmerica,India,MiddleEast,orevenDenmark-seeFigure5).Onshore wind price decreases have been
less dramatic but have resulted in similarly lowPPApowerprices.
These price levels of renewable energy sources are competitive with fossil fuel-based generation technologies.C&I projects are usually more expensive
Figure 4: General architecture of a microgrid
compared to utility-scale solar given theirsmallersize,andadditionalspaceconstraints.E.g.urbanmicrogridswilltypically require rooftop solar, which is more expensive than ground-mounted installations.However,C&Isolarcostshavealsofollowedasimilardownwardcurve.
PCC(3)
Dispatchablegeneration
Limited or intermittentgeneration
Critical loads Controllable loads
StorageController
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(2) EV: Electric Vehicles
(3) PCC: Point of Common Coupling
(4) HVAC: Heating, Ventilation and Air Conditioning
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26 | Microgrids for commercial and industrial companies
Solar is usually the preferred technology for self-consumption and production, given its modularity. Thetypicalsizeofasolarpanelisafewhundredwatts,makingthesystemshighlymodular(i.e.additionalcapacitycanbeeasilyadded).ThismodularityhasthreekeyadvantagesforC&Iapplications:firstly,theC&Ifirmcanadjustthesizeoftheprojecttofittheirneedsandoptimizeprofitability.Secondly, the modular nature of solar meansC&Ifirmscaninstallsmallareasofpanelsinmultiplelocationstoefficientlyusetheavailablespaceandmaximizelocalproduction.Finally,modularinstallationsdonotrequirehigh-skilledlaborandareeasytoconstructusinglocalemployees.
The variable generation and low energy density of renewable energy sources need to be considered when planning a microgrid. Solar PV plants can only convert energy at certain times of the day, meaning that microgrids often use a storage system forbackupandtoincreaseself-consumptionofsolarenergy.Inaddition,aswithotherrenewable energy sources, solar PV has relativelylowenergydensity(seeFigure6).
Figure 5: Recently announced long-term contract prices for new renewable power projects to be commissioned over 2016-2019 [32]
Chile
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an emergent
technology with
great potential of
cost reductions:
it is expected to
follow cost
reduction curves
similar to PV or
onshore wind.Jordan
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27 | Microgrids for commercial and industrial companies
As power needs of industrial sites can be large, the installation of a PV microgrid for industrialusewilllikelyinvolveaverylargesurface area, and as such might be not suitableinanurbanenvironment.Companiescan decide to supplement the microgrid by wheelinginoff-siteutility-scalerenewablesvialong-termPPAs.Thishybridmodelwitha microgrid would act as an enabler for companiesseekingtoachieve ahighrenewablessupply.
C&I microgrids can also use wind and hydropower, depending on the availability of resources near the site.C&Ifirmsthatdemandhighlevelsofenergy may choose to build dedicated windandhydropowerinstallations.Thesetechnologies have limitations in terms of location, particularly the availability of water for hydropower, and high wind speeds forwindpower.Companiesthereforeusethese technologies in a limited number of cases.BarrickGoldCorporation,aminingcompany, chose this solution in 2011 to partially supply its Veladero Mine in Argentinawitha2MWwindturbine.
6.2.2 Hybrid renewable-fossil fuel microgrids
Microgrids have traditionally used fossil fuel-based power sources, such as diesel and gas. Diesel has been the prominent basesourceofenergyinmostexistingoff-gridelectricitysystems.C&Ifirmsrequiring
Figure 6: Energy density of typical renewable electricity sources compared with typical ranges of electricity demand [33]
both heat and power often opted for gas microturbinesthisisparticularlythecase in urban areas, given the proximity togasdistributionnetworks.Inaddition,new technologies are emerging, such as hydrogenfuelcells.
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low-rise building.
The most common types of renewable energy
plants need large areas of free space, which does
not suit the space constraints of most C&I urban
infrastructures.
