6.4_From Resiliency to Solvency_Horne_EPRI/SNL Microgrid Symposium

/ ©2016 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED1

EPRI-SANDIA SYMPOSIUM ON SECURE AND RESILIENT MICROGRIDS

FROM RESILIENCY TO SOLVENCY: BUILDING A BUSINESS CASE FOR PUBLIC PURPOSE MICROGRIDS

AUGUST 30, 2016

KENNETH HORNE, P.E., PMPDIRECTORNAVIGANT




/ ©2016 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED7 / ©2016 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED7

MEGA DRIVER: CLIMATE CHANGE AND DEMAND FOR RESILIENCY

Power Outages Affecting 50,000 Customers by

Extreme Weather Cause

Total Annual Events

US: 1984-2012

(Source: National Oceanic and Atmospheric Administration)

/ ©2016 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED8 / ©2016 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVEDCONFIDENTIAL & PROPRIETARY – FOR EVALUATION PURPOSES

8

MARKET FORECASTS

DER IN THE US: STRONG GROWTH FORECASTED

Trend: In 2016: 30 GW DER vs

<20 GW central station Through 2019: DER

growing ~3x faster than central generation (168 GW vs. 57 GW).

(Source: Navigant Research)

DER Assets by Technology

Annual Capacity Additions

US: 2015-2024

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

(MW

)

Distributed Generation Distributed Energy Storage Microgrids Electric Vehicle Charging Load Demand Response Energy Efficiency


MARKET DRIVERS

SUPPLY AND DEMAND DRIVERS FAVOR RAPID MARKET GROWTH

Technology Weather

Carbon

Economics

Attitudes

Threats

Fuel

Policy

Markets

Capital

Opportunities and Enablers Needs and Wants


MARKET DRIVERS

SUPPLY AND DEMAND DRIVERS FAVOR RAPID MARKET GROWTH

Technology Weather

Carbon

Economics

Attitudes

Threats

Fuel

Policy

Markets

Capital

Opportunities and Enablers Needs and WantsInterest

Choice

Demand

Willingness to Pay


11

MARKET FORECASTS

COMMUNITY RESILIENT MICROGRIDS IN THE US: STRONG GROWTH FORECASTED

Trend: 10 Year CAGR: 26% Scale: exceeds $0.5

Billion in 2023


Community Resilient Microgrid

Implementation Revenue

North America: 2015-2024


12

-

100.00

200.00

300.00

400.00

500.00

600.00

700.00

800.00

900.00

1,000.00

-

50

100

150

200

250

300

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

($ M

illio

ns)

(MW

)

Public PowerIOURevenue

MARKET FORECASTS

UTILITY DISTRIBUTION MICROGRIDS IN THE US: STRONG GROWTH FORECASTED

Trend: 10 Year CAGR: 28% Ownership: Public Power

surpasses IOU in 2022


Utility Distribution Microgrid by Owner

Annual Capacity Additions

and Implementation Revenue

US: 2015-2024


DEFINING “MICROGRID”

U.S. Department of Energy: “An integrated energy system consisting of distributed energy resources (DER) and multiple energy loads operating as a

single controllable entity in parallel to or islanded from the existing power grid”

Always Islanded

Both Islanded & Grid Connected

Always Grid Connected

Remote communities

Small Island nations

Rural electrification sites

CHP

Rooftop Solar

DER systems

Single building nanogrids

Campus microgrids

Smart city district energy


CAPABILITIES AND BENEFITS

MICROGRIDS CAN PROVIDE A VARIETY OF HIGH VALUE BENEFITS

Key Microgrid Capability Valued Benefit

Optimized Economic Dispatch Asset Optimization

Optimized Energy “Prosumption” Community Development

Optimized Fuel Carbon Reduction

Independent Self-Supply Resiliency Extension

Local Control and Redundancy Security Enhancement

Economic Load Defection Cost Reduction


busi·ness case/ˈbiznᵊs-k͞as/Noun

: a justification for a proposed project or undertaking on the basis of its expected commercial benefit

