Microgrids – design and financing options

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Design approaches and funding options are key questions that need to be considered with microgrid deployments.

Microgrids are growing in popularity at both public and private levels for applications ranging from enhancing resilience to reducing electricity costs and electrification in island and remote communities.

Except for the most basic, they have several common components, i.e. distributed energy resources including generation and storage, loads that they supply, controls and if connected to a main grid an interconnection.

Aspects such as the construction and commissioning of a microgrid can occur relatively quickly. However, there are some key questions that need to be addressed, particularly around the design and financing, and these are the focus of two new papers from the US National Association of Regulatory Utility Commissioners (NARUC).

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While obviously US focussed, the considerations are nevertheless of wider interest and applicability.

Microgrid design approaches

The design approach report highlights key questions that must be considered as including designating and prioritising the loads, considering multi-facility options and exploring where and how to make a grid interconnection.

Other keys are selecting the generation and storage resources and the microgrid hardware and software, taking into account local policy and resource options and costs.

Various customer objectives result in different design and operational choices. For example, a hypothetical hospital focused on reliability and resilience might intend to procure a solar+storage microgrid with a combined cold storage and flow battery if it needs to be able to operate islanded for three weeks following a hurricane.

On the other hand, a California warehouse seeking to achieve electricity bill savings might seek a more complex configuration of a combination of solar PV, solar thermal, cold storage and controllable central heating and cooling capacities.

Different objectives also can influence operational choices and electricity dispatch decisions. For example, a hypothetical Maryland school hosting a microgrid primarily to integrate clean energy resources will pursue a different dispatch strategy for its generation and storage resources than a California warehouse interested in using a microgrid to lower peak demand charges.

The paper notes current optimal microgrid solutions have payback periods of 16-20 years. The main factors influencing the payback are the current on-site energy consumption and spending, the level of energy generation from the microgrid, the capital cost of the microgrid and the funding and/or financing arrangements.

Funding and financing options

The funding and financing report states that in the US many microgrid projects to date have involved some form of co-investment between public and private sector partners. Thus, a growing number of public-private partnership financing structures are now available.

But as microgrids grow in use, more coordinated funding could be needed. Examples of wider applicability include developing new rate structures that microgrids can use to develop predictable revenue streams, providing public funding at key points in the microgrid financing process to reduce private investment risk and providing comprehensive technical assistance and support for customers.

Communities also can be empowered to finance local microgrids to meet their needs.

Underlying these is the need for a regulatory regime for microgrids, with regulatory certainty present to support investor plans.

The report notes that microgrids offer a variety of value streams that developers can leverage to mitigate financial risk and make projects more compelling for investors. Demand response programme participation, electricity exports and local energy market participation, in addition to the energy savings potential of the critical facilities connected by the microgrid, make microgrids an intriguing option for public and private capital to finance.