Green energy, natural gas, energy storage, and demand response are all trending in ways that benefit the financial performance of Microgrids . . . especially when an optimal mix of resources is achieved. Take a look at some of the most significant trends shaping Microgrid economics today and what this information means for the future.
Cost of Solar and Wind Power Declining
With a virtually limitless supply of solar and wind energy, use of renewable technologies is growing by double or even triple digits annually. This rapid growth has created economies of scale that are driving down costs.
Solar power has become a cost effective tool for lowering an organization’s energy bill. In fact, the US now has more than 1,100 MW of installed solar capacity encompassing more than 42,000 sites. A new solar project is installed about every 3.2 minutes1. By 2018, solar is expected to triple in the US.
What’s particularly beneficial about solar generation is that it is often at peak production capacity during the hours when electricity prices and demand are the highest. Therefore, adding solar photovoltaic (PV) to your distributed energy portfolio can have a major positive impact on both your grid energy consumption and demand charges. While the operating cost is very low, the upfront investment cost was once a deterrent . . . but not anymore. System prices of commercial PV systems declined 6% to 7% per year, on average, between 1998 and 2013, and by 12% to 15% between 2012 and 20133
. Solar panel prices alone have dropped 64% since 20101
. Solar power is quickly reaching grid parity in the US as the costs for solar equipment continues to decrease.
Although not as widely used in microgrids currently, wind energy has also experienced the same kind of growth in recent years, and now accounts for 70,000 MW of US capacity. Wind prices have dropped 58% over five years2
Additionally, a number of incentive programs are available from local, state, and federal governments, as well as other organizations that can further decrease all types of renewable energy system costs.
Natural Gas Boom Good for Microgrid Economics
The US is experiencing a boom in natural gas production, resulting in lower prices. In addition, because the most efficient way to transport natural gas is on land through pipelines, most of the natural gas produced stays in North America. This is why natural gas prices are rising in other countries, but falling in the US.
This abundant supply and record-low pricing is good news for microgrid owners because it will ensure the long-term, cost-effective use of combined heat and power (CHP) systems. These CHP systems are becoming an increasingly popular distributed energy resource for facilities with year-round heating and cooling needs.
The Rise of Affordable Battery Storage
Like the falling prices of solar equipment, the cost of lithium ion-based storage systems are expected to decrease dramatically over the next few years. This is a game changer
for microgrids as storage not only supports a more stable and efficient energy system, but is a key enabler for cost savings. For example, energy storage supplements supply of variable and intermittent solar and wind resources making power availability and quality more reliable. It can also shift peak consumption patterns to reduce demand charges and better align energy consumption with distributed energy resource (DER) production. Properly sized energy storage systems in combination with DERs also provide a stable source of back-up power when a microgrid is islanded during power outages.
Microgrids Make Demand Response Programs Profitable and Convenient
Reducing electricity usage during peak demand times is important because a utility must otherwise put “peaker plants” online to generate extra power to meet the peak load. These plants are expensive to operate and typically derive their power from dirty fuel sources. Peak demand occurs only a few times per year, mostly during hot summer afternoons. Just 100 hours of peak demand comprises 10% to 20% of annual electricity costs in the US2
. As an alternative, utility demand response programs provide financial incentives to voluntarily and strategically reduce electricity use during these peak demand times. This action reduces demand on the grid, which helps to prevent brownouts/blackouts while also benefiting the environment. Demand response programs have grown to a point where they can potentially meet about 9.2% of peak demand in the US, an increase of 22% from 20103
On the flip side, the average utility customer must decide whether the payments received for demand response participation are worth the inconvenience. However, a Microgrid owner can profit from demand response incentives with little or no impact by using local distributed energy resources to supply power by intelligently reducing demand of controllable loads or doing both. In best practice, Microgrids will encompass additional technologies to automatically recognize these opportunities for microgrid owners and seamlessly execute opportunities without the end user even realizing a difference in day-to-day operation.
1. Solar Energy Industries Association
2. American Wind Energy Association
3. Lawrence Berkeley National Laboratory, U.S. Department of Energy
4. Demand Response and Smart Grid Coalition
5. Federal Energy Regulatory Commission