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SEEKING ENERGY
INDEPENDENCE:
CORPORATE MICROGRIDS
IN CALIFORNIA
UCLA Institute of the Environment & Sustainability
Corporate Partners Program
Green Paper
SUMMARY
M icrogrids can serve a variety of purposes: keeping
essential buildings online during natural disaster
events, powering residential communities, or delivering
CONTENTS
energy to multiple customers. This paper focuses on
corporate microgrids designed to power a single business 1 Intro & Context
entity. As microgrid installation expands, businesses will 2 Types Of Microgrid Generation
require resources to support their decisions on whether or
3 Why Invest in Microgrids?
not a microgrid system could optimally serve their energy
needs. Generation technology, ownership/financing 4 Ownership & Financing
models, available incentives, and decision support tools 5 Incentives & Tax Credits
are a suite of factors that should be considered prior to 6 Analysis Tools
investment in a microgrid system. Each will be considered 7 Conclusion
in turn in this report, and key findings include: 8 Sources
> Microgrid systems are commonly powered by either
traditional fossil fuel generators, renewable energy
resources (solar, wind, marine-based energy), or
fuel cells (see “Types Of Microgrid Generation”),
each of which have tradeoffs for system economics,
sustainability, and resilience.
> A microgrid can be financed, owned, and operated by
the primary energy user or by a third-party through a
variety of ownership and financing contract types (see
Written by Allison Bell
“Ownership and Financing”).
> A number of state and national incentives and tax
Edited by Jennie Dean
credit structures are currently in place that can be & Ashley Kruythoff
harnessed by microgrid developers to increase a Finalized in April 2021
project’s economic feasibility (see “Incentives and Tax
Credits”).
> As microgrids become more popular, more tools are
being made available to help make decisions and
evaluate the benefits of different distributed power and
storage investments (see “Analysis Tools”).
1
INTRO &
CONTEXT Figure 1: Diagram of a grid-connected microgrid system. Source: Siemens, Center for Climate and Energy Solutions
In 2016, microgrids accounted for a mere
0.15% of total electricity generation in
the U.S. However, a substantial increase
in microgrid capacity is expected in the
near future. A 2020 Wood Mackenzie
U.S. microgrid development is particularly
concentrated in Alaska, California,
Georgia, Maryland, New York, Oklahoma,
and Texas.4 Within those states, California
had the highest count of operational
report found that more microgrids were microgrid projects as of 2016 and a
installed in 2019 than in any year prior.2 diverse energy source composition
Further, the research firm Markets and compared to states like New York,
Markets projects a dramatic increase in the Georgia, Texas, and Oklahoma which
microgrid market to $47.4B in 2025, up were dominated by a single generation
from $28.6B in 2020.3 type (Figure 2).
WHAT IS A MICROGRID?
I n essence, a microgrid is a self-
contained, small-scale grid system
designed for local energy production,
distributed generation resources (such as
combined heat and power - CHP, fuel
cells, solar, and backup generators) and
storage, and use. The National Renewable energy storage systems interact through
Energy Laboratory (NREL) defines a a microgrid manager. Together they can
microgrid as “a group of interconnected operate as a standalone system to power
loads (consumers of energy) and facilities (the controllable load in the
distributed energy resources that acts as a Figure) or connect to the main utility grid.
single controllable entity with respect to
the grid.”1 Figure 1 illustrates this concept:
Figure 2: U.S. microgrid development across 7 states in 2016. Source: ILSR Mighty Microgrids Report
3
GENERATION
TYPES OF
MICROGRID
This section highlights the pros and cons of four of California’s most common
microgrid generation types (Figure 2 above): diesel & natural gas generator systems,
combined heat and power (CHP), solar and storage, and fuel-cells. In addition, we
provide examples of existing microgrids that are being used to power businesses
and campuses in California.
DIESEL AND Diesel generators are popular for their but natural gas is a comparatively cleaner
low capital costs, high reliability, ability energy source.10 In early 2020, Pacific
NATURAL GAS to come online quickly, sensitivity to load
changes, and quick installation timelines.7
Gas & Electric (PG&E) released a plan to
explore the use of natural gas generators
D iesel and natural gas powered
microgrids together make up a
large portion of California’s operational
However, diesel fuel costs are volatile and
rising in comparison to renewable energy
sources, which now have a lower levelized
as an alternative to dispatchable diesel
generators to power essential microgrids
during PSPS events.11 However, despite
microgrid generation capacity. Diesel- cost of electricity (LCOE).8 In addition, being ‘cleaner’ than diesel generation,
based generation is particularly common diesel-based systems face criticism for natural gas generator systems still face
for remote microgrid systems5 and as their environmental impacts in terms of air criticism as being unsustainable (as it is
dispatchable generation for temporary pollution and carbon emissions.9 still a fossil fuel) and therefore investments
microgrid systems during blackouts or into natural gas systems can be seen as
California’s public safety power shutoff Natural gas generator systems offer many counterproductive to achieving zero-
(PSPS) events.6 of the same benefits of diesel systems, carbon goals.12
5
COMBINED HEAT MICROGRID EXAMPLE: TECOGEN’S
AND POWER PHARMACEUTICAL CLIENT23
A s of 2016, Combined Heat and
Power (CHP) microgrids were the
most common microgrid type across the
costs for CHP systems.17 In addition,
CHP systems provide a reliable source of
continuous electricity generation, with I n 2017, Tecogen announced plans to
install a 625kW combined heat and
fueled by natural gas, backup propane
storage at the campus provides additional
U.S. - composing 64% of operational and natural gas supply lines less likely to be power (CHP) generation system to provide redundancy against natural gas supply
56% of planned microgrid capacity.13 affected by a natural disaster than power electricity, heating, and cooling to a interruptions to power the microgrid if
CHP generation typically runs on natural lines.18 California Bay Area-based pharmaceutical necessary. The InVerde e+ generators
gas supplied through existing, piped gas headquarters. Reliability was a key driver installed for this project are highly efficient
delivery infrastructure.14 Additional fuel CHP microgrids may not be appropriate in for this project. The pharmaceutical and emit very low levels of pollutants,
sources are represented in Figure 3 below. all situations — their viability in part rests company’s research activities require exceeding California Air Resources Board
on the existence of a suitable demand for climate controlled environments and regulatory standards for distributed energy
Combined heat and power systems, as the system’s heat output at the facility.19 are sensitive to disruptions, making generation.24
their name entails, provide outputs in Although efficient, CHP systems are backup power critical. While normally
the form of both heat and electricity.15 less desirable for microgrid developers
This system of dual outputs increases looking to move away from fossil fuel-
the efficiency of CHP generation by based generation.20 In addition, the capital
recapturing the heat output from electricity costs to build and incorporate a new CHP
generation and putting it to use - resulting microgrid system can be high.21,22 While
in 30-55% less greenhouse gas emissions CHP systems can be more reliable than
per unit of energy compared to power utility grid-based power, they are still
plants or onsite boilers.16 Increased fuel reliant on fossil fuel pipelines and subject
efficiency results in lowered operating to fuel cost fluctuations.
