With the proliferation of climate induced power outages and Utility initiated Power Safety Power Shutoff events (PSPS), many public agencies are evaluating the potential to deploy microgrids to mitigate operational downtime. Microgrids combine energy generation sources, such as solar PV and energy storage systems, such as batteries with the switching and controls necessary to create an islanded facility-level electrical distribution system (backup power) during a grid outage. In our past TerraBlog series on microgrids (https://terraverde.energy/the-technical-financial-performance-of-a-facility-microgrid/), we explored some of the key market and technical considerations for evaluating and deploying microgrid projects. In this follow-on article, we will describe best practices for performing a comprehensive feasibility assessment for microgrid projects.
A feasibility assessment for microgrid projects should include all aspects of historical energy use/cost analysis, individual project identification, physical site/facilities due diligence, and projected financial and environmental benefits for projects meeting energy cost savings goals and resiliency objectives for critical loads. In this article we will focus on facility-level microgrids configured with onsite solar PV generation and battery energy storage systems (also standalone battery storage systems where solar PV is not viable, and the addition of battery storage to existing onsite NEM solar PV projects). A comprehensive feasibility assessment consists of four phases:
- Data Collection (including incentives eligibility evaluation, initial analysis, site audits)
- Systems Sizing Analysis (including project cost estimates and financial projections)
- Financial Analysis (including cost/benefit analysis, financing options, and development of cash flow pro formas)
- Review of Findings (including a discussion of next steps)
Step 1: Data Collection
The first step in pursuing a technical & financial feasibility assessment for microgrid implementation is the data collection process. The objective for this phase is to gather all relevant historical energy use/cost data and site-specific conditions and electrical infrastructure information necessary to initiate a detailed analysis of operations profiles (demand profile and electricity consumption/billing analysis), and an evaluation of physical site conditions and interconnection complexity.
Relevant data for solar PV & battery storage typically includes:
- Electricity Use and Billing Data for all Utility accounts/sites to be evaluated, including
- 15-minute interval meter data, minimum 12 months of sequential data
- electricity bills
- rate tariffs
- CCA, direct access, and demand response program participation details as applicable
- Data Regarding Existing On-site Generation Resources such as solar PV systems or fuel cells, including:
- historical performance data (minimum 12 months of sequential 15-minute or hourly interval data)
- as-built design drawings and single line diagrams
- project installation agreements or power purchase agreements
- Site-specific information including: site plans, facilities drawings, parcel maps, as-built electrical designs and single line diagrams, as-built architectural and roof structure designs, underground utilities diagrams, documented easements, civil engineering and geotechnical reports and/or soils tests if relevant; and as applicable/available: survey data and title reports, FEMA/ACOE flood zone maps and wind zone maps
- Incentive Eligibility information
- Current Market Data for Solar PV, battery systems, and microgrid equipment and installation costs, O&M and asset management costs, financing methods, PPA rates & terms, and solar Renewable Energy Certificate values
- Project Permitting requirements
The data collection process typically follows the following progression:
- Analysis kickoff meeting to
- establish goals/objectives/expectations, communication protocols, roles/responsibilities, and data collection milestones.
- Identify known future or in-progress energy efficiency project plans and/or facility expansions or contractions that may increase or decrease energy consumption/demand in the future.
- Collect, review, and clean electricity usage & billing data, as described above
- Determine applicable Utility accounts to evaluate based on electricity demand, usage, rate structure, and cost.
- Perform location based SGIP eligibility analysis for all sites/meters to be evaluated.
- Perform initial solar PV system sizing for optimal energy use/cost offset and savings benefit (new PV systems).
- Identify meters for demand profile analysis (initial battery energy storage sizing analysis).
- Review all applicable and available information for the sites under consideration (see list of applicable information above).
- Visit each site to conduct a thorough audit of electrical infrastructure (capacity and condition), Utility transformers, and site conditions to determine optimum equipment layout strategies (including roof areas and parking lots as applicable). Document all space constraints, potential sources of shading, orientation, operational constraints, site access points, security fencing, topography, drainage, property zoning status, flood zones (if applicable), utility lines and easements, known underground utilities/pipelines, cell towers, and potential surrounding residential neighborhood issues/concerns. Identify any infrastructure limitations, structural concerns (for roof-top applications), geotechnical/soils conditions (carport and ground-mount applications), and shading conditions (trees & buildings).
