Unpacking the Value of Resiliency That Microgrids Offer

The biggest gap in policy support for today's microgrid market is the lack of a clear financial value being placed on resiliency. As noted in a recent Guidehouse Insights report, microgrids typically need to make a business case absent their primary value proposition: resilience. Some microgrid vendors, such as S&C Electric, have put forth ideas on how to value resiliency. To date, no valuation metric has been adopted by any regulatory body in the US.

Studying Costs and Barriers

National Renewable Energy Laboratory (NREL) has been exploring the resiliency issue. Some of the initial results were revealed at a public workshop held earlier this year. In addition, Guidehouse Insights supported NREL in a study looking at the cost profiles of 80 microgrids deployed in North America. Those results were published last year. Among the takeaways from the research: barriers to future microgrid deployments were less about commercializing individual technologies and more about so-called soft costs issues: customer acquisition, permitting and inspection, and utility interconnection.

Nevertheless, the most interesting NREL insights revolved around the topic of resiliency. This topic was quantified in multiple ways, including by days of survivability. The base case scenario featured a 2.5 MW fossil generator which could ride through a 5-day power outage at an estimated $20 million life cycle cost. This compares to the lowest cost solution ($19.5 million) of a microgrid that added 625 kW of solar PV to 175 kWh of battery storage, which could provide power over 6 days. Interestingly, the configuration that offers the greatest resiliency (9-day outage) features the same $20 million life cycle cost as the standalone 2.5 MW fossil generator, but adds 2 MW of solar PV and 500 kWh of battery storage.

What Makes Valuation Difficult?

Complicating factors include the number of stakeholders involved with microgrids, inapplicability of certain services to specific technologies, and differing estimates of costs attached to the diverse technologies providing resiliency. Take the case of monetizing resilience of grid services. A microgrid featuring renewable energy and storage may be able to provide demand charge reduction and energy arbitrage opportunities, but these values are driven by utility rate structures. Grid services such as demand response and the provision of spinning or non-spinning reserves in capacity markets are shaped by utility and regional transmission grid operators and are therefore geographically differentiated.

Perhaps the most tangible way to understand how placing a value on resiliency would shape the designs of future microgrids is presented in the figure below. Note that when resiliency is valued, the microgrid design modestly increases the size of the solar PV system (113 kW to 134 kW), but the size of the battery is greatly expanded (from a 5 kW/6 kWh system to 32 kW/79 kWh) due to the need to withstand longer power outages. The net present value attached to the system jumps from $29,000 in the resiliency not valued scenario to $58,000 in the resiliency valued scenario.

Valuing Renewable Energy Resiliency Increases NVP and System Size

(Source: National Renewable Energy Laboratory)

Justifying Valuation Studies

Efforts such as NREL's help inform this debate. Just as utilities need to justify widespread benefits of utility distribution microgrids funded by their ratepayers, regulators need to build upon the resiliency work NREL has done. The trick will be to use a methodology that considers regional nuances but does not engender endless regulatory proceedings—which many have suffered via long environmental externalities in utility resource planning proceedings in the past.