Figure 3: Diagram of CHP
system components. Source:
Efficient Energy Delivery
System of the CHP-PV Based
Microgrids
7
FUEL CELLS
F uel cells are a popular electricity generation technology
among retail business customers — a 2017 report cited
a retailer (Home Depot) as the largest stationary fuel cell
customer in the US.27 Their appeal to businesses is based
on sustainability benefits, emissions reductions, and cost-
competitiveness with grid-produced electricity.28
A fuel cell generates electricity through an electrochemical
reaction, rather than combustion, that releases very low
levels of emissions depending on the fuel source used.29
Fuel cells offer the benefit of constant, reliable electricity
generated onsite.30 Though most fuel cell systems operating
today utilize piped natural gas,31 the systems are capable
of running on different fuels. In the future, fuel cell system
sustainability may be increased through the use of renewable
hydrogen32 or other renewable fuel sources.
MICROGRID EXAMPLE: JSR MICRO
MICROGRID25
S emiconductor materials manufacturer JSR Micro installed 11MW of Bloom Energy
fuel cells at their corporate campus in 2018.26 Investment in this microgrid system was
motivated by electricity cost savings, reliability (avoiding outages is critical for precision
manufacturing processes), and efforts to reduce the company’s carbon footprint. Bloom’s
solid oxide fuel cells have lower carbon emissions than a conventional U.S. power
plant and release almost no smog-forming particulate emissions due to their lack of
combustion.
Figure 4: Diagram of a hydrogen powered fuel cell system. Source: FCHEA
9
SOLAR-POWER
R enewable-based
microgrids harness
the power of locally
produced energy, including
from onsite wind and
MICROGRID
solar-power installations.
For the purposes of this EXAMPLE: SANBAR
report, we will focus on
solar-powered microgrids
Figure 5: Load simulation for a solar+storage+generator microgrid. Source: EDF
SOLAR45
given that solar is a widely
available renewable
energy resource in the
maintained throughout the
day with help from battery
low compared to other
systems as solar energy is
I n 2018, Sandbar Solar began operation of
a microgrid system composed of 59kW
of solar panels, three Avalon flow batteries,
state of California.33 For an and generator inputs. In captured free of charge.40
example of wind energy the future, storage systems and a 60kW natural gas generator. Cost
in a microgrid see the may provide longer-term, savings was a key motivator for this
While there are many
Inland Empire Utilities seasonal stabilization of microgrid. The headquarters was built on
upsides to solar and
Agency’s system.34 While energy availability for undeveloped land so building a microgrid
storage microgrid systems,
CHP microgrids dominate solar-powered systems (see allowed Sanbar to avoid utility connection
there are some challenges
existing microgrid Hydrogen Storage). costs and save on future electricity
to consider. Solar and
production capacity in the bills. In addition, the project serves as a
storage microgrid systems
U.S., a 2018 IFC report Solar-powered microgrids demonstration for Sanbar’s clients. The
are complex and require
found that solar-powered have the benefit of being generator provides backup power during
regular maintenance and
microgrids are on the rise, clean energy-based, periods of cloudy weather (expected to
technical management.41
with planned capacity supporting sustainability run 200-300 hours per year). The project
Battery systems are costly,
exceeding that of planned efforts by moving away employs vanadium flow batteries designed
increasing the upfront
CHP capacity.35 from carbon-based fuel to handle 100% daily charge/discharge
investment required to
systems.36,37 Relying cycles over a 30-year timeframe. The
construct a solar-powered
Because solar energy primarily on solar energy vanadium electrolyte is unique in that it
microgrid system.42 Further,
production varies captured on-site builds retains 100% of its energy storage capacity
a fossil fuel-based backup
throughout a day, some resilience to outside fuel rather than degrading over time.46
generator may still be
form of energy storage and electricity supply required to supplement
is required in order to disruptions or price renewable energy
ensure a consistent flow fluctuations that might production and keep the
of electricity within a impact other microgrids microgrid system online at
microgrid system. Figure types reliant on fossil fuel- night, seasonally, or during
5 provides an example based generation.38,39 Once periods of bad weather.43,44
of how energy output the system is operational,
from a solar microgrid is electricity costs are very 11
COMBINING MICROGRID
TECHNOLOGIES
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MICROGRID EXAMPLE: UCSD47
T he microgrid serving the University of California, San
Diego’s campus combines CHP, fuel cells, and solar
generation. The microgrid offers the University electricity
cost savings, reliability for its research activities, and
supports University and statewide carbon reduction goals.48
Currently, the microgrid accounts for 92% of the campus’
annual energy use and there are plans to expand that system
in the future to meet 100% of energy needs. UCSD’s on-
campus generation components include:49
• “30MW CHP plant, serving as the microgrid anchor
• 2.8MW biogas fuel cell, using anaerobic digestor gas
(ADG) from wastewater treatment plant
• 1.2MW of solar PV panels distributed throughout the
campus”
13
IN
WHY INVEST
customers to save both by
purchasing less electricity
from the utility and by
controlling when energy
is purchased in order to
maximize savings.52 This
kind of smart microgrid
MICROGRIDS?
