Are microgrids affordable?

Between fast-rising demand, growing generation supply constraints, and the steadily-increasing frequency of extreme weather events like wildfires, severe storms, and heat waves, the US electricity grid is facing unprecedented challenges &#; and so are the businesses that depend on it. Over the past decade, average electricity rates have increased by over 20% while power outages experienced by customers increased by over 50%. 

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Continuing to rely on grid power that keeps getting more expensive and more unreliable is an untenable proposition for many companies, and particularly for facilities where prolonged outages or power quality issues can spoil inventory, ruin sensitive manufacturing processes, or create health and safety hazards. Some are investing in expensive and polluting diesel-fueled backup generators to provide resilience, while others are installing solar panels and batteries to combat steadily-rising electricity rates. 

Microgrids can offer the best of both worlds, adding an integrated layer of clean on-site generation, battery storage, and controls to serve the twin purposes of reducing everyday electricity costs while also ensuring critical operations stay online in the event of a grid outage. However, there is a perception among many businesses that microgrids are too complex and expensive to be an affordable solution.  

Scale Microgrids is changing that perception by showing our customers that microgrids aren&#;t just &#;affordable&#; &#; they can actually save up to 30% or more on energy expenses from day one, with a microgrid service agreement that eliminates up-front capital costs as well as operational complexity and risk. In fact, our currently-contracted projects are expected to help our customers save nearly $420 million on their utility bills, avoid over 14,000 hours of power outages, and reduce CO2 emissions by 2.5 million tonnes for customers that range from grocery stores to large manufacturing facilities. Here&#;s how. 

Delivering ROI Beyond Resilience

Traditionally, energy and facilities managers have understood resilience as an added expense for their business. On-site diesel or natural gas-fueled generators entail costs for installation, maintenance, and refueling, but they keep the lights on when the grid goes down. Some companies have a precise, often hard-earned understanding of the value of this resilience to their bottom line, but many companies simply assume that backup power is an unavoidable cost of doing business. 

Microgrids offer similar or even superior resilience benefits compared to a backup generator, but with a dramatically superior overall value proposition. In contrast to backup generators, which only provide value during an outage, microgrids can deliver significant economic benefits every single day through a variety of value streams. 

• Solar savings: Most microgrids include on-site solar panels, which deliver zero-emission electricity at a lower cost than the grid and thus save money whenever the sun is shining. Solar power prices are also effectively locked in for the 20+ year life of the asset, which means that their per-kilowatt-hour cost savings will increase every time utility rates go up. This is a sharp contrast to diesel generators, which are more expensive than utility-delivered power and have to contend with often-volatile fuel prices. 
  
  
• Load shifting: Microgrids equipped with battery storage enable businesses to shift their energy use to take advantage of (TOU) rate arbitrage opportunities, charging batteries during cheaper off-peak hours and drawing on that stored electricity during expensive on-peak hours. These savings from load shifting are magnified in microgrids that include both solar and batteries, as optimized control systems can ensure that businesses maximize their use of cheap stored solar power when grid electricity prices are highest.  
  
  
• Reducing demand charges: Demand charges are based on the highest level of energy consumed in a given hour during a monthly billing period. This is often the fastest-growing portion of many businesses&#; utility bills, sometimes accounting for as much as half of their electricity costs, and it is a particular concern for companies with on-site charging facilities for electric vehicles (which can significantly increase peak demand). Microgrid controls can optimize battery use to reduce the amount of power that a facility needs to draw from the grid at any given time, flattening their load and reducing demand charges.
  
  
• Demand response and VPPs: On hot summer days when demand is high, utility demand response programs offer payments to businesses that relieve stress on the grid by cutting their power usage. Microgrids make it easier to participate in demand response events, allowing companies to tap their own on-site power to reduce grid use without reducing their productivity. Emerging applications called &#;virtual power plants&#; or VPPs may offer further revenue opportunities, allowing microgrids to provide additional grid services in coordination with other customer-sited distributed energy resources. 
  
  
• Avoiding utility service upgrades: In addition to these everyday savings on operational expenses, the on-site capacity of a microgrid can also help avoid the capital costs and indeterminate delays associated with having their utility upgrade their electrical service. For companies looking to build new facilities, expand their operations, or add EV chargers for fleets, this can save millions of dollars and years of waiting. 

These value streams can add up to a significant ROI even before the value of resilience is considered.  For example, a cold storage facility microgrid developed by Scale for a customer in California is projected to achieve more than $43 million in lifetime savings. These projected savings often increase over time as electricity rates spike &#; for example, a microgrid we built for a New Jersey vertical farm customer saved from year one and is on pace to generate savings of 128% compared to its original expected value. 

