In anticipation for upcoming power shutoff events by utility operators to mitigate the risk of wild fires, many public agencies are evaluating the potential of deploying facility level microgrids to avoid operational downtime. Microgrids combine solar PV and battery energy storage systems with the switching and controls necessary to continue providing backup power during a multi-day grid power outage. In our new TerraBlog series on microgrids, we will be exploring some of the key market and technical considerations for evaluating and deploying these projects. In this first installment, we will explore the process of understanding the specifications, costs, and opportunities of potential facility microgrid projects.
Evaluating Energy Usage & Costs
In order to understand the scope and benefits of a microgrid project, the first step is evaluating the historical energy usage and costs for that particular facility (at least the most recent year’s history). This exercise includes the collection and review of the historic electric utility meter data (in 15-minute intervals), as well as the utility bills. During this process it is imperative that the data be closely examined for accuracy before beginning an analysis. Key considerations of the analysis include:
- The nature of the electric utility rate structure for the facility: Does the rate structure include demand charges? Does the rate structure have seasonal & time-of-use pricing variability?
- The cumulative energy consumption for the facility: the total amount of kilowatt-hours (kWh)
- The maximum (or peak) demand for the facility: the highest 15-minute interval of kilowatt power demand
Additionally, to understand the potential scope of the microgrid, there will need to be an assessment of the loads that will be supported by the microgrid. In an effort to minimize costs, and optimize the efficiency of resiliency projects, in many cases, a sub-set of the total facility’s loads will be identified as “critical loads” to be supported by the microgrid. The identification of these loads includes determining which loads are to be considered as critical, and then evaluating both the energy consumption (kWh) and power demand (kW) profiles for those loads.
Evaluating Existing On-Site Generation
For facilities where there is already existing on-site electricity generation, such as solar PV, the expected performance, potential re-configuration requirements, and contract implications must be carefully considered. To understand the expected performance, there should be a detailed assessment of as-built drawings and recent performance records. It is important to note that the historic performance of the system will need to be accounted for in the process of building the energy use profile for a facility (i.e., the historic generation data will need to be evaluated in comparison to the historic electric utility meter data to determine the actual historic facility electricity usage). In addition, based on the intended level of backup support to be provided by the microgrid, there will need to be an evaluation of the physical interconnection configuration for the existing on-site generator, as it is likely that all or a portion of the system will need to be re-configured to operate in island mode (to continue to generate power in the event of a grid outage). Finally, the terms and conditions of the contracts related to the on-site generator will need to be examined closely to understand what implications there may be for incorporating this resource into the microgrid.
Evaluating Incentive Eligibility
In California, microgrid projects can take advantage of Federal, State, and in some cases local incentive programs.
On the Federal level, the Investment Tax Credit (otherwise known as the ITC) extends project owners a tax credit of 26% of the project solar PV and battery energy storage costs. It is important to note that the battery project must also be part of a new solar PV installation to qualify for the ITC (stand-alone battery projects and retrofit projects adding a battery to an existing solar PV system do not qualify). It is also important to note that this incentive level is scheduled to step down. In 2021 the incentive level will be 22%. In 2022 the incentive level will rest at 10% for commercial & utility scale projects and 0% for residential projects. However, there is consideration of an extension of current ITC levels under the Federal government’s response to the COVID19 crisis.
Here in California, the Public Utility Commission offers the Self-Generation Incentive Program (SGIP), which provides additional rebates for batteries (and other renewable energy systems). There has been a lot of recent movement with this program, which we have addressed in recent articles. Under the terms of the program, based on the type and location of the facility, battery projects can receive incentives of between 25-100% of the cost of the project. The following table provides a brief overview of the incentive levels available for commercial scale projects.
Table: SGIP Incentives for Commercial Scale Battery Projects
|Base Incentive||Resiliency Adder||Equity Incentive||Equity Resiliency|
|Qualifiers||§ Investor Owned Utility Customer (or customer of CCAs in IOU territory)||§ Investor Owned Utility Customer (or customer of CCAs in IOU territory), AND
§ A Critical Facility that provides services to one or more communities in a High Fire Threat Zone or that has experienced two or more Public Safety Power Shutdown (PSPS) events
|§ Investor Owned Utility Customer (or customer of CCAs in IOU territory), AND
§ Either a government agency, educational institution, non-profit organization, or small business, AND
§ Either located in a Disadvantaged (DAC) or Low-Income Community, OR
§ At least half of census tracts served are DAC or Low-Income Communities
§ Investor Owned Utility Customer (or customer of CCAs in IOU territory), AND
§ A Critical Facility, AND
§ Either located in or serves at least one DAC or Low-Income area that is also in a High Fire Threat Zone or has experienced two or more PSPS events
On a local level, several of the emerging community choice energy agencies (otherwise known as CCAs) are offering incentives for customers to install batteries. Some of these programs provide funding to assist in the deployment of these projects. Others provide a revenue opportunity for customers who are willing to allow the CCA to use their battery as a part of their portfolio of energy resources. We encourage customers to reach out to their CCAs to find out how they can partner together in deploying these types of projects and programs.