management can reduce a
customer’s utility bill-based
time of use and demand
charges.53 During peak
periods, when utilities
charge higher rates, the
microgrid owner can elect
to draw power from the
microgrid (see Figure 6).
The same type of microgrid
management can be used
to smooth peaks in a
ECONOMIC BENEFITS customer’s demand and
effectively reduce demand
T he capital
requirements for a
microgrid project can be
savings by reducing the
cost of utility electricity
bills. Onsite generation
charges on utility energy
bills.54 In addition, as we
will explore later, utility net
high but in a well-designed can produce electricity metering programs allow
system those investments at a lower cost than microgrid customers to sell
pay off (we explore electricity purchased from excess power generated
capital costs further in the utility. Microgrids allow back to the grid for further
I n a 2018 report prepared for the California Energy
Commission, Navigant Consulting surveyed a sample of
microgrid users and asked them to rank the most valuable
a later section). A 2018
assessment of several
California microgrid
High electricity
bill savings.
Microgrid uses energy storage to
benefits obtained from their microgrid energy system.50 projects found that Self-production highest
during middle of the day tariff manage peak demand, avoiding
using grid at high tariff periods
The top three answers were renewable energy integration, expected payback periods Solar PV
generation
resiliency, and bill savings/demand charge abatement. on initial investments Low discharged Low
PV Generation
Power (kW)
electricity to battery electricity
varied from 4 to 18 years.51 tariff tariff Energy storage
Generator/grid
Those top answers fall generally into the wider categories The timeline for returns Solar PV used
Firm only uses
Load curve
of economic, environmental, and resilience benefits on investment depends grid/generator
when tariffs
on the characteristics of
00:00:00
01:00:00
02:00:00
03:00:00
04:00:00
05:00:00
06:00:00
07:00:00
08:00:00
09:00:00
10:00:00
11:00:00
12:00:00
13:00:00
14:00:00
15:00:00
16:00:00
17:00:00
18:00:00
19:00:00
20:00:00
21:00:00
22:00:00
23:00:00
which were identified as important drivers in the
are low
00:00:00
microgrid examples above. We explore each of these an individual project and
available incentives.
Time of day
categories further in the sections that follow.
Figure 6: Diagram of the benefits of energy storage for mitigating peak demand
Overall, microgrids offer energy charges. Source: Microgrids for commercial and industrial companies
15
SUSTAINABILITY BENEFITS:
FURTHERING NET-ZERO ENERGY GOALS
RESILIENCE BENEFITS: M icrogrids help achieve carbon and
energy goals through incorporation
announcements came from the U.S. utility
sector,65 investment groups,66 and the
MICROGRIDS & PUBLIC of zero emission energy sources, utilization
of waste heat, reduction of transmission
World Business Council on Sustainable
Development,67 among others. These
SAFETY POWER SHUTOFFS losses, as well as intelligent management
of energy supply and demand to reduce
commitments are complemented by
Amazon and Global Optimism’s Climate
a customer’s overall carbon footprint.62 Pledge, which as of February 2021 had 53
E lectric utility public safety power In order to keep essential services online Even when microgrids rely on natural gas- signatories.68,69
shutoffs (PSPS) across California are during planned outages, utilities and based generation, such as within combined
now common practice in efforts to reduce customers turn to dispatchable onsite heat and power (CHP) systems or fuel In addition, California has its own net-zero
wildfires (see Figure 7 for state map of electricity generation options. To date, cells, the efficiency of power production goals, pursuing overall carbon neutrality,
susceptibility). In October 2019, over this has generally meant diesel backup and relatively clean nature of natural including from electricity systems, by
2 million customers were impacted by generators. However, utilities like PG&E gas compared to other fuels can result in 2045.70 The state’s zero net energy goals
shutoffs.55 Loss of power comes at a price are actively seeking cleaner alternatives for overall emissions benefits.63 In a renewable aim for onsite renewable energy production
powered microgrid, energy storage to equal or exceed consumption in
for businesses— 2019 shutoffs cost Silicon backup generation during shutoff events.57
components enable effective capture and new buildings.71 The California Energy
Valley companies millions of dollars.56 In December 2020, the California Public
use of intermittent resources, such as wind Commission (CEC) has recognized the
Utilities Commission (CPUC) proposed
or solar.64 opportunity for microgrids to support
funding for clean energy microgrids to
achievement of the state’s goals, and is
power utility substations during future fire
In the last year, businesses increasingly actively developing policies to promote
seasons.58
committed to net-zero goals. Key further microgrid investments.72
Economic models from the Rocky Mountain
Institute demonstrate a clear economic
benefit of solar-plus-storage systems for
customers affected by PSPS events. Their
BENEFITS IN PRACTICE: ALPHA OMEGA
model found that if the 1 million customers
impacted by shutoffs in 2019 had solar-
WINERY PROJECT73
plus-storage systems they would have had a
combined economic benefit of $1.4B when
accounting for value added to the grid.59
T he Alpha Omega Winery in Napa, California built a microgrid with 400kW of solar
panels, complemented with 100kW of saltwater energy storage batteries. While
only in operation for about five years, the microgrid investment has already delivered
Tellingly, the fire season in fall of 2020 saw quantified economic and environmental returns. Onsite solar electricity production and
a surge in demand for microgrid systems demand management lessens utility-bought energy use during peak times, reducing the
from commercial and residential customers winery’s monthly electricity bill from $15,000 to $1,000 per month. Environmentally,
across California.60 The resilience value of the winery’s carbon footprint was reduced by 960,750 lbs of CO2 per year with the
microgrids, in terms of avoided economic integration of solar energy production. Finally, although not quantified, the project
losses, is generally customer specific.61 delivered resilience benefits to the winery as well, providing a source of backup power
Figure 7: CPUC fire threat map 2018. Source: Fortis Telecom described as “important for the winery’s operations.”