--Oxford Dictionary

BUSINESS CASE

DEFINITION


BUSINESS CASE

DEFINITION

commercial/kᵊ’mᵊrSHᵊl/Adjective

: having profit, rather than artistic or other value as a primary aim--Oxford Dictionary


busi·ness case/ˈbiznᵊs-k͞as/

Noun

: a justification for a proposed project or undertaking on the basis of its expected commercial benefit

--Oxford Dictionary

BUSINESS CASE

DEFINITION

A successful business case clearly and credibly defines

how and when an investment will deliver a

return to the financier with acceptable risk

The objective of any business case is to

persuade a financier to provide capital today in exchange for promised financial gain tomorrow


CAPABILITIES AND BENEFITS

MICROGRIDS CAN PROVIDE A VARIETY OF HIGH VALUE BENEFITS

Key Capability Valued Benefit

Optimized Economic Dispatch Asset Optimization

Optimized Energy “Prosumption” Community Development

Optimized Fuel Carbon Reduction

Independent Self-Supply Resiliency Extension

Local Control and Redundancy Security Enhancement

Economic Grid Defection Cost Reduction

Requires Capital-Intensive Islanding

Delivers Non-Economic Benefits


BUSINESS CASE

CHALLENGES TO THE SOLVENCY OF RESILIENCE

Revenue Expense$0

$200,000

$400,000

$600,000

$800,000

Annual Income Statement“Typical” 2.5 MW CRM

Key Assumptions• 2.5 MW – PV + NG Turbine• PV Capacity Factor: 25%• Islanded Op Duration: 2 weeks• Value of Electricity: $0.15/kWh• Value of Natural Gas: $4/MMBtu• Capital Cost: $2MM/ MW • Debt Finance: 100%• Note Term: 20 years• Interest Rate: 5.2%

(Source: Navigant)


BUSINESS CASE

MICROGRIDS STILL FACE CHALLENGING BUSINESS CASE BARRIERS

Five Microgrid Business Case Challenges

Many valued benefits are not readily monetizable

Monetizable benefits (revenues) are often difficult to securitize

Significant Multi-Stakeholder benefit and cost distribution disparity

Levered IRRs often fall below traditional Merchant Power targets

Soft costs are high & cost estimates have high uncertainty


BUSINESS CASE

BUSINESS CASE BARRIERS CAN BE OVERCOME WITH THE RIGHT APPROACH

Four Microgrid Business Case Remedies

Focus on blue sky operation and asset optimization

Seek to create new products and services that can be monetized

Partner with others to expand the pie

Place a value on (and monetize) social good services


BUSINESS CASE

MICROGRID BUSINESS MODEL

To be both commercially and financially viable, a microgrid business model must make ecosystem participation choices by addressing eight business model components.

Suppliers and sellers of goods and services Team

Processes and resources to create a value proposition for a customerCreating Value

Products and services that create value for the customerValue Proposition

Processes and resources to deliver the value proposition to a customerDelivering Value

User and/or buyer of goods and servicesCustomerMonetary funds necessary for support product/service development and growthCapitalMonetary expenses incurred in the creation and delivery of products and servicesCosts

Monetary gain from sale of products and servicesRevenue


BUSINESS CASE

MICROGRID COMMERCIAL VIABILITY QUESTIONS

What are market incentives and constraints?Rules

Which stakeholders would be affected?Stakeholders

Who owns the assets?Ownership

What services might those assets provide?Services

What is the value proposition for stakeholders?Value

What are revenues, costs, and financing sources?Dollars

What relationships must be managed and how?Relationships


BUSINESS CASE

MICROGRID ECOSYSTEM MODEL

Our ecosystem model may be used to define the commercial design for any microgrid or distributed energy resource project, business or market

Microgrid Project

Community

Incentive & Constraint

MakersSuppliers

Users Macrogrid


BUSINESS CASE

COMPLEX COMMERCIAL DESIGN CHOICES

• The realm of microgrid product / service offering possibilities is complex

• There are 300+ ecosystem design element choices



CONTACTSKENNETH HORNE, P.E., PMPDirector(781) [email protected]

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6.4_From Resiliency to Solvency_Horne_EPRI/SNL Microgrid Symposium

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