Investing in Microgrids: A Solution for Harsh EnvironmentsJan26

Contributed by Charles Girard, Lead Energy & Commercial Attaché, Québec Government Office in Washington D.C.

A microgrid is a distributed type of power grid, with its ability to generate, store and transmit energy within an isolated area. Microgrids allow businesses, people and communities to operate with or without the centralized electrical grid, thus increasing their resiliency, decreasing their outage rate and therefore, their dependency on external power needs.

Taking advantage of the region’s resources, a microgrid will adapt by using different renewable technologies such as wind, solar, hydro, natural gas, diesel, fuel cell storage, flywheel storage, and geothermal to get the most cost-efficient power source.

Most recently, the experience of hurricanes Harvey and Irma have driven the conversation on microgrids as a mean to achieve climate resilience. While most U.S. states quickly brought power back online, this isn’t always possible for islands or remote areas that lack mainland connections and access to quick support. To date, most microgrids are found on islands, but mainlands are also joining. Navigant Research recently identified 13 microgrids across Texas that were flooded by Hurricane Harvey.

Market Growth?

Given severe weather fluctuation, hurricane intensity, and temperature increase, microgrids represent a fast-growing sector.

Navigant, a specialized professional services firm offering advisory, consulting, outsourcing and technology services, estimates the overall market value for remote power systems is in excess of $10.9 billion. Their analysts forecast this will rise nearly 20-fold over the next decade, to $196.5 billion.

Drivers for such technology depend on the region. In the U.S., resilience and renewable integration are important to businesses and consumers. Islands in the Caribbean are investing in microgrids to provide energy security to their populations in the wake of stronger, more frequent hurricanes. Many in Africa are investing in microgrids as a source of reliable energy in in remote location and the lack of current energy infrastructure. Microgrids allow any region to adapt to its own unique challenges by utilizing its natural assets to provide cost efficient energy.

In a recent study by Global Market Insights, the global microgrid market is expected to grow 19 percent from 2017 to 2024, reaching USD 19 billion by 2024. Market Insight Reports (MIR) notes that the global microgrid market will grow 9.69 percent CAGR from 2018-2022. Microgrids represent a sizable, sustainable market investment opportunity.

The Key to Success: Price and Diversity

As microgrid developers can choose from many types of technology, the most cost-benefit being usually chosen. With recent solar prices reaching below $20 per MW/h, wind prices in the same area and lithium ion storage price decreasing 15 percent every year, these three technologies are the popular choices for microgrid developers. Therefore, microgrids are becoming increasingly popular as a reliable, resilient and affordable way to access clean energy in remote communities and for commercial operations.

According to most experts, solar energy’s growth rate will continue to hit record highs as a result of decreasing capital costs, technology cost, capacity factor, panel improvement and even carbon pricing. Bloomberg and GTM Research predict that the levelized cost of electricity (LCOE) in renewable will soon be lower than coal and natural gas. This price decrease means microgrids will use more solar in their mix and decrease its overall cost. We can see how bid prices have quickly decreased in the below graph.

When we look at the California market, who is leading the way and the testing grounds for high renewable penetration, the duck curve and intermittency experience is creating a need for storage.  According to Bloomberg, global energy storage will reach 2GW/4GWh in 2018 and will continue to rise mostly because of the growth of intermittent renewables. Even with a reliable central electricity grid in the United States, the market for microgrids will dramatically increase over the next several years (see below).

My confidence in the future of solar stems from the fact that the majority of the world’s population is located in high solar capacity areas; however, I do also recognise the need for other types of energy. Wind energy in Northern and Southern regions where solar energy is less accessible, or geothermal energy on islands where volcanic activities can be tapped, are examples of regions where other types of energy mixes could be utilized in a microgrid. Energy mix possibilities brings microgrid into the diversified investment category.

From the Experienced Ones

Eminent players across the microgrid market include ABB, Tugliq, Schneider Electric, Siemens, Advanced Microgrid Solutions, Emersion, GE Alstom, Honeywell, EnSync Inc, Caterpillar, Viridity Energy Inc, Lockheed Martin Corporation, Exelon Corporation and Power Analytics Corporation.

Mining companies have long been subject to difficult terrain, high energy cost, high transportation cost and the fluctuating cost of oil. Since 2013, using an innovative power purchase agreement linked to oil prices, Tugliq and Glencore have partnered in Northern Quebec to showcase a microgrid in the harshest weather conditions. The project is operational since 2014 and uses 600kW of battery storage (flywheel, fuel cell hydrogen and lithium-ion) and 3MW of wind. Due to its success, an expansion proposal for the project is currently under review. Tugliq is a rare example of a microgrid developer that succeeds in the harshest region where others failed.

A November 2017 study by ABB on the application of commercial and industrial microgrid illustrates a clear business case. With a payback between 2.7 and 4.5 years, companies and communities in isolated regions were eager to integrate microgrids into their day-to-day operations. The study demonstrates a decrease in fossil fuel, or LCOE is achieved by combining diesel, battery storage and solar photovoltaic (PV). The study also demonstrates that combining diesel and solar energy to the microgrid is not enough to result in the necessary financial returns. Battery storage is therefore a key element to maximize your return on investment and payback period.

The study also highlights the cost of outages on each continent. The report estimates that hidden costs, such as idle workers, lost product and lost efficiency, have an annual cost of about $208,000 for a plant with 260 outages a year.

The Bottom Line

Businesses, communities and even small countries are turning to microgrids. Many believe a 100% renewable grid is impossible but the Province of Quebec is leading the way with a 99% renewable electricity grid. The Quebec Government and Hydro-Quebec are not stopping there; they are currently building microgrids to replace their fossil fuel generator on islands and remote areas of the North. 100% is possible and others are joining the challenge!

The microgrid market is healthy and growing. As microgrids integrate several types of energy technology, the market adapts quickly for lower cost and this creates diversified and bullish investment opportunities.

If you want to hear more about microgrids in remote and difficult regions, please subscribe for our Financing the Future of Mining and Renewable Energy through Leading Quebec Companies event on February 13 by clicking here.

Charles Girard is an energy business strategist who partners with CEOs, executives and solopreneurs to grow their businesses.  Since 2016, Charles has served as the Lead Energy & Economics Attaché for the Quebec Government Office in Washington D.C. Prior to this, he spent over a decade working with international multimillion dollar businesses and start-ups.

TUGLIQ specialises in better predictability and lower cost of energy for off-grid customers, with a portfolio approach that includes renewable sources, storage of renewable electricity, and next generation fossil fuels, each optimized into energy supply chains that are adaptable and flexible for the long-term.