17OWNERSHIP
FINANCING
AND
HOW MUCH DO
MICROGRIDS
COST?
T he cost associated with microgrid
development varies by location and
microgrid type. A Navigant Consulting
survey of nine California microgrids
revealed an average unit cost74 of around
$3.5M/MW, just under the average cost As microgrid technologies continue
of other North American microgrids to develop and scale up, their cost is
included in the survey.75 A national survey expected to decline. Figure 8 predicts that
of microgrids by NREL compiled cost the cost of energy from solar and storage
information from 80 different systems systems will fall below grid energy costs for
across the U.S., finding a mean unit cost for California, Hawaii, and Texas by around
campus/institutional microgrids of $3.3M/ 2025. Note that the actual price of solar-
MW (Table 1).76 plus-storage systems has already seen
dramatic declines in recent years (Figure 8).
Segment IQR Mean
Campus/ $4,936,109 - $3,338,666 Even with future cost reductions,
Institutional $2,472,849 microgrids require significant amounts of
Commercial/ $5,353,825 - $4,079,428 capital investment as well as operation and
Industrial $3,399,162 maintenance costs. The following sections
Community $3,334,788 - $2,119,908 explore ownership and financing models
$1,430,805 for microgrids that can make microgrid
Utility $3,219,804 - $2,548,080 systems economically feasible under a Figure 8: Actual and predicted costs of solar and batteries compared to utility grid
$2,323,800 variety of financial scenarios. rates in Hawaii (HI), California (CA), and Texas (TX). Source: NARUC
Table 1: Microgrid costs from NREL Survey, market segment
IQR and mean normalized microgrid costs in $/MW. Repli-
cated from: NREL Microgrid Cost Study
19FINANCING & Microgrids can be financed upfront by a customer or
procured through another financing model. Financial
mechanisms used to support microgrid development
OWNERSHIP OPTIONS include power purchase agreements, leases, energy savings
performance contracts, and energy as a service contracts.
O wnership of microgrids can take several forms. The
three primary modalities of microgrid ownership are:77
The sections below provide summaries of each of these
mechanisms and a case study of implementation.
• Direct ownership: The microgrid user finances, builds,
owns, operates, and maintains the microgrid.
Pros: high return; Cons: high risk
Development Construction Operation Financing Consumption
• Joint ownership: The microgrid user owns and finances
the microgrid, but development and operation is C&I
delegated to a third-party. IPP case IPP(1) PPA(2)
Customer
Pros: medium risk; Cons: medium return Third-
• Third-party ownership: A third-party finances, develops, party EPC(6) Service Infastructure
EPC
operates, manages, and owns the microgrid system. financing Infastructure contractor LTSA (4) company
Owns
fund C&I
Customer
Pros: low risk; Cons: low return fund Developer
Eng.(3) SPV PPA
Ownership models can be complicated, with different EPC Service
Developer EPC
third-parties involved at different stages of a microgrid’s Self- Self- contractor company
LTSA
C&I Customer
development. Figure 9 demonstrates a few ways that financing financing Developer
Eng.
different third-parties might interact with a customer to
provide microgrid energy services. Third-parties involved (1) IPP: Independent Power Producer (2) PPA: Power Purchase Agreement (3) Eng.: Engineering Services
in microgrid development can include independent power (4) LTSA: Long-Term Services Agreement (5) SPV: Special Purpose Vehicle (6) EPC : Engineering, Procurement, and Construction
producers (IPPs), developers, engineering, procurement
and construction contractors (EPCs), service companies,
infrastructure funds, and engineering service providers Figure 9: Schematic of major microgrid ownership structures. Source: WBCSD
(Engs).78
21LEASES
A leasing structure reduces the
upfront capital investment required
for microgrid development. A third-
Case Study: Alpha Omega Winery89
In 2016, Alpha Omega began installation
of a 500kW microgrid system to provide
party finances and owns all or part electricity to its Napa, California winery.
of the microgrid system and leases it The leasing contract was developed so
to the customer over a defined lease that lease payments were lower than the
period. Meanwhile, the customer winery’s utility energy costs. After the 7 year
POWER PURCHASE retains responsibility for operation and
maintenance of the microgrid.
lease term, Alpha Omega will fully own the
microgrid system.