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28 | Microgrids for commercial and industrial companies
The reduction in cost of renewable energy is encouraging C&I firms to implement hybrid fossil fuel renewable systems, adding solar into their existing diesel-based systems. As Figure 7 shows, solar systems are already cheaper than diesel-basedsystems.Whenconsideringgas microturbines, companies have been slower to integrate renewable power given currentlowgasprices.However,thevolatilenatureofgaspricesmeansfirmsmaywantto install renewable solutions going forward, toincreaselong-termpricestability.While hybrid systems are not zero-carbon, they still represent a significant decrease in the carbon intensity of a microgrid.
Replacing diesel with renewable energy increases the complexity of microgrids. Short-term power reserves are necessary to compensate for the variability of renewableproduction(e.g.whenthereisacloudyperiod).Significantlong-termenergy reserves are necessary to meet autonomous energy needs of the C&I site i.e.incaseofmulti-daypoweroutage,themicrogridwillneedtohavesufficientlong-termreservestorunfortheentireperiod.
Given these challenges, microgrids still typically use a certain level of fossil fuel, even as decreasing battery costs enable higher renewable penetration, and eventually 100% renewable and storage.
Figure 7: Indicative levelized cost of energy of thermal solutions compared to C&I solar [34] [35]A
A Assumptionsusedforthesecalculationsareavailableonrequest.
C&Ifirmshavechosendieselgenerationhistorically for its ability to provide large energystoragereserves(intanks).Withoutalargeelectricstoragesystem,off-gridmicrogridsneedtokeepafossilfuelgenerationsetrunningtobeabletotakeover immediately and avoid production stoppages.Dieselgeneratorsusuallyhave to run at 30% minimal running load at all times to ensure they can provide instantaneousbackup.Thisminimalload limits the amount of penetration ofrenewables.However,byaddinganelectricitystoragesolution,theC&Ifirmcanreduce the need for diesel for short-term powerreserves.Furtherfallsinstoragecostmay result in pure PV and storage systems (seefollowingSection6.3).
6.3 STORAGEThe development of energy storage technologies is another game-changer, driving the uptake of low-carbon microgrids.Thefallingcosts,increaseddependability and longevity of storage technologiesmakeitmucheasiertoaddenergystoragesolutionstoamicrogrid.From a user point of view, they present severalkeyadvantages:
0 50 100 150 200 250 300 350
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29 | Microgrids for commercial and industrial companies
Figure 8: Decrease of battery pack costsB 2013-2016 (USD $/kWh installed) [11]
B Does not include all components required for a storagesystem(e.g.costofconverters,otherelectricalbalanceofplantandlabourcosts)
Veryquickresponsetime(severalmilliseconds);
Ability to increase local self-reliance by storing renewable energy production; and
Nolocalexternalities(noise,fumes,etc.).
For batteries, the rapid decrease in cost of lithium-ion cells, spurred by the emergence of large-scale industrial production of batteries for electric vehicles, has led to the progressive disappearance of lead-acid technology.Thecostsoflithiumbatterypackshavehalvedinfouryearsbetween2013and2016(seeFigure8).
Lithium-ion batteries have become the predominant storage technology for microgrids, but flow batteries are also emerging. The advantages of lithium-ion batteries include higher storagedensity(perweightandvolume),reduced maintenance requirements, longer lifespan due to low self-discharge rates and smallermassandsize.Flow(orelectrolyte-circulating)batteries,basedontheuseofwater-solubleorganiccompoundslikeelectrolytes, have reached technological maturitymakingtheirindustrialproductionaviableproposition.Assuch,flowbatteries
could be an interesting storage technology forfuturemicrogrids.
Flywheels, another storage technology, are best used to provide short-term reserve and fast islanding capabilities. Aflywheelinvolvesthemechanical, ratherthanchemical,storageofenergy. Itisamassrotatingaroundafixedaxisina vacuum, thereby reducing energy losses fromfrictiontoaminimum. Thetypicalsizeofflywheelsmeanstheycanonlysupplypowerforafewminutes.Although requiring a considerable initial investment,flywheelshavehighenergyyieldsandlonglifetimes.Theirinertia,resulting from their mechanical architecture, alsohelpsstabilizenetworksandensuresthe transition between two modes of power supply.
