Microgrids and Their Application for Airports and Public Transit (2018)

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31 Known cost savings and revenue streams generally fall into three categories: (1) those that benefit and generate revenue from the RTO or ISO, (2) those that benefit and generate revenue from the utility, and (3) those that avoid costs for the customer. These cost savings and revenue streams are summarized in the Rocky Mountain Institute (RMI) battery services graphic in Figure 10. The behind-the-meter installations represent customer microgrids. ISO/RTO Services Possible revenue streams can involve providing a number of grid services to the RTO or ISO. • Energy arbitrage: Microgrids can take advantage of the fluctuating price of energy by pur- chasing electricity when the rates are low, storing it, and selling back to the market during peak times when rates are high. This requires microgrid operators to be able to participate in wholesale markets to which they currently do not always have access. Demand response services also can be required to relieve transmission-line congestion. • Frequency regulation: Frequency regulation is required to maintain distribution grid power quality and reliability. Frequency shifts with supply and demand. Traditionally, gas peaking power plants are used to inject power into the distribution grid to provide frequency regula- tion. Microgrids can perform this ancillary service potentially faster and more efficiently than gas peaking plants (Ecoult 2017). • Spinning/non-spinning reserves: Distribution grid operators are required at all times to keep generators in reserve (ready to produce energy but not yet producing energy). Spinning reserves are generators that are ready to be deployed immediately, whereas non-spinning reserves require a short time to come online. This ancillary service can be provided by a microgrid. • Black start: This term refers to the process of restoring an electric power station or a part of an electric grid after an outage. Most large generators require an injection of outside electricity to restart them. Microgrids can provide this outside electricity to get the larger grid running again. Utility Services In some cases, utilities can benefit greatly from customers installing microgrids in particular areas. During Stage 1 of the NYSERDA microgrid competition, the local utilities took an active role in identifying zones where microgrids could reduce system constraints. The advantage for the utility is that they can defer costly infrastructure investments (NYSERDA 2017). • Resource adequacy/demand response: In some areas of the grid, generation may have trouble meeting demand. A microgrid could help meet the load, allowing the utility to avoid investing in additional generating assets. C H A P T E R 7 Cost Savings and Monetization Strategies

32 Microgrids and Their Application for Airports and Public Transit • Distribution upgrade deferral: Microgrids can reduce demand on utility distribution infra- structure, which can delay or eliminate the need for upgrades. • Transmission congestion relief: Where transmission systems are congested during certain peak times, the ISO will charge utilities high fees for their use. Microgrids located downstream of the congestion could supply power to the same areas, avoiding the fees. • Transmission upgrade deferral: Microgrids can reduce demand on utility distribution infra- structure, which can delay or eliminate the need for upgrades. • Emissions credit programs: If the generation sources qualify under the low emissions criteria, a microgrid can participate in sales of energy credits and emissions credits in programs that are offered in several states. Utilities will purchase credits from clean energy generators in order to comply with a state’s renewable portfolio standard (RPS) (Siemens 2016). Ancillary Service Considerations Offering ISO and utility services is a way to improve the microgrid business case by captur- ing additional revenue streams; however, it needs to be considered that this may jeopardize the ability of a microgrid to perform its main objective. Offering services such as spinning and non-spinning reserves requires a microgrid to set aside a potentially large portion of its Copyright 2015 Rocky Mountain Institute. FromThe Economics of Battery Energy Storage. https://www.rmi.org/insights/reports/economics-battery-energy-storage/. Used with permission. Figure 10. Microgrid services (RMI 2015).