- Perform an interconnection feasibility evaluation for each site under consideration.
- Assemble site audit notes and photos and describe initial project feasibility assessment conclusions.
Step 2: System Sizing
The next step in the feasibility process is to use the historical energy data and site conditions due diligence gathered in the data collection phase to determine proper system(s) sizing (capacity) for the identified projects (initially using a goal to maximize Utility bill savings and project ROI), estimate economic benefits including eligibility for available incentives, and estimate implementation costs (total project costs). This process typically follows the following progression:
- Use site audit data to inform updates to solar PV system sizing (kW) estimates, generate solar array location plans and initial layouts for each site.
- Confirm PV system type, capacity, and projected energy production.
- Calculate avoided cost for solar PV and electricity consumption & billing offsets.
- Consider NEM, NEM-A and RES-BCT tariff scenarios as applicable.
- Determine optimal battery system sizing based on demand management end TOU energy arbitrage opportunities.
- Evaluate existing on-site NEM solar PV systems to determine the scope and cost of any necessary upgrades that may be triggered by adding battery storage to the existing interconnection.
- Determine relevant permit approval authorities and their project review/approval requirements.
- Generate project cost estimates inclusive of project design/build costs, estimated site preparation, estimated interconnection scope, current market data for labor, equipment, materials, O&M and asset management costs, insurance, cost of capital and PPA investor internal rates of return (IRRs), and expected PPA rates.
Step 3: Financial Analysis
The third phase of the feasibility assessment process uses the project cost estimates, projected savings benefits, and projected revenues (as applicable) to create detailed cash flow savings proformas and cost/benefit reporting for all of the scenarios evaluated. It also includes detailed comparisons of differing financing methods that can facilitate financial decision making, and projections of resiliency benefits (load coverages and backup power durations). The following is an example of the typical process:
- Perform a utility rate optimization analysis
- Calculate battery bill savings from demand charge reduction and TOU rate arbitrage.
- Determine current solar PV Renewable Energy Certificate (REC) values.
- Calculate the value of all relevant incentives (SGIP and Federal ITC benefits) and grants as applicable.
- Research relevant revenue & incentive opportunities for battery storage systems from participation in emerging grid services and CCA programs.
- Calculate energy resiliency (back-up power) backup power benefits during planned and unexpected power outages.
- Evaluate the “economic value of resiliency” from the backup power features of the projects, including: the CAPEX and OPEX of otherwise available back-up solutions, avoided business interruption costs, and avoided liabilities.
- Evaluate project financing and ownership options using detailed cash flow proformas for each financing structure to compare/contrast economic performance attributes.
Step 4: Review of Findings
The final phase of the feasibility assessment is a review of the analyses and due diligence performed during the study, the results of the financial analyses, and conclusions regarding results. This review should include a discussion of “next steps” that may include administering a solicitation, negotiating project contracts, overseeing final systems design/engineering, construction management, project commissioning, and ongoing asset management.
Evaluating Existing On-Site Solar Generation Facilitated Under a PPA
For sites/facilities with existing onsite solar energy PPAs in place the contract terms should be carefully reviewed to understand the implications of integrating battery storage with the solar PV system, and incorporating a microgrid configuration. Since solar PV systems facilitated under a PPA structure are owned and controlled by a third-party provider, the terms of the existing PPA will require modification to allow the integration to occur. If the solar energy PPA has been in operation for at least six years, it may be possible to exercise a buyout option to take over title to the solar PV system in advance of attempting to re-negotiate the PPA to affect the integration of a battery storage/resiliency project.
Evaluating Incentive Eligibility
The Federal Investment Tax Credit (ITC) provides a tax credit for solar PV + battery storage projects (applicable to new standalone solar PV projects and new solar PV systems with integrated battery storage). The current ITC value Is 26% of total project capital costs. However, the ITC value drops to 22% on January 1, 2021, and to 10% on January 1, 2022 for commercial-scale projects. Note, stand-alone battery projects and retrofit projects, i.e., adding a battery to an existing solar PV system, do not qualify for the ITC.
The Self-Generation Incentive Program (SGIP) provides additional cash incentives for battery storage systems (either as stand-alone installations or when integrated with existing or new solar PV systems). Eligibility for the various categories of incentives is based on the type and location of the site/facility. The value of the incentive categories (budgets) ranges from $35/kWh (for the large-scale base level incentive) to $100/kWh (for the “Equity-Resiliency” Incentive). These incentives can offset from 30% to 100% of a microgrid’s project capital costs (including all equipment, installation, and O&M scope). For specific eligibility criteria, visit our recent article on “The Latest on California’s SGIP Battery Incentive”.
