Navigant Research Blog

Energy Storage Reduces Diesel Use in Microgrids

Anissa Dehamna — June 6, 2014

One of the challenges to deploying energy storage in existing grids is building a convincing business case.  If the business case for storage is built on reducing or optimizing the use of diesel fuel, it doesn’t take much to get a positive return on investment (ROI) for a storage asset.  Two examples of diesel reduction applications are remote microgrids and mobile base stations.  In this blog, I’ll look at the numbers on remote microgrids.

Even using conservative assumptions, storage makes sense to rein in the total cost of ownership of remote power generation – and hopefully make operating systems, such as remote microgrids, less vulnerable to volatility in diesel prices.  For example, Ontario Power Authority has estimated that it spends CAD$68 million each year on diesel fuel for 20 remote communities.

Payback Time

In the case of remote microgrids, the storage system typically provides several benefits: diesel reduction, higher renewables penetration, and improved power quality.  Even if the business case is based only on diesel reduction, though, the ROI is still positive in less than 4 years across all advanced battery chemistries.  The forecasts in the chart below assume the replacement of all batteries except flow batteries at the 7-year mark – which may or may not be required.  It also assumes that for each kilowatt-hour (kWh) of energy, a diesel generator requires 0.3 liters of diesel, and that the cost of diesel is about $1 per liter and remains steady over the forecast period.

Less than 4 years is an impressive payback period, but the payback period is even shorter with a 25% increase in diesel prices. If the cost of diesel is $1.36 per liter, the payback period goes down to less than 3 years for all storage technologies.  At $1.64 per liter, the payback period shrinks to 2 years or less.

Cumulative Net Present Value of Energy Storage Technologies Integrated in Remote Microgrids by Battery Type, World Markets: 2013-2023

(Source: Navigant Research)

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