Sizing the Equipment
Due to the interconnected relationship between equipment sizing, resiliency benefits (backup power capacity), and project economics, evaluating the optimal sizing for the solar PV and battery energy storage systems for a facility microgrid is a complex, iterative exercise. The solar PV system size will be influenced by the location of the facility, the available space, and the target energy production profile (which will vary based on the economic & resiliency benefits being targeted). Similar to the solar, the sizing of the battery energy storage system will be impacted by the economic and resiliency benefits being targeted. In some (rare) cases the solar PV & battery system sized optimally for economic benefit will provide sufficient backup power resource availability to meet the target resiliency requirement. However, in most cases the sizing of the resources will need to be increased to meet resiliency requirements, thus negatively impacting the overall economic profile of the project.
Modeling Resiliency Benefits
From an energy perspective, the resiliency (or backup power) benefits of a microgrid are generally described by the amount of load (or power capacity) that it can support, and the duration of support that it can provide. The power capacity and duration of energy resiliency provided by a microgrid are determined by several factors. The size of the on-site generation and energy storage resources is one variable. The loads and usage profiles that will be supported by the microgrid are another factor. The time of year when a power outage might occur also comes into play, as that typically impacts assumptions of both power generation from solar PV as well as the load support that may be required.
Modeling Economic Benefits
The economic benefits of a new solar PV system will be determined by the costs and benefits of the project. Solar PV system costs are influenced by many factors, including: project size, 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 the system and replacing the inverters at the expiration of their warranty term should also be included in the evaluation. The benefits of a solar PV system include:
- Utility bill costs savings generated under a Net Energy Metering (NEM), Net Energy Metering Aggregation (NEM-A), or Renewable Energy System Bill Credit Transfer (RES-BCT) program
- The monetization of Renewable Energy Certificates
Net Energy Metering (NEM): Under a NEM program, exported solar energy (generation in excess of what is self-consumed) is credited against usage and billing from the electric utility at full retail value, over a defined true-up period.
Net Energy Metering Aggregation (NEM-A): Under the NEM-A program, a single solar PV system is able to generate credits that are applied against usage and billing from multiple (aggregated) accounts, owned by the same customer that are located on contiguous properties.
The Renewable Energy System Bill Credit Transfer (RES-BCT) Program: In California, the RES-BCT program allows for public agencies to deploy a behind-the-meter solar PV system of up to 5 megawatts of capacity on property owned or leased by the agency, and provides “bill credits” against the generation charges of designated benefiting accounts for the solar energy exported to grid by the RES-BCT solar project (generation in excess of what is self-consumed at the interconnection meter).
Renewable Energy Certificates (REC): When properly registered with the appropriate independent tracking system, the energy production of a solar PV facility can be certified. These certificates (or RECs) represent the environmental benefits associated with the solar energy generation and can be sold independent from the energy itself to buyers looking to claim these environmental benefits. To learn more, we invite you to review our recent article on RECs.
For battery energy storage systems, the cost variables are very similar to those listed above for solar PV systems. The economic benefits that batteries can generate for electricity customers, include:
- Demand Charge Management (Electric Utility Bill Savings)
- Time-Of-Use Energy Arbitrage (Electric Utility Bill Savings)
- DRAM Program Revenue (A Recently Emerged Grid Services Program)
Demand Charge Management: Demand charges are the portion of an electricity bill that is charged by the utility for a facility’s peak power demand. This amount is typically set by the highest peak 15-minute interval over a billing period (month). For facilities that have significant demand charges, and the right load profile, batteries can discharge to meet a portion of that peak demand, reducing the utility demand charges and generating savings. This is also referred to as ”peak shaving”.
Time-Of-Use Energy Arbitrage: For facilities on time-of-use rates, batteries can charge when energy rates are at their lowest and discharge when rates are their highest, thereby reducing energy costs.
DRAM Program Revenue: Batteries can participate in a relatively new grid services program known as the Demand Response Auction Mechanism (DRAM). Similar to traditional demand response programs (where customers are compensated for allowing the utility to turn off some of certain loads during certain high energy usage events), the DRAM program enables behind-the-meter batteries to earn revenue by reducing a facility’s load at specified times without requiring facility loads to be turned off.
Finally, in order to complete the economic benefit profile of a microgrid project, the avoided costs of outages should be evaluated and included (i.e., revenue loss from operational disruption, loss from spoiled perishables, etc.).
We hope you enjoyed this “part-one” of our TerraBlog series on microgrids. Up next, we will take a closer look at some of the market and technical variables that will influence the speed and scale of energy resiliency programs. Stay tuned.
As independent advisors, TerraVerde is supporting CCAs and 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.