Companies need to compare the costs of storage with their autonomy requirements, to assess what will be the most economically viable storage solution for a project.Whileanincreasein storage capacity allows for higher on-site consumption and dependability of supplies, it can have a negative impact on theprojectslevelizedcostofenergy,despite
Battery pack Battery cells
411367
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$599/kWh
$540/kWh
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Lithium-ion battery prices
have decreased by 54% in
three years, thanks to
technology improvements
on both cells (the electro-
chemical part) and the pack
(the supporting structure,
the cooling system and the
battery management
system).
Prices are
expected to
keep falling
(below USD
$100/kWh
by 2030)
in the
upcoming
years, thanks
to economies
of scale
driven by the
booming
electric
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30 | Microgrids for commercial and industrial companies
recentfallsinstoragecost.Figure9attheend of this section explains these options comprehensively.
6.4 ENERGY MANAGEMENT SYSTEMS AND POWER ELECTRONICS
Renewable energy sources and storage solutions are essential components of microgrids.Equallyrequiredareadvancedenergy management systems and power electronics, the performance of which have increasedsignificantly.
New energy management systems (EMS) analyze large sets of data, produce accurate production and consumption forecasts and then optimize microgrid performance. EMS are advanced IT systems which use algorithms and powerfulcomputingpowertooptimizethe functioning of electricity installations, includingmicrogrids.Thesesystemsenable companies to, for example, maximise the amount of on-site renewable energy consumed by considering future
weatherforecasts.This optimization improves the economic attractiveness of microgrids.
New types of power electronic controllers also make microgrids easier to run. A C&I microgrid usually has two types of inverters: grid-followingandgrid-forminginverters.Thegrid-followinginvertersmainroleisto inject the output of solar panels and transmit the produced energy by the PV planttotheC&Isite.Grid-forminginvertersconnected to batteries maintain frequency and voltage in microgrids with no operating spinningenergysources(i.e.conventionalgas/dieselunits).Large-scalegrid-forminginverters operating for a long time are still relatively rare as existing microgrids typically run on thermal units to set a stable frequencyandvoltage.
The flexibility of a microgrid can be used to optimize energy consumption and production and hence reduce costs. Companiesbenefitfromthetechnicalflexibilityofenergystorage,andcanuse
controllable energy demand to further optimizeenergyuse.C&Ifirmscanadjustor shed energy demand, depending on theavailabilityandpriceofenergy.Forexample, by reducing consumption of energy when renewable energy is scarcer, and ramping up systems at times of high renewable energy production, the microgridownercanmaximizetheamountofrenewableenergytheyuse.
6.5 TECHNOLOGY SUMMARYFigure 9 describes the various technology options C&I firms have in terms of integrating low-carbon microgrids.
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31 | Microgrids for commercial and industrial companies31 | Microgrids for commercial and industrial companies
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32 | Microgrids for commercial and industrial companies
Figure 9: Overview of technology optionsON-GRID OFF-GRID
SolarPV +
Battery
SolarPV +
Diesel
*Other renewable
energy sources
are also potential
options for
microgrids.