Cost Savings and Monetization Strategies 33 available capacity in anticipation of a need in the larger grid. Generally, such a need would likely occur at the same time the microgrid would need all of its resources to be available to island the facility if the microgrid’s service area is part of the outage. Customer-Sited Benefits Customer-sited benefits involve avoiding cost by strategically reducing distribution grid imports. A standard microgrid is capable of providing this functionality. • Load shifting/demand response: Depending on the applicable rate structure, a customer may be subject to different $/kW demand rates and $/kWh usage rates at different times of the day. Load shifting is the process of using stored energy bought at a low rate to serve loads required during a high rate time of day. This arrangement can be executed at customer discretion or at the request of the utility during their peak times in exchange for direct compensation. • Reduced electricity imports: The goal of any on-site generation is to reduce distribution grid electricity imports by supplementing the available power with self-generated energy at a lower levelized cost of energy. • Peak-demand shaving: Demand charges do not apply to all commercial customers across all states and utilities. Where they do apply, however, one of the most lucrative aspects of a microgrid for commercial customers is peak-demand shaving capabilities. A significant component of a commercial customer’s bill is attributed to the period in a recurring cycle during which the highest instantaneous demand was recorded. The utility issues a charge for this peak demand based on a $/kW rate. Stored energy can be released at usual times of high demand, lowering the monthly peak demand and reducing utility charges significantly. • Increased solar PV self-consumption: Generally, a large commercial PV system will produce more energy during the peak sun-hours of the day than can be consumed by the system owner. The energy storage in a microgrid maximizes the use of solar PV-generated energy, which is especially valuable where net metering is not in effect. • Business continuity: In some cases, the previous services represent menial value when compared with the worth of business continuity. Medium- to large-scale commercial and industrial customers may incur costs averaging tens to hundreds of thousands of dollars per hour when their business continuity is interrupted by power outages (Maryland Resiliency Taskforce 2014). ROI By taking advantage of the revenue streams and cost savings presented, very acceptable ROI is possible in many cases. A study by Hanna et al. (2017) shows that large commercial, critical asset, and campus microgrids could provide significant cost savings over distribution grid electricity imports (see Figure 11). An informative finding of the analysis was identifying the variables to which the business cases were most sensitive. The authors found that, in general, natural gas price, carbon cost, DER cost, and electricity tariff variations had the greatest impacts on ROI. Their finding suggests that operational costs (Opex) are a greater factor on return than capital expenditure (Capex) (Hanna et al. 2017). Low natural gas charges are a significant factor to increasing the viability of CHP as a microgrid component. Figure 12 shows a comparison of residential natural gas prices by state. Such comparisons can be seen as an indication of where CHP microgrids are likely to be effective and where they are less viable. Results from the Hanna study (2017) also showed

34 Microgrids and Their Application for Airports and Public Transit that carbon price variation dramatically shifted the percentage of load served by CHP and renewables. Because burning natural gas releases carbon dioxide, carbon pricing schemes (such as those used in California) impose a potentially significant additional cost on natural gas CHP projects. At time of writing, current average electricity rates are fairly consistent throughout middle of the contiguous American states (see Figure 13). Outliers at the higher end of the scale include rates in California, Alaska, Hawaii, and New England. The scale used in Figure 13 indicates a magnitude of difference between the upper and lower limits. A college campus CHP microgrid simulation produced by Siemens showed that the addition of an advanced microgrid controller resulted in a ROI of between 2 years and 4 years depend- ing on the controller’s capabilities. The Siemens simulation also attributed a real dollar value to resiliency, which was calculated using the value of revenue that could be lost by a power outage, the number of hours per year that were at risk, and the average outage frequency and duration (Siemens 2016). Figure 11. System cost breakdowns, conventional vs. microgrid: Evaluating business models for microgrids (Hanna et al. 2017). Figure 12. U.S. average residential natural gas price by state in $/1,000 ft3 (EIA 2016).

Cost Savings and Monetization Strategies 35 Figure 13. U.S. average retail kWh rate (EIA 2017). Burlington International Airport requested that the Burlington Electric Depart- ment (BED) consider them a top priority for microgrid installation. BED is design- ing a “solar + storage” microgrid to be sited at the airport. The airport will benefit by eliminating frequent short-term power outages. BED will benefit by an improved outage rating and can take advantage of wholesale market participation, including peak shaving, frequency regulation, and energy arbitrage. Burlington Electric Department