As evidenced by this lengthy list, the cost benefits of microgrids are diverse and complex, and they may 

vary significantly with site characteristics, load profiles, and utility jurisdiction. The beauty of a microgrid is that its sophisticated control systems can automate operations to deliver maximum ROI alongside maximum resilience &#; and the advantage of working with Scale is that we have experience delivering these optimized services for a wide variety of customers. 

Scalable success with Scale

At Scale, we aim to literally live up to our company&#;s name, scaling microgrids from a bespoke, expensive resilience solution only suitable for high-need customers to a cost-saving and accessible must-have for everyone. If your business is concerned about rising electricity costs, reliability risks, or both, Scale can provide a fully-financed microgrid solution that combines the savings of solar and batteries with the resilience of a backup generator. 

And if you&#;re a project developer, fleet management company, charge point operator, or energy advisory firm, Scale can help you reach new markets by meeting your needs for expertise across the entire microgrid adoption lifecycle, including project design, delivery, operations, and financing. 

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Perhaps most important, from the customer&#;s perspective, financing and contract innovations can significantly cut customer costs.

For example, the increasingly common energy-as-a-service contract requires little or no upfront capital paid by microgrid customers; they just continue to pay for their energy in a budgeted manner, much as they do if they buy it from a utility &#; except they have the added benefit of power from the microgrid when a grid outage occurs. A third party owns the project and takes the risk.

What energy actually costs

Mark Feasel, president, Smart Grid-North America at Schneider Electric, a pioneer in the energy-as-a-service approach, describes pricing a microgrid as a problem-solving activity. The customer probably is exploring a microgrid because of a need. Perhaps they are experiencing expensive and disruptive power outages or they may want to accelerate their progress in achieving sustainability goals. Can the microgrid help?

To start, it&#;s important to define what energy actually costs the customer.

Feasel encourages them to look beyond the kWh cost they now pay their utility to what energy actually costs them &#; both when the utility grid is working and when it&#;s not. 

&#;Sometimes there are some costs that aren&#;t embedded in the energy price. It might be the [work] shift that you had to send home when you had an outage, or maybe your product was damaged,&#; Feasel said.

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Determining what a power outage costs is easier for some than others. For an industrial manufacturer, the equation can be a straight-forward calculation of lost product. For a hospital or nursing home, it&#;s more complicated and can come down to loss of life.

But it&#;s clear the cost of power outages is not small. For example, a Stanford University climate and energy expert estimated that a 48-hour outage to 800,000 California customers in October cost about $2.5 billion.

&#;Almost anywhere on the East Coast and almost anywhere on the West Coast, we&#;re likely going to be able to deliver you an integrated energy outcome that&#;s cheaper than you&#;re paying today, or at least at the same price.&#; &#; Mark Feasel, Schneider Electric. 

Sustainability goals represent another possible hidden cost. The customer may want to green its energy supply beyond what utility grid power provides. What&#;s the cost to reach the goal and has the customer yet calculated the figure into its energy budget? 

Once they establish the level of resiliency and sustainability the customer requires, the microgrid team can determine the mix of distributed energy resources and the capital cost of the microgrid.

The next step is to determine the necessary contract horizon to reach a monthly charge within the financial boundaries set by the customer. Some customers don&#;t want to pay more for energy than they already do on a monthly basis; in other cases they&#;ve set a budget for greater electric reliability or cleaner energy.

If the sole goal is price reduction, the customer may not be in the market for a microgrid, Feasel said. They may seek other services, such as strategies to reduce demand charges or tariff evaluation.

That doesn&#;t mean a microgrid won&#;t decrease your costs &#; it just depends on what the cost of utility power in your geographic location and what the project encompasses.

&#;Almost anywhere on the East Coast and almost anywhere on the West Coast, we&#;re likely going to be able to deliver you an integrated energy outcome that&#;s cheaper than you&#;re paying today, or at least at the same price,&#; Feasel said. 

Even if a customer ends up paying as much as they did for the utility power, the customer now has the added benefit of a microgrid, including power when the grid goes down.

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A range of microgrid costs

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Managing peak

Microgrids also are becoming increasingly appealing from a cost perspective for those managing risks associated with peak demand, such as 4CP in ERCOT, the coincident peak in PJM, and Ontario&#;s global adjustment.

&#;You&#;ve got to be able to predict when the coincident peak is going to be, before it occurs. That takes some fairly sophisticated grid level awareness and deep market knowledge. You can program those kinds of things into a microgrid controller,&#; Feasel said.

Microgrid projects also increasingly include more than just installation of the microgrid; the developer may take a comprehensive look at the energy facility, upgrade old equipment, add energy efficiency and advanced technology measures, and in some cases focus on water system improvements too. These measures can add capital costs, but increase operational savings.

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Driving down microgrid costs