High upfront cost Medium protability
Medium upfront cost High protability
Low upfront cost Very high protability
LegendHigh level of GHG emissions reduction
Medium level of GHG emissions reduction
Upcoming price decrease thanks to
ongoing technology cost reductions
Solar PV +Gas
Solar PV +Fuel Cell
or
or
When to use? For peak demand management (high demand charges & high load peaks)
For weak grids with short interruptions
N.B.: size of battery based on demand charges and/or the length of typical outage
When to use? For C&I companies that have high sustainability goals
For isolated sites much impacted by the unreliability and the price uctuation of diesel supply
N.B.: In both cases, very large batteries required to supply the totality of loads
When to use?For any grid-connected C&I site with an economically attractive feed-in tari
N.B.: Diesel for backup onlySize of solar depends on space constraints and the amount of initial CAPEX that can be invested
When to use?For any C&I site relying on diesel generation
N.B.: Diesel as the main source of energy. Maximum instant renewable penetration is between 20% to 60% (which results in over 15% solar energy or 30% wind energy throughout the year)Sizing of solar depends on the amount of initial CAPEX that can be invested
When to use?Relevant for greeneld sites connected to the gas network
When to use?Recommended for greeneld sites if:
Heat and power needs
Low gas prices are available and the site benets from gas pipeline (option of a virtual pipeline with LNG carriers)
When to use? Same as above
Or other local renewable fuel production (e.g. hydrogen through electrolysis), combined with high sustainability goals
Solar PV
Convenient
for the vast
majority of
microgrids*
(in urban and
rural areas,
and in
countries
with medium
to high
irradiance
levels)
-
33 | Microgrids for commercial and industrial companies
ON-GRID OFF-GRID
*Other renewable
energy sources
are also potential
options for
microgrids.
High upfront cost Medium protability
Medium upfront cost High protability
Low upfront cost Very high protability
LegendHigh level of GHG emissions reduction
Medium level of GHG emissions reduction
Upcoming price decrease thanks to
ongoing technology cost reductions
Solar PV
Convenient
for the vast
majority of
microgrids*
(in urban and
rural areas,
and in
countries
with medium
to high
irradiance
levels)
SolarPV +
Diesel + Battery
When to use? Only if existing thermal load
Or if existing gas CHP
Solar PV +Diesel, Gas orFuel Cell with
Thermal Storage
or
When to use?Only if loads have short and sharp uctuations
Solar PV +Diesel, Gas orFuel Cell with
Flywheel
or
When to use? For any grid-connected C&I sites with economically attractive feed-in tari and protable peak demand management strategy or services to the grid
For C&I companies with high sustainability goals
N.B.: Diesel for backup onlySize of solar based on space constraints and the amount of initial CAPEX that can be invested
When to use? For C&I companies with sustainability goals
For C&I sites with uctuating load/solar power
N.B.: Maximum instant renewable penetration can reach 100%, thanks to storage capacities (which results in over 50% of solar energy or 70% of wind energy consumed from solar throughout the year)Size of solar and storage depends on load prole and amount of initial CAPEX that can be invested.
When to use?Only if services to grid require high-power injection/consumption for a short time (less than hour)
-
34 | Microgrids for commercial and industrial companies
Should a C&I customer be interested in investigating microgrid opportunities, they can use the following checklist to collate initial project information:
b. Renewable resource: wind speeds, solarirradiation,shadoweffects;
c. Site information: land availability, thresholds that trigger planning permission, environmental impact assessment, visual impact assessment, timescales for development, supply chainleadtimes,etc.;
d. Commercial structures: self-ownership, infrastructure fund, IPP, PPA, returns to owners;
e. Financing structure: balance sheet, debt/equity,PPP,etc.;and
f. Technical viability: grid integration principles, technology choices and optimumsize,sitelayout,abilitytofeedpowerbacktogridornot,etc.
7 Next steps
1. Current situation (operational conditions in facility):
b. Technical setup: current/historic levels of power supply reliability, current power generation mix, type of distributiongrid,typicalloadprofile,identificationofcriticalloadsversuscontrollable loads, heat loads, chill loads, available space for a microgrid;
c. Environmental considerations (emissionsrates,emissionstargets);
d. Financial considerations - operating costs: fuel costs, electricity prices, fuel price volatility, proportion of
electricity costs as a share of total cost of sold goods, opportunity costs of outages caused by historic levels of reliability; and
e. Projectobjectives:minimizeenergybills, reduce outages, reduce emissions, provide spinning reserve, peakdemandreduction,etc.
