Your organization has set a sustainability target, and they’ve chosen you as the star of the show who will pull off this transition. Ideally, you’ve found this blog after deciding to make onsite energy part of your energy transition plan, and you’re ready to dig in and determine how it fits. If you haven’t fully decided on onsite energy, get clarity on why it might benefit your organization’s goals in Should Our Company Consider Onsite Energy to Achieve Sustainability Targets?
If you’ve been following this blog series, you’re aware of our goal to provide advice and guideposts for the entire journey of leaders like you who’ve been charged with fulfilling energy goals as part of broader ESG initiatives. This article focuses on next steps and key factors to consider after choosing onsite energy as a primary driver for meeting your organization’s sustainability goal. Continue reading for the initial questions you must seek to answer along with recommendations and reasonable next steps.
Onsite Energy Key Factors Checklist
The checklist below serves as an outline to help Sustainability, Facility or Operational leaders like you make some early determinations that will guide the energy transformation plan and execution.
Answer the following questions to the best of your ability. Use the questions you can’t answer to determine whose assistance you need to enroll to help you plan and execute.
When thinking about any problem, a good way to start is to clearly understand the Why. For this blog series, we assume your organization has Sustainable Energy targets to hit, however it’s worth understanding whether you should also consider Energy Resilience.
Usually, if your company’s goal is to be sustainable, you will need:
- renewable sources: which can be intermittent (i.e. go up and down, on and off, a lot)
- storage for energy: energy systems don’t like variability, so you need to store the energy and release it in continuous chunks
- space: renewables like solar and wind tend to need a lot of space (i.e. rooftops, parking lot coverings, or adjacent open land)
To be sustainable, the system may cost a little more, and will require additional storage to provide reliable supply.
If you are thinking about energy resilience, chances are it is either because:
- you have a grid connection that you do not trust, either because it is intermittent or because the bad power quality is knocking down your electronics
- and/or your operation is so high value that even a few minutes of downtime would hit your bottomline very hard
If your company’s goal is to be resilient, you will need:
- A form of energy storage to capture excess power and consistently supply power produced from intermittent renewable sources
- Renewable generation beyond what is needed to fulfill your peak demand
This means that a completely resilient system will tend to be more costly.
Rank these key business goals:
- Sustainable energy
- Energy resilience
In-house vs. Outsource
Now that you know the organization’s Why, you may be tempted to define your What and Where: what should I build, and where? But we caution that How is a better qualifying question at this stage.
Review the following sequence:
- Is energy strategic to me? Or in another way, is energy a fundamental asset in the company’s production, and/or one we can commercially explore, or just a means to an end?
• If it is strategic, do we have what it takes to make a project happen, either by self-performing or outsourcing* it?
* when outsourcing it’s crucial to follow the mantra: inspect what you expect
- If yours is an industrial or commercial company, chances are energy is not what you are selling. However, energy could be a significant portion of your cost of goods or services, thus one you would want to have full control over.
- Depending on your involvement level, you need to evaluate if your organization controls the resources to get your project executed successfully – by executed, we mean building, maintaining, and operating it for the next 20 years or so.
- Another thing that companies usually overlook is knowledge over the constellation of good suppliers in their geographies of interest. Suppliers are constantly changing, and their quality and pricing fluctuates as well. As you are not constantly executing onsite projects, you must make sure to consult with people who are. They can connect you with reliable and established suppliers that are not only skilled and price effective today, but also will likely be around to maintain their products and services 20 years from now.
Did you know?
According to Phase I Microgrid Cost Study up to 75% of a microgrid project spend can be soft costs, aka things that aren’t the actual hardware you need to produce electricity. Working to reduce soft costs is critical for cost-effective onsite energy.
The advice here is that while overconfidence on your energy skills and supply chain knowledge may be very costly, underconfidence might mean you will hesitate to move, and your competitors can gain an edge over you. So it’s worthwhile to seek unbiased professional advice to get you where you need to be.
Answer these questions:
- Is energy strategic to me?
- Do I want to self-perform or outsource?
- Do I have what it takes to efficiently and effectively tackle an onsite energy project? If not, what do I need to do to get prepared?
- Do I intimately know the supply chain available to me and at every applicable geography? (e.g. The best solar suppliers and construction companies may be regional.)
Regardless if you decide to self-perform or completely outsource your project, you will need to figure out your business case parameters and run simulations.
Note: If you want to self-perform, carry the assets in your balance sheet, and finance the whole thing yourself, you will need to budget for the TOTEX (CAPEX + OPEX)
Perhaps you don’t want to finance the whole thing. Not only are many suppliers offering decent financing models, but also the DES (distributed energy systems) marketplace is booming. Money for clean tech is seemingly endless.
There are also clever financial solutions, in which you can get other companies to carry the assets for you at a fee. You can still own and operate the assets, or you can sign a Power Purchase Agreement (PPA) with that company and completely outsource your project.
There are also hybrid models. We see companies wanting to own a portion of their microgrid, and PPA the rest out. There is always a way to be creative and align solutions with your financial objectives.
The list above is in no way comprehensive, but I think you get the gist. There are many ways to fund your project, providing that the business case makes sense to the board or leader who has to sign off on it.
Answer these questions:
- How will you fund your project?
- Do you want to self-finance or structure some financing options?
- If you want to self-finance, what’s your TOTEX budget?