AGREEMENTS Unlike PPA payments which are based on • System cost: $1.1M
O ne model whereby a third-party can
provide microgrid-based energy
for a customer without upfront customer
Case Study: Gridscape Solutions & the City
of Fremont, California83,84
In order to provide reliable electricity
the amount of energy consumed, lease
payments are standard and independent
of energy usage over a period of time. As
86
• Financing: 7-year lease from Blue Sky
Utility, $180,000 in Self-Generation
Incentive Program funding (SGIP,
financing is through a Power Purchase supply to fire stations, the City of Fremont with PPAs, leasing agreements can include discussed further in a later section)
Agreement (PPA). A PPA allows a third- entered into a PPA with Gridscape price escalators that increase payments
party developer to own or lease a microgrid Solutions to supply power through solar over time.87 However, leasing agreements
and retain responsibility for microgrid and storage microgrid systems. Gridscape’s tend to have shorter contract terms.88
operation and management. The third-party projections indicate that, combined, the
recoups the cost of the initial investment microgrid systems will save the city over
and continued microgrid operation through $200,000 in bill savings over 10 years.85
customer payments for power. Customers
only pay for the power that is produced, • System Cost: $2.4M
typically at a rate lower than utility • Capital Financing: $1.8M from the
provided power, so risks are largely shifted California Energy Commission
to the third-party operator.79 A PPA is • PPA: Gridscape Solutions paid the
generally medium-term, lasting between 10 remainder of the required initial
and 25 years. At the end of the agreement, investment which will be recouped
the customer can decide whether they want through PPA payments
to generate a new agreement, have the
system removed, or purchase the system
from the third-party.80 The electricity rate
structure for a customer is locked in at
the beginning of a PPA contract and often
includes escalators, whereby the cost of
electricity increases over the duration of the
agreement.81,82
23ENERGY SAVINGS Data analytics Controls
solutions
PERFORMANCE Investor Construction Software
firms firms
Third-party vendors
Equipment
CONTRACTS
Utilities manufacturers
Financing Returns
Performance
A
guarantee Equipment Energy suppliers
Project designed installers
Another financing option offering and developed based on
Case Study: Air base in Japan90 customer needs
Communications
no upfront capital from a microgrid Engineering &
infrastructure
In January, 2021 Schneider Electric Customer EaaS provider
architectural firms
customer is an Energy Savings Performance
announced an energy saving performance
Contract (ESPC). Through this contract, Energy auditors
contract with the U.S. Air Force to develop Pays subscription
a third-party develops and owns the for service(s)
Alternative energy specialists (wind,
a 10MW CHP plant with microgrid controls
)
microgrid and recovers their investment solar, hydro), storage developers
at Yokota Air Base in Japan. The project
in the customer’s monthly energy savings.
ENERGY AS A SERVICE
includes work to enhance the efficiency of Figure 11: Howcontracts
Energy performance an Energy as a Service
(demand-side)
The system is designed so that the energy Energy efficiency, energy management, transport electrification
contract works. Source: Deloitte
over 450 buildings on the base to reduce Energy supply contracts (supply side)
savings effectively cover the costs of upfront Gasification, renewables, land beneath energy farms, PPAs
E
overall energy demand.
capital investments.91 The number of nergy as a Service customers to benefit from solar installations and
energy service companies offering energy (EaaS) financing is the systems without having involve direct or indirect
• Contract Cost: $403M ($167M in
storage and grid services is on the rise.92 one of the most popular to take on microgrid purchase of power from a
implementation costs, 21 years of
A toolkit centered around ESPC contracts microgrid financing models system responsibility generating entity.99,100
operation and maintenance)
for federal developers is available from the in the U.S., composing themselves.97 A schematic
• Financing: Funded with energy savings Provider Example:
Department of Energy. This budget-neutral around 25% of financing describing the different
guaranteed by Schneider Electric over AlphaStruxure
approach is utilized mainly by government available for microgrids.94 ways third-parties might
25-year contract Started in 2019,
entities looking to make large-scale EaaS contracts involve no interact within an Energy
efficiency upgrades.93 upfront financing and, as a Service structure is AlphaStruxure is a joint
as a pay-for-performance included below. Note that venture by The Carlyle
solution, infrastructure and the experience for the Group and Schneider
efficiency costs can be paid customer is streamlined Electric.101 The company’s
for through realised energy — they only need to Energy as a Service
savings.95 In addition, EaaS interact with the Energy model provides microgrid
projects are designed to as a Service provider services to customers at
have immediate positive (Figure 11). Energy as a no upfront cost. Rather,
operating income, Service contracts may the customer enters into a
lending customers take the form of other long-term agreement with
savings compared to no upfront-cost finance AlphaStruxure in exchange
their previous utility- models, such as PPAs for financing, installation,
energy bills.96 The Energy or leases.98 Energy as a and management of
as a Service provider Service contracts are used a microgrid system.
takes responsibility for more for complex, multi- AlphaStruxure’s offering
ownership, software, measure infrastructure also includes electric
analytics, and operations projects as compared to vehicle integration (e.g., EV
Figure 10: Diagram of ESPC funding model. Source: SD Sustainability and maintenance of the PPA contracts, which are chargers, bus fleets).