2. Project feasibility:
a. Applicable policies: planning and permittingregulations,powertariffstructure, grid connection charges, grid use of system charges;
-
35 | Microgrids for commercial and industrial companies35 | Microgrids for commercial and industrial companies
-
36 | Microgrids for commercial and industrial companies
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[5] EnergyandMines,WindhybridprojectforSNIM iron ore mine in Mauritania, http://energyandmines.com/2015/11/wind-hybrid-project-for-snim-iron-ore-mine-in-mauritania/,2015.
[6] Deloitte,EnergyManagementStudy,https://www2.deloitte.com/content/dam/Deloitte/us/Documents/energy-resources/us-deloitte-resources-2017-study-energy-management.pdf,2017.
[7] BurnsGroup,The_Navy_Yard_Advanced_Microgrid, http://www.burns-group.com/wp-content/uploads/2016/10/The_Navy_Yard_Advanced_Microgrid_IDEA_2015.pdf,2016.
[8] Navigent,CommercialIndustrialMicrogridMarketTipsScales,https://www.navigant.com/
insights/energy/2017/commercial-industrial-microgrid-market-tips-scales,2017.
[9] WallStreetJournal,Thecostofpowercuts to India Inc, https://blogs.wsj.com/indiarealtime/2013/01/14/the-cost-of-power-cuts-to-india-inc/,2013.
[10] GreentechMedia,HowMicrogridsHelpedWeather Hurricane Sandy, https://www.greentechmedia.com/articles/read/how-microgrids-helped-weather-hurricane-sandy,2012.
[11] Bloomberg,TeslasBatteryRevolutionJust Reached Critical Mass, https://www.bloomberg.com/news/articles/2017-01-30/tesla-s-battery-revolution-just-reached-critical-mass,2017.
[12] Bloomberg,BiggestU.S.CompaniesSetting More Renewable-Energy Targets, https://www.bloomberg.com/news/articles/2017-04-25/biggest-u-s-companies-setting-more-renewable-energy-targets,2017.
[13] CaliforniaAirResourcesBoard,RiskReduction Plan to Reduce Particulate Matter Emissions from Diesel-Fueled Engines and Vehicles,2000.
[14] N.Awefeso,GeneratorDieselExhaust:aMajorHazardtoHealthandtheEnvironmentin Nigeria, http://www.atsjournals.org/doi/full/10.1164/ajrccm.183.10.1437,2011.
[15] Younicos,Graciosamicrogridsystemprovesenvironmentalbenefits,https://www.younicos.com/graciosa-microgrid-system-proofs-environmental-benefits/,2017.
[16] ENEAConsulting,Developingmini-gridsinZambia, https://www.enea-consulting.com/en/sdm_downloads/developping-mini-grids-in-zambia/,2016.
[17] BNEF,Howcanpay-as-you-gosolarbefinanced?,https://about.bnef.com/blog/can-pay-go-solar-financed/,2017.
[18] WHO,7millionprematuredeathsannuallylinkedtoairpollution,http://www.who.int/mediacentre/news/releases/2014/air-pollution/en/,2014.
[19] Hystra,Reachingscaleinaccesstoenergy,http://hystra.com/s/Energy_Report-ADB-excluded-license.pdf,2017.,2017.
[20] MicrogridKnowledge,MassachusettstoOffer$14MinEnergyResiliencyGrantsforMicrogrids&OtherBackupatMedicalFacilities,22September2016.[Online].Available: https://microgridknowledge.com/energy-resiliency-grants/.[Accessed28August2017].
[21] MicrogridKnowledge,U.S.GovernorsSeeMicrogrids and Energy Storage as a Path toEnergyAssurance,02November2016.[Online].Available:https://microgridknowledge.com/microgrids-and-energy-storage/.[Accessed28August2017].
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37 | Microgrids for commercial and industrial companies
[22] E.Judd,Judd,E.CronimetMining-PowerSolutionsCompletesWorldsFirst One-Megawatt Diesel-PV Hybrid, http://energyandmines.com/wp-content/uploads/2014/05/Cronimet.pdf,2014.