- Do you prefer to own and operate the assets, contract someone to provide you with electricity for a fee (e.g. Power Purchase Agreement), or perhaps choose a hybrid model?
The differences between an onsite energy project in two different locations can be dramatic. So, there are some things you have to understand before engaging with your favorite consultant.
A recommendation I like to give people is to invest a few minutes to break the mold. If you do not challenge your service providers, you are going to end up with the obvious, and unfortunately the obvious has not been enough when it comes to getting most onsite energy projects to pencil out. Be creative!
The other thing we recommend larger players do is to go through their entire portfolio of sites, assess them all in parallel, but include model curves like future price or carbon, storage, etc. Projects that do not pencil today may work in three years.
The most important thing here is to kill the sites that do not seem to pencil out within the next five to ten years. Then put the others in sequence in a roadmap, depending on your access to capital and other pertinent resources. That way you can plan out your energy future, instead of going site by site, in an ad hoc fashion.
This is particularly important for companies with emission targets. Some consider solving the problem by buying carbon credits or renewable energy certificates and forget the problem exists. But consider that prices will only tend to go up as more companies move into the net zero bandwagon.
A more sustainable solution is, perhaps, to entertain a combination of PPAs, owning and operating some assets for some of the sites, and topping it off with Renewable Energy Certificates (REC) for flexibility. Building that roadmap will allow you to communicate with internal stakeholders much better and will give you flexibility when planning.
Let’s try to map out a few (definitely not all) aspects that are worth looking at before starting to design an onsite energy solution.
Answer these questions:
Perhaps in some sites you have very little space to install energy assets, and in others more than enough. How much total space do you have available?
Distances are important in relation to accessing utilities services, running pipes and cables, transporting fuel (e.g. remote mines), or accessing services (e.g. maintenance).
How do you assess the different distances to the planned location of your energy assets?
In some locations you may be able to afford to adjust your manufacturing process to optimize energy needs, but in others that may not be an option. How flexible are your processes when optimizing for energy?
Perhaps you already have gensets in operation, solar panels on the roof, or a combined heat and power (CHP) system. What assets do you already have, and what condition are they in?
Sun and wind patterns, altitude, humidity and temperature are some of the parameters that are essential in the engineering of an onsite energy system. How does your location score in these parameters?
Knowing your utility contracts is critical, because they are the benchmark of success, either in terms of cost, resilience, or emissions.
- Do you have a reliable source of electricity and natural gas at your location?
- Which tariffs are you in now, and how much did you pay in the past three years?
- What different tariffs do you have available?
Innovation in this space comes from utilizing what you already have for cogeneration, be it heat, wastewater, biomass, methane, wood, and so on. For ideas, we recommend checking resources such as the Bioenergy Technologies Office from the US Department of Energy. What special assets do you have available as byproducts of your processes?
What financial advantages (e.g. incentives or net-metering) or disadvantages (e.g. carbon tax) have to be better understood?
Far too often people start by defining the tech they think they need (e.g. solar), and try to short circuit the entire process. By doing so, you are probably also short circuiting potential.
Assuming you’ve gone through the processes proposed here, and perhaps also added other things that we haven’t covered or that are particular to you, it’s time to define What you will be building. The reality here is that it is hard to really know if you absolutely and unequivocally have the best solution for your case. You see, we are talking about an optimization problem, which is not only complex (many variables) and not trivial to model, but also a bit chaotic, in that changing one variable may drastically change others, and consequently the solution of the problem.
So, if you are working with a consultant, ask:
Answer these questions:
- What actual experience can your design team produce?
- Can you demonstrate how your design compares to actual projects in operation?
- What simulation or optimization technology(ies) are you using?
If your consultant/designer approaches you and says:
- A-HA! I know what this organization needs…. (without even running a simulation), or…
- you ask them, “What tool(s) are you using to model my system?” and they say, “Mostly spreadsheets”
…our advice here is “Run for your life!”
There are some consultants out there who utilize many different tools to optimize a system. While this is definitely an evolution in comparison to a spreadsheet, the problem remains that you are not really working in a unified model. Chances are your system will be sub-optimized with this approach.
There are onsite energy-focused tools in the marketplace that will simulate very well these optimization problems. Their only critical weakness, however, is that they depend on you to set many different initial conditions for your model, simulate them all, and choose the one that is the most adequate.
Finally, there are new technologies already out in the market that will not only simulate a system, but will also set several million initial conditions, simulate them all, and pick the one simulation that best works for the prioritized set of goals you choose. It is hard to beat that value, so definitely worth looking into those.
Choose Your Partners Carefully
As we hopefully covered in this article, designing and optimizing an onsite energy project is definitely not trivial. Luckily, there are people and companies out there with the expertise to support you through this journey. It is just important that you ask the right questions, and hopefully we have provided you here with a few of them.
Lastly, be careful when asking for advice. If you are talking to a vendor, they will likely do everything in their power to push their own gadgets into your solution. If you are talking to a big consultancy firm, they may say they are technology agnostic, but it is in their business practice to give you what’s already produced on their shelf, not the most creative or optimized solution.
We advise you to look for people or companies that are truly interested in the solution of the problem and are not prescribing you an ill-fitting solution.
Once you decide on a course of action, go for it, and draw from the many benefits of sustainable energy independence!
Written By Felipe Sarubbi