What factors into the final cost of a microgrid? Why are microgrids an economically feasible alternative to fossil fuel-based energy generation in some situations but not in others? How can some of these extra expenses be avoided?
On May 20, a panel of experts convened during the Microgrid 2021 Virtual Conference to try to answer some of these questions. These panelists included John Westerman, Director of Project Development & Engineering at Schneider Electric; Bruce Nordman, a research scientist at Lawrence Berkeley National Laboratory; and Manoj Sinha, CEO and Co-Founder of Husk Power Systems.
The session was moderated by Peter Asmus, Research Director at Guidehouse Insights.
Costs Due To Market Segment And Scale
Jumping straight into answering the titular question, Asmus cited a study he had previously worked on with the National Renewable Energy Lab: “the costs, we found, actually varied by market segment [i.e. campus/institutional, commercial/industrial, community, and utility].”
This study found that microgrid systems built for the commercial/industrial sector have the highest average cost, at $4 million per megawatt, followed by campus/institutional systems at $3.3 million, utility at $2.5 million, and community at $2.1 million. These differences may be due to economies of scale, with projects that have between 2-10 megawatts of installed generation capacity generally coming in with a lower cost per megawatt.
Costs Due To Design Elements
According to Westerman, the existing electrical capacity of a facility plays a significant role in the final cost of any microgrid design. To avoid overloading the grid with excess energy, the National Electrical Code limits how much distributed energy generation can be safely integrated into an existing service. As a result, the code may require microgrids to include plans to upgrade the existing circuit infrastructure before any new energy generation can be built. To complicate matters, however, utility companies categorize batteries as a kind of generator, which further limits how many and what kinds of assets can be added to the system.
Utility oversight can also add unexpected expenses to a microgrid system. In Westerman’s words, “Once you put multiple generating resources behind the meter, utilities really get involved and scrutinize everything that you’re going to be doing with that project. That study that the utility has to have has to be included in your project budget.”
How To Reduce Costs: Modularity
Another reason why microgrid infrastructure is so expensive is because it’s just downsized utility technology. Each deployment plan tends to be complex, requiring onsite engineers to develop on-the-fly solutions as new problems pop up in each unique location.
Nordman believes that the future of affordable microgrids is in making the technology modular. Ideally, energy users “could go to the store and buy some generation or buy some storage, bring it home, and plug it in.”
A 2019 report from Guidehouse Insights defines modularity as having “pre-configured key hardware components,” the “ability to customize operations through software (often in the cloud),” and “streamlined deployment procedures.” Simplifying microgrids and standardizing their deployment could reduce the need for specialized knowledge or skills, driving costs down and making entire microgrid systems more accessible.
Westerman agreed, saying that modularity with pre-packaged systems and vendor-defined attributes could be a solution for meeting customer expectations for small, critical facilities such as fire stations, small schools, and shelters during extended outages.
Reducing Costs In Resource-Scarce Countries
Asmus quoted a projection from the World Bank that called for the installation 200,000 microgrids in emerging markets by 2030 in order to meet the United Nations’ Sustainable Development Goal #7: “Ensure access to affordable, reliable, sustainable and modern energy for all.”
Sinha recommended that resource-scarce countries can save on costs by taking advantage of technology advancements to “leapfrog” their development. If a nation’s grid doesn’t reach the entire population or if the grid is unreliable, federal governments can skip over investing in traditional infrastructure that stretches the length and breadth of the entire country and instead jump straight to community-scale microgrid projects.
Such a development would require federal support through the passage of policies that would integrate new microgrids with existing national electrification plans.
In addition to policy changes, microgrids need to be designed from the bottom-up. As mentioned earlier, when microgrids are designed like utility grids, they are going to be more expensive than they need to be. According to Sinha, “What we have experienced is…you take a DC to DC converter or a DC to AC converter and you build it up…you’re not using unnecessary components in say, a hybrid inverter…you can really optimize the designs…that can really lower the cost of equipment.”
During the session, the presenters also discussed the value of cloud-integrated computing, government support, and other seldom-considered costs of microgrids. To hear Asmus, Westerman, Nordman, and Sinha talk about these issues and more, watch the recording of the full session in the conference’s archives.
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