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[26] HOMERMicrogridNewsandInsight,WillCrowdfundingRevolutionizeMicrogrids?,http://microgridnews.com/crowdfunding-microgrids/,2017.
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38 | Microgrids for commercial and industrial companies
WBCSDs REscale business solution
Through REscale, leading companies are workingtogetheronsolutionstoacceleratethe deployment of renewables beyond average growth and transition to a low-carbonelectricitysystem.Thegroupsharesthe view that renewable energy is reliable andincreasinglycompetitiveandthat3.5TWofcapacitycanbedeployedby2025.C
In 2016, REscale published the report Business Case for Low-Carbon Microgridswhich demonstrates the viability of low-carbon microgrids using real project examples to raise awareness and promotemarketgrowthofrenewablesindecentralizedsystems.Thisreportcontinuesourworkandemphasizesthepotentialforasignificantup-takeoflow-carbonmicrogridsbycommercialandindustrialcompanies.
TofindoutmoreaboutREscale, the Corporate Renewable PPA Forum and previousreports,visitourwebsite.
C The3.5TWfigureisbasedontheInternationalEnergyAgencys2scenario.
About the World Business Council for Sustainable Development (WBCSD)
WBCSDisaglobal,CEO-ledorganizationofover 200 leading businesses and partners workingtogethertoacceleratethetransitiontoasustainableworld.Wehelpmakeourmember companies more successful and sustainable by focusing on the maximum positive impact for shareholders, the environmentandsocieties.
Our member companies come from all business sectors and all major economies, representing combined revenues of more than$8.5trillionand19millionemployees.Ourglobalnetworkofalmost70nationalbusiness councils gives our members unparalleledreachacrosstheglobe.WBCSDisuniquelypositionedtoworkwithmembercompanies along and across value chains to deliver impactful business solutions to themostchallengingsustainabilityissues.Together, we are the leading voice of business for sustainability: united by our vision of a world where more than 9 billion people are all living well and within the boundariesofourplanetby2050.
www.wbcsd.org Follow us on Twitter and LinkedIn
http://www.wbcsd.org/Clusters/Climate-Energy/Resources/Business-Case-for-Low-Carbon-Microgrids-Reporthttp://www.wbcsd.org/Clusters/Climate-Energy/REscalehttp://www.wbcsd.org/Clusters/Climate-Energy/REscalehttp://www.wbcsd.orghttps://twitter.com/wbcsdhttps://www.linkedin.com/company/41533/ -
The REscale business solution currently consists of the following companies supporting this report:
This report was drafted by ENEA Consulting.Thereporthasbeenpreparedfor general informational purposes only and is not intended to be relied upon as accounting, tax, legal or other professional advice.Wethankthefollowingco-authors:Richard ScotneyLuc PayenGrgoire BurdeauMaeva FaureGuillaume Kerlero de Rosbo
Disclaimer
This publication is released in the name of the World Business Council for Sustainable Development(WBCSD).Thisdocumentistheresultofacollaborativeeffortbetween WBCSD, ENEA Consulting and representatives from companies participating intheREscalebusinesssolution.
A wide range of REscale members reviewed the material, thereby ensuring that the document broadly represents the majority viewoftheREscalebusinesssolution.
It does not mean, however, that every companywithintheworkinggroupagreeswitheveryword.
To contact WBCSD about this report:Mariana HeinrichManager, Climate & [email protected]
For general enquiries at WBCSD:Rasmus ValankoDirector, Climate & [email protected]
Acknowledgements
WBCSDsREscalebusinesssolutionhasbroughttogethercompaniesfromdifferentindustriesandmarketstocollaborativelydevelopthisreport.Wewishtothankthefollowing people for their contributions and thought-leadership: ABB:ErikaVelazquez&JohnRevessCLP Group: Peter LoEaton Corporation:LouisShafferEnel: Edoardo Patriarca, Emi Bertoli & Doug Staker(DemandEnergy)Schneider Electric: Thomas Andr & Francois Borghese
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