Say Hello to Hybrid Microgrids: Renewables, Storage, Diesel, and Intelligence

When is a D+ grade acceptable? The answer should be never.

But that’s the state of the U.S. power grid according to the 2017 infrastructure report card issued by the American Society for Civil Engineers (ASCE). And the impact of this year’s catastrophic hurricane season only reinforced its vulnerability.

Given the billions of dollars of lost productivity due to power outages, as well as the need for uninterrupted critical services, what are large commercial and industrial (C&I) users doing to ensure energy resilience? Increasingly, they are investing in backup power solutions, energy storage, and hybrid microgrids.

In fact, Navigant Consulting predicts that by 2026 commercial and industrial electricity customers will add nearly 5,000 MW of onsite, hybrid generation systems—that is, microgrids—to help power their organizations. Why are C&I customers adopting microgrids? Because the business case is now solid, and it’s getting stronger year after year.

Lower Costs, Better Payoff

Microgrids are onsite generation and storage resources that serve a localized load and can disconnect from the larger electric grid in the case of outages or instability. By localized load, think of a hospital, a big manufacturing plant, a school campus, or any other sizable facility that pays dearly for electricity and can’t afford to go without it for long. Hybrid systems incorporate generation assets—often renewables—and battery-based energy storage.

Demand for such hybrid systems is up largely because costs have come down significantly. According to the U.S. Department of Energy (DOE), the average price of utility-scale solar is now 6¢/kWh, a target DOE had hoped to reach in 2020.

Efficiency is on the rise too. As recently as 2015, solar panel efficiency hovered around 18%, but last year the National Renewable Energy Lab (NREL) clocked it at nearly 30%.

Average prices for lithium-ion batteries fell 53% between 2012 and 2015, according to analysts at IHS, a global market research firm. They’ve further come down some 18% in the past year.

While solar-plus-storage installations can take an organization far, they may not take it through the night. That’s why many onsite generation systems include some form of fossil fuel-based generation. In fact, 40% of distributed generation systems contain fossil fuel generator sets (gensets), according to Navigant’s Microgrid Deployment Tracker.

Diesel is the fuel of choice for standby gensets. It’s reliable, easy to obtain, and it can be stored onsite. It also has high power density, meaning that it produces more energy per gallon than many other liquid fuels. That’s one reason diesel generators are the most cost-effective to operate and maintain over long periods of time.

Added to a combined photovoltaic (PV) solar and battery storage installation, diesel gensets provide the reliability communities and organizations need while enhancing the performance of all assets in the onsite power system. Why? Because given the right analysis and control software—the brain cells behind the system—systems can be optimized for a variety of challenges that C&I customers face.

Loads of Expenses

One optimization goal hybrid systems can help C&I customers meet is demand-charge reduction. “Demand ratchets” represent the extra costs businesses pay based on peak demand, which is often measured by the top 15 minutes of usage during any billing period. After examining some 10,000 utility rate structures, researchers at NREL found demand charges typically represent between 30% and 70% of a C&I customer’s total electricity bill.

The NREL research team also determined that there’s a solid business case for the storage benefits of hybrid systems in states nationwide, not just the “first-mover” states of New York and California. Likewise, GTM Research found that where demand charges reach or exceed $15/kW, implementing one-hour or two-hour storage systems begins to make sense for demand charge management.

Time-based rates are another billing bane for C&I customers. Under such pricing models, researchers at the Rocky Mountain Institute, an energy think tank, found that peak rates typically run as high as seven times more than off-peak rates. With a hybrid system onsite, any asset—solar, storage, or the diesel genset—can kick in when rates skyrocket.

Along with high electricity costs, C&I customers face business interruption from unplanned outages. According to the ASCE, most of the nation’s power lines have a 50-year life expectancy that’s already been reached. High-voltage lines are at full capacity. The ASCE’s report card says, “Without greater attention to aging equipment, capacity bottlenecks, and increased demand, as well as increasing storm and climate impacts, Americans will likely experience longer and more frequent power interruptions.”

Hybrid Benefits: Savings and Reliability

An onsite hybrid microgrid can minimize disruption, but running it for the greatest gain and lowest possible operating expense takes the right optimization and control software. With that software, owners can limit battery degradation by maximizing the optimal state of charge, run the generator at its sweet spot for efficiency, and use the storage as a fast-ramping spinning reserve because storage systems can inject or absorb power in sub-seconds. Such coordination lowers the operating costs for all devices, because the system runs each for maximum asset life and efficiency.

This type of coordination requires operational integration. The objective is to ensure that each resource gets dispatched when conditions warrant, that is, the software should prioritize goals—whether it’s maximizing use of renewables, slashing demand charges, avoiding time-based rates, prolonging equipment life, or raising revenue by bidding into power markets.

Each of these objectives can be achieved with hybrid systems that combine renewables, storage, and diesel gensets. On the island of Graciosa in Portugal (Figure 1), power suppliers are reducing the island’s dependence on diesel. The hybrid system implemented, which includes a 4-MW battery system combined with 4.5 MW of wind energy and 1 MW of PV solar power, has enabled up to 100% renewable power penetration and dramatically decreased the levelized cost of energy for the island by replacing around two-thirds of fossil fuel-based generation with cheap renewable energy.

1. Graciosa Island.
The hybrid system installed on Graciosa Island combines a 4-MW battery storage system with wind, solar, and diesel power generation. Courtesy: Younicos

Kodiak Island in Alaska has a similar success story (Figure 2). There, a 3-MW battery storage system allowed grid operators to incorporate 9 MW of wind capacity while cutting diesel purchases by 8 million gallons since commissioning in November 2012. Diesel gensets continue to back up demand when the wind doesn’t blow for long periods of time.

2. Kodiak Island.
The hybrid system installed on Kodiak Island utilizes a 3-MW battery storage system to help operators manage grid frequency. Courtesy: Younicos

Storage in the Kodiak system also helps grid operators manage the frequency of the grid itself. The storage system monitors grid conditions 100 times per second and instantly delivers up to 3 MW of real power within 50 milliseconds when grid frequency drops. It also can provide peak power of 4.5 MW for 30 seconds, helping the local utility maintain grid stability while maximizing use of wind energy.

If a company had such a system in place, it might be able to add revenue-generating benefits to the business case for a hybrid onsite power system. Many jurisdictions allow commercial customers to bid into energy markets that support grid frequency or resilience with backup capacity that can be dispatched quickly.

For companies looking to implement such a solution, here are a few pointers. Look for a provider who is technology agnostic. That allows the right mix of renewables, battery chemistry, and storage to be independently chosen. Also, look for an integrator that can manage the complete implementation. That will limit project management headaches while reducing commissioning timeframes.

Finally, don’t forget the optimization software. Owners will need it to manage all the assets, not just a portion. After all, the greatest payback comes from balancing asset requirements, grid signals, and organizational goals to achieve maximum benefit.

Jayesh Goyal is managing director with Younicos, a provider of energy and grid solutions based on battery storage.