25 microgrid system, allowing commonly used to finance&TAX CREDITS
INCENTIVES
The microgrid sector is rapidly changing,
as are the policies and incentives Name Implementing Category Incentive Type Amount
surrounding it. While we provide an Sector
overview of available incentives in Business Energy Federal Financial Corporate tax 30% for solar
this section, consult with your local Investment Tax incentive credit systems
Credit
ordinances to obtain the most up-to-date Modified Federal Financial Corporate 5-year
information on relevant policies. Accelerated incentive depreciation accelerated
Cost-Recovery depreciation
System
T
Property Tax California Financial Property tax 100% of system
he availability of state and federal incentives and tax Exclusion for incentive incentive value
credits can play a key role in the economic feasibility Solar Energy
of a microgrid project. A 2018 publication explored Systems
incentives and tax credits available for campus microgrids Net Energy California Regulatory policy Net metering Excess
in California.102 The programs identified by the researchers Metering generation solar
are included in Table 2. at retail TOU rate
Self-Generation California Financial Rebate program $0.22/Wh for
In the below sections, we define each of these financial Incentive incentive advanced energy
incentives and offer resources to obtain further Program storage, $1.00/W
for fuel cells
information. In addition, we include information on new
incentive programs expected with the implementation of Table 2: Incentives and tax credits related to microgrid technologies in California. Reproduced from: Hau, V.B., et
al. (2018)
California’s microgrid legislation.
27BUSINESS ENERGY INVESTMENT MODIFIED ACCELERATED COST
TAX CREDIT103 RECOVERY SYSTEM
T his federal incentive operates as
a corporate tax credit available to
commercial, industrial, investor-owned
construction as detailed in a Taxpayer
Certainty and Disaster Tax Relief Act of
2020 extension. Maximum incentives are
A federal financial incentive, the Modified Accelerated Cost-Recovery
System (MACRS) allows businesses to recover investments into “certain
property through depreciation reductions.”105 A number of renewable
utility, cooperative utilities, and agricultural detailed for fuel cells ($1,500 per 0.5 kW), energy technologies are eligible for the program, including:
sector development across a range of microturbines ($200 per kW), and small • a variety of solar-electric and solar-thermal technologies
eligible technologies. Projects must meet wind turbines depending on the service • fuel cells and microturbines
size requirements to qualify: start date.104 • geothermal electric
• Small wind turbines: 100kW or less • direct-use geothermal and geothermal heat pumps
• Fuel cells: 0.5kW or greater For more information on this tax credit, visit • small wind (100kW or less)
• Microturbines: 2MW or less DSIRE’s incentive overview and relevant • combined heat and power (CHP)
• CHP: 50MW or less IRS form instructions. A summary guide The MACRS offers investors some market certainty to encourage investments
of the Investment Tax Credit focused on in solar and energy sectors.106 More information on eligibility and the
The table below includes the value commercial solar photovoltaics is available current status of this incentive is available on DSIRE and the IRS website.
of investment tax credits available by from the Department of Energy.
technology based on the first year of
Technology Dec 2020 Dec 2021 Dec 2022 Dec 2023 Dec 2024 Dec 2025 Future
Years
PROPERTY TAX EXCLUSION FOR
PV, Solar Water
Heating, Solar
26% 26% 26% 22% 22% 22% 10%
SOLAR ENERGY SYSTEMS
Space Heating/
T
Cooling, Solar
Process Heat ypically, a valued physical investment into a property results in an
Hybrid Solar 26% 26% 26% 22% N/A N/A N/A increase in the property’s base year value assessment. Higher property
Lighting, Fuel assessments generally translate to higher property tax payments.107 The
Cells, Small
Wind, Waste En-
California tax code includes a new construction exclusion that allows
ergy Recovery installation of a qualifying solar energy system without a resulting increase
Geothermal Heat 10% 10% 10% 10% N/A N/A N/A
or decrease in the assessment of the property. Qualifying active solar energy
Pumps, Microtur- systems include:108
bines, Combine • Domestic, recreational, therapeutic, or service water heating
Heat and Power
Systems • Space conditioning (heating/ cooling systems)
• Production of electricity
Geothermal 10% 10% 10% 10% 10% 10% 10%
Electric • Process heat
• Solar mechanical energy
Large Wind 18% 18% N/A N/A N/A N/A N/A
For more information on this exclusion and relevant requirements, see the
Table 3: Investment tax credit value by technology per year. Reproduced from: DSIRE California State Board of Equalization website.
29NET ENERGY METERING
C alifornia’s Net Energy Metering program allows “customers who generate their own
energy (‘customer-generators’) to serve their energy needs directly onsite and to
NEW DEVELOPMENTS IN
receive a financial credit on their electric bills for any surplus energy fed back to their
utility”. Eligible generation types include: small solar, wind, biogas, and fuel cells. More
CALIFORNIA: SB 1339
information on the current Net Energy Metering structure and eligibility requirements is
available on the CPUC website.
I n September, 2018 the Governor of
California approved Senate Bill 1339
Within that decision, the CPUC outlined
new financial support for microgrid
SELF-GENERATION INCENTIVE requiring the California Public Utilities
Commission (CPUC) to take actions
development, including:
• Microgrid Incentive Program: A
PROGRAM109 to promote the commercialization
of microgrids throughout the state.111
statewide program jointly developed
by the utilities in support of vulnerable
Implementation of the bill is moving along communities most impacted by grid
C alifornia Public Utilities Commission’s
Self-Generation Incentive Program
(SGIP) supports the development of
authorized SGIP incentives through
2024 totaled $813M with 88% of funds
designated for energy storage investments
3 tracks:
• Track 1: Focused on short term
outages. The program’s $200M budget
will fund clean energy microgrids
deployment of resiliency strategies in for these communities while testing
existing, new, and emerging distributed and the remaining 12% for investments in Spring and Summer 2020 to prepare for new technologies and regulatory
energy resources. The incentive provides generation.110 The energy storage incentive the 2020 wildfire season. approaches.