On a local level, several of the emerging community choice energy agencies (otherwise known as CCAs) offer incentives to their customers to install batteries (residential and commercial). Some of these programs provide funding to assist in deploying battery/microgrid projects. Others provide a revenue sharing opportunity for customers who are willing to allow the CCA to use their battery as a component of a much larger portfolio of energy storage resources that can be utilized by the CCA to offset peak loads, thereby reducing the CCA’s electricity procurement costs. We encourage customers to reach out to their local CCAs to explore battery asset partnerships and incentive programs.
Modeling Resiliency Benefits: Microgrid Project Cost Effectiveness vs. Resiliency Benefits
The resiliency (backup power) benefits of a microgrid are generally described by the load (kW) that can be supported by the energy storage system (and it’s charging source; the solar PV system and/or the grid), and the period of time (duration) it can sustained. Critical load coverage and duration facilitated by a microgrid are determined by several factors: On-site energy generation and energy storage capacity, critical load(s) capacity, and critical load usage profile supported by the microgrid (i.e., percentage of full load coverage). The time of year when a power outage may occur also comes into play, as it can impact assumptions/expectations for energy generation from the solar PV system, and the load coverage that may be required.
Due to the inherent conflict between maximizing expected energy cost savings for solar PV + battery storage projects (consumption offset, solar PV avoided cost, demand charge reduction, TOU rate arbitrage, potential grid services revenues, incentives values, and solar REC values) and expected (target) resiliency benefits (backup power capacity/duration), evaluating optimal sizing for solar PV + battery storage systems with a facility microgrid can be a difficult exercise. Solar PV system size is influenced by the location of the facility, the available area for arrays, the facility’s rate tariff, the target energy production profile to achieve maximum economic benefit, and the desired level of resiliency benefits. Battery storage sizing is often impacted by the conflicting choices of optimum economic benefit and resiliency duration benefits. In some (rare) cases solar PV and battery storage sized for maximum economic benefit will provide sufficient backup power resources to meet the target resiliency requirement. However, in most cases solar energy generation and battery storage sizing will require striking a balance between project cost effectiveness, energy resiliency duration expectations/requirements for full load coverage (or partial load coverage), criticality of the load in question, and compliance with SGIP rules (to achieve expected/maximum incentive value during the 5-year incentive payout process). The “value of resiliency” and/or the avoided cost of lost facility operations, lost (spoiled) Inventory, and liability associated with discontinued critical needs services, may assist in supporting greater energy resiliency capacity even though project economics may be eroded somewhat by the added cost to achieve the target resiliency duration.
Another option is to understand potential benefits of supporting a sub-set(s) of the facility’s total load identified as “critical load” that is supported by the microgrid. The isolation of these critical loads will require physical reconfiguration of the distribution panel and switchgear, and adds additional costs to the project.
Modeling Microgrid Costs and Benefits
Solar PV system costs are influenced by many factors, including: project size, project type, scope complexity, system configuration, location, project schedule, project risk (primarily site conditions), interconnection costs, contract terms, operations & maintenance requirements, performance guarantee terms, and bonding & insurance requirements. In addition, costs for managing PV systems over their operating life and replacing inverters at the expiration of their warranty term should also be included in the evaluation. Solar PV monetary benefits include:
- Utility bill cost savings generated under applicable/available tariffs and interconnections agreements (i.e., NEM 2.0, NEM-A, and RES-BCT tariffs).
- The monetization of Renewable Energy Certificates (RECs).
Battery storage systems cost variables are similar to those listed above for solar PV systems, and their economic benefits include:
- Demand Charge Management (bill cost savings)
- Time-Of-Use Energy Arbitrage (bill cost savings)
- Revenue from Grid Services & CCA Programs
For more information on the economic benefits of batteries, see our recent article on “Evaluating the Potential of A Microgrid”.
As independent energy advisors, TerraVerde is supporting CCAs and California public agencies in evaluating and deploying energy resiliency programs. Over the past 10 years, we have developed over 100 MW and over $400M worth of solar & battery programs. To learn more about our feasibility analysis, program design, and project development services, reach out to us at email@example.com.