rebates for technologies installed on the structure as of January 2021 is outlined in • Track 2: Focused on broader policy • Microgrid Tariff: Each of California’s
customer side of the meter, including “wind the Table below. More details on the SGIP goals around microgrid development, large, investor-owned utilities (SCE,
turbines, waste heat to power technologies, program and up to date incentive rate including the topics layed out in the PG&E, and SDG&E) were tasked with
pressure reduction turbines, internal information can be found on the CPUC original bill: “developing standards, the development of “a renewable
combustion engines, microturbines, gas website and the SGIP online application protocols, guidelines, methods, rates, microgrid tariff that prevents cost
turbines, fuel cells, and advanced energy database. and tariffs to support and reduce shifting for their territories.” Tariff
storage systems.” As of January 2021, barriers to microgrid deployment development is intended to create
statewide, while prioritizing system, revenue for microgrid systems113 by
public, and worker safety, and avoiding compensating microgrid owners for grid
Step 1 Step 2 Step 3 Step 4 Step 5 Step 6 Step 7
cost shifts between ratepayers.” services provided, such as increased
Large Storage $0.50 $0.40 $0.35 $0.30 $0.25 N/A N/A • Track 3: Focused on ongoing resilience.114
(>10 kW) implementation and future resiliency Once active, these developments may
needs. further enable microgrid development and
Large Storage $0.36 $0.29 $0.25 $0.22 $0.18 N/A N/A
In January 2021, the CPUC made a financial feasibility. Up-to-date information
Claiming ITC
decision for Track 2 that “adopts microgrid on the implementation of SB1339 can be
Residential $0.50 $0.40 $0.35 $0.30 $0.25 $0.20 $0.15 rates, tariffs, and rules for large investor- found on the CPUC website.
Storage (ANALYSIS Tool Name
Distributed
Energy Resource
Value Estimation
Tool (DER-VET)
Developer
Electric Pow-
er Research
Institute,
funded by
Inputs
Electrical and ther-
mal loads, elec-
tricity & gas tariff
data, DER data, site
Outputs
Optimal DER Mix
& Capacity, DER
Dispatch, Incentives,
Taxes & Financing,
Intended
Users
ners and
Availabil-
Grid plan- Publicly
ity
available,
technology free to use
developers
TOOLS
California weather data Quantitative Cost/
Energy Benefit
Commission
Distributed Lawrence Building end-use Optimal DER capac- Site-owner Publicly
Energy Resourc- Berkeley load data, Electricity ities, optimal DER available,
es Customer National Lab and gas tariffs, DER operations schedule free to use
Adoption Model technology data,
(DER-CAM) Site weather
Microgrid Sandia System objectives: Evaluate design Microgrid Publicly
Design Toolkit National cost, performance, alternatives, assess designers available,
Laboratories reliability cost, performance free to use
T here are a number of publicly available or fee-based tools available for microgrid
project assessment and planning. Users can input customized data and energy
objectives and receive microgrid investment guidance (an example of one model’s inputs REopt: National • Drivers (energy
and reliability
tradeoffs
• Technologies NREL Re- Lite ver-
and outputs is provided in the Figure 12 below). Two of the programs listed in Table 5, the Renewable Renewable costs and revenue, (Technology Mix and searchers, sion free
DER-VET Tool and mVSO Energy Modeling Software, incorporate available incentives/tax Energy Energy economics, resil- Size), • Operations Commer- to use, full
Integration and Laboratory ience and environ- (Optimal Dispatch cial Build- version
rebates to enable users to take advantage of related financial benefits. Optimization (NREL) mental goals), Strategy), ing Manag- requires
• Generation Tech- • Project Economics ers consulta-
The chart to the right includes an overview of the tools most frequently encountered nology Options, (Optimal Dispatch tion with
during the research for this report. Many of these are publicly available and free to use (or Loads Strategy) NREL
have free versions available). Note that this is not an exhaustive list of tools available. Hybrid HOMER Daily load profiles, • Optimal system Microgrid Quickstart
Optimization of Energy resources, c configurations system version
Multiple Energy (originated omponents • Fuel consumption designers available
Resources from NREL) • Energy flows for free
Outputs
Inputs % Improve Reliability/Resiliency (HOMER) • Net present cost (in beta),
Electrical & Defer Asset Upgrade Optimal DER •LCOE HOMER
Thermal Loads Mix & Capacity
External • Capital, O&M PRO is
Databases Participate in Wholesale Market
External Power Flow Tool costs115 fee-based
Electricity & Gas
Tariff Data DER Dispatch
mVSO CleanSpark Consumption data • Financial metrics: Solar de- Fee-based
Optimization Engine OpenDSS
(microgrid Value IRR, Payback, Incen- velopers, service
DER data Incentives, Taxes
OASIS, OpenEI,
Constraints
& Financing
Stream tives, estimated Cost battery sup-
PVWatts, etc. Power Import/Export Cap Optimizer) Breakdown pliers, and
Site Weather Quantitative Energy Modeling • Energy: Complete energy per-
Data Battery Grid Charging Cap Cost/Benefit Software Annual System Op- formance
Battery Cycling Limit erational Profile contrac-
DER related constraints tors116
Table 5: Common tools to aid in microgrid development. Information derived from project websites, linked in Table.
Figure 12: DER-VET optimization framework. Source: DER-VET.com
33CONCLUSION WHAT’S NEXT FOR
MICROGRIDS?
generation potential through long-term
energy storage.119 Seasonal hydrogen
storage technologies may be cost effective
as soon as 2050.120 Hydrogen energy
storage works best for long term storage
T he microgrid sector is rapidly developing and
expanding. This report provides a surface level
examination of different microgrid technologies, financing
needs (capturing solar energy in the
summer to use in the winter) compared
to short-term, overnight storage where
and ownership models, incentive policies, and analysis batteries remain more cost effective.121
tools for decision makers. However, there is a wealth Once generated, hydrogen fuels may be
of information available on microgrids beyond what is readily utilized within existing fuel cell
included in this report for interested readers to explore. systems; in 2019 Bloom Energy announced
that existing fuel cells running on natural
Businesses located in California should continue to track gas can be upgraded in situ to utilize
the implementation of SB1339 and resulting microgrid- renewable hydrogen fuel sources in the
enabling incentives and policies. At the federal level, future.122
proposals for microgrid funding have recently been
introduced as a part of larger climate legislation, although One microgrid project in California is
it remains to be seen whether they will be adopted.117 In already working to incorporate seasonal
addition, there are several technological developments hydrogen storage into its system.
on the horizons for microgrids worth following, a few of The microgrid at Stone Edge Farm in
which we describe below. Northern California was developed as a
demonstration project and laboratory to
test out different microgrid technologies.
HYDROGEN STORAGE The project aims to develop a resilient,
environmentally sustainable microgrid that
DEVELOPMENT enables cost savings — although economic
considerations are secondary to the
L ong term storage solutions for solar-powered
microgrids, such as hydrogen production, can
harness excess solar energy produced in the summer
demonstration purpose.123
Hela Technologies is currently working to
when the sun is shining. When solar generation dips in develop seasonal energy storage within
the winter, hydrogen fuel cells can dispense that stored the microgrid utilizing a hydrogen system
energy.118 Economical hydrogen storage integration into (the images to the left depict hydrogen
microgrids is seen as the ‘missing puzzle piece’ that will infrastructure installed at the farm).124 The
enable renewable microgrid systems to realize their full system will collect rainwater and use power
from installed solar panels to transform the
water into stored hydrogen fuel.125
35ELECTRIC VEHICLE
INTEGRATION SECOND-USE
E lectric vehicle charging
can be integrated into
a microgrid and serve a
BATTERIES
more active role in system
management than other
electricity draws. “Smart
C alifornia has a growing electric
vehicle market expanding towards a
statewide goal of 5 million zero emissions
battery capacity is still useful and could
potentially be utilized within a microgrid
system.137 In July 2020, the California
charging” management vehicles on the road by 2030.136 The Energy Commission awarded a grant
allows electric vehicle batteries of these vehicles represent a to ReJoule and CleanSpark to develop
charging to occur at potential source for microgrid storage: donated, used EV battery systems from
optimal times within when vehicle batteries degrade to around Ford into solar-plus-storage systems. The
a microgrid system, in 75% of their original capacity, the owners systems will be piloted at an artist’s studio
order to avoid large peaks may choose to obtain a new battery in Los Angeles and a housing and training
in energy use126 (see or vehicle. However, that remaining center in Santa Ana.138
Figure 13). For example, Figure 13: Integrating electric vehicle charging with renewable energy production.
the microgrid at EDF Source: ILSR
Renewables Corporate
vehicles.129 The connected storage increases the
Campus includes electric
batteries provide load number of charging cycles
vehicle charging stations
balancing services to on connected vehicle
whose load is managed
the microgrid.130 This batteries, potentially
adaptively to reduce
is especially useful in decreasing their longevity.
energy and demand
microgrids powered by Acknowledging this
charges.127 The Powerflex
intermittent renewable issue, researchers have
Adaptive Load technology
resources, such as solar demonstrated the potential
used in the EDF project to
energy.131 for optimized V2G systems
manage EV loads has been
that reduce negative
implemented in a number
However, there are battery-life outcomes and
of other electric vehicle
concerns around the effect can even expand vehicle
charging systems across the
of V2G integration on battery capacities.134 At
state.128
electrical vehicle battery UCLA, the Smart Grid
life.132 Batteries are often Energy Research Center
Going one step further,
characterized by a certain is currently building a
vehicle-to-grid (V2G)
cycle life - or the number platform for smart grid
integration involves
of charging cycles a battery integration of electric
bidirectional electric
can perform before its vehicles that includes
vehicle chargers that allow
performance declines research into V2G power
a microgrid system to
beyond functionality.133 flow opportunities.135
utilize the battery storage
V2G use of EV battery
of the connected electric 3724. Tecogen. InVerde e+. Source: tecogen.com line.com
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28. Ibid. Trends Emissions From Integrated Renewable-CHP
29. Ibid. Microgrids. World Energy Engineering Congress.
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31. Ibid. 50. Asmus, P., Forni, A., Vogel, L. (2018) Microg-
32. Bloom Energy (2020) Bloom Energy Announc- rid Analysis and Case Studies Report. California
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71. California Public Utilities Commission. Zero Begins Construction on $403 Million Energy Sav- Solar Energy System Exclusion. Source: boe. nounces Hydrogen-Powered Energy Servers to
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ca.gov
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109. California Public Utilities Corporation.
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Self-Generation Incentive Program. Source: cpuc.
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ca.gov
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110. Self-Generation Incentive Program Online
74. Cost per unit capacity ($/MW). Definition nical Challenges of Microgrid Implementation. 125. Stone Edge Farm Presentation at California
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selfgenca.com
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111. California Legislative Information. SB-1339
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112. California Public Utilities Commission
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(2021) Decision Adopting Rates, Tariffs, and Rules
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Facilitating the Commercialization of Microgrids
Cost Study: Data Collection and Analysis of Mi- com com
Pursuant to Senate Bill 1339 and Resiliency Strate-
crogrid Costs in the United States. NREL. Source: 94. Cohn, L. (2019) How to Overcome Obstacles 127. EDF Renewables (2020) EDF Renewables
gies. Source: docs.cpuc.ca.gov
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113. Wood, E. (2021) California Approves Micro-
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