Navigant Research Blog

Energy Storage Reduces Diesel Use in Microgrids

— 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)

 

Enabling Remote Microgrids in the Developing World

— April 4, 2014

In my last blog, I wrote about the success mobile network operators (MNOs) are having with electrifying rural communities in developing regions, such as Latin America and Africa, by partnering with companies that sell solar home systems.  Much credit must go to the pico systems themselves, which are a cheap and reliable way to provide for the customer’s basic energy needs (cell phone charging and lighting).  However, there are two greater forces at play that reach far beyond the business of rural electrification: MNOs have found an effective business model in pay-as-you-go (PAYG) and they have employed an effective money transfer technology, known as mobile money.

These two forces answer the question: What has enabled the exponential growth of cell phone usage in the developing world?

Phone Bank

PAYG is a prepaid mobile phone plan.  You pay for a phone with a certain amount of airtime on it and you refill the time in your account as needed.  There’s no contract or monthly rate.  If you run out of time, your service is cut off, plain and simple.  This model works well for the off-grid rural poor who live on an inconsistent daily budget and who typically don’t have bank accounts.  It should be noted that some utilities in developed parts of the world are also experimenting with PAYG meters and they are finding that it is the only model that has successfully led to a change in consumer behavior (in the form of energy conservation).  As my colleague Peter Asmus details in his recent blog, this isn’t the only example of how the developed world can learn about energy solutions from the developing world.

Returning to the unbanked poor of the developing world, MNOs spotted an opportunity to capitalize on the lack of banking infrastructure in remote communities, and they have leveraged vendor networks and mobile technology to offer basic banking services to their customers.  To purchase airtime in the developing world, customers visit their local mobile airtime vendor and pay cash upfront for a scratch card of a certain value.  They enter the code from the scratch card into their phone to redeem the value of the card as mobile money, which goes directly into the mobile money wallet in their phone.  The mobile money wallet is protected by a PIN and acts essentially like a debit account, which can be used to purchase more airtime, along with other goods and services, to send and receive money, and to pay bills.  The MNO charges the customer for transactions made, so it is a lucrative new revenue stream for them.  More significantly for nanogrids, mobile money has opened the door to provide financing to unbanked customers.

Nanogrid Frontiers

Historically, one of the greatest barriers to off-grid households purchasing solar arrays has been the high upfront cost.  Investors, whether they’re vendors, microlenders, or nongovernmental organizations (NGOs), have had a hard time offering PAYG lending schemes to consumers due to the difficulty of collecting a long stream of small payments from a remote village, as well as the inability to monitor the systems.  Mobile money can provide a platform that enables lenders to conveniently offer PAYG schemes to off-grid consumers for the purchase of nanogrids, among other things.  More importantly, mobile money could turn remote parts of the world into profitable frontiers for the nanogrid market.  Many residential solar vendors (such as Simpa Networks in India) already see them that way, and these vendors are finding investors to finance PAYG systems as well as partners to handle the mobile money transactions.

While there is some variability in what these PAYG schemes look like, the keys to success seems to be the ability to track payments and usage easily and the ability to cut off service if a customer falls behind.  To view a list of nanogrid PAYG case studies, check out Navigant Research’s report, Nanogrids, and to learn about other business models that are being used to electrify remote parts of the world, view the replay of our Remote Microgrid Business Models webinar.

 

How the Developed World Can Learn about Energy Solutions from the Developing World

— March 27, 2014

With utility resistance to policies that support distributed renewable energy emerging as a global phenomenon, it might be wise for vendors in the space not to push the panic button, but instead look to emerging markets in the developing world for a reality check.

As utilities and states modify their past support vehicles (i.e., net metering and feed-in tariffs) for technologies such as solar photovoltaic (PV) systems, purveyors of hardware and software that help integrate distributed renewables into power grids see increasing opportunity.  The decline in generous feed-in tariffs for solar PV, for example, creates new opportunities for energy storage.

Among those sensing opportunity is ABB.  When the company purchased Powercorp of Australia in 2011, few realized that ABB would integrate Powercorp’s distributed controls approach to remote hybrid wind/diesel microgrids (and its PowerStore flywheel technology) into its grid-tied offering.  ABB has recognized that a top-down approach to controlling distributed energy resources may not be the best fit.  Instead, innovation fostered in off-grid systems – which must provide 24/7 power under the most harsh environmental conditions – proves to be a better approach.  Peter Lilienthal of HOMER Energy agrees, arguing in Navigant Research’s Remote Microgrid Business Models webinar late last year that the smart grid is being pioneered in places like the Caribbean, Africa, and India, not in developed world markets like Europe or the United States.

Look to the Islands

While many observers are focused on the so-called utility death spiral, growing numbers of forward-looking utilities – along with diversified energy companies such as NRG Energy – see the proliferation of distributed generation as an opportunity.   In fact, NRG Energy is now developing remote microgrids, starting with the private island owned by Richard Branson.

The world of the future will not feature a one-size-fits-all business model – especially not the utility monopoly that has slowly eroded over the past century.  While long-term planning and dense regulatory proceedings won’t go away, the future of energy requires flexibility and learning from areas where the provision of electricity requires the utmost in creativity: the developing world.  Other large technology companies such as Toshiba are also moving into the remote island microgrid market.

Navigant Research’s new Nanogrids report shows that even the lowly sounding nanogrid is a huge market in the developing world, with global revenue forecast to exceed $20 billion by 2023 in three regions that have historically lagged behind the developed world in new technologies.

Residential Remote Nanogrid Vendor Revenue by Region, World Markets: 2014-2023 

 (Source: Navigant Research)

 

As Solar Prices Fall, Wind Still Finds a Role in Microgrids

— March 25, 2014

With the steep declines in solar photovoltaic (PV) system prices over the past 5 years, many developers of remote microgrids – systems not interconnected with a traditional utility grid – have begun to shy away from their previous reliance on wind power to lower the systems’ consumption of polluting and increasingly expensive diesel fuel.

As one long-time observer summed up the situation: “The history of the small wind turbine industry is one littered with failures.”  The story of Southwest Windpower is particularly galling.  Backed by investments from General Electric, the company’s tiny turbines were pumped out into the market with little regard for long-term performance.  As a result, many of these extremely lightweight machines, producing less than 2 kW of power each, have stopped working only after a few years.  In some remote island installations, the machines have literally been blown away by hurricanes and other extreme weather events. While some other small wind turbines, such as those of Bergey Wind Power, have had lasting power, many of these typically small, small wind companies have struggled over the past few decades.

Wind in Lonely Turbines

A survey conducted by the Commonwealth Scientific and Industrial Research Organization (CSIRO) of Australia in 2009 claimed that 71% of microgrids included some form of wind capacity.  Given that Australia is one of the global leaders in off-grid wind/diesel systems, it is likely these results were skewed by data weighted too heavily toward off-grid applications.  A more recent analysis performed by Navigant Research found that of those microgrids that included wind power, 67% were installed in remote microgrids.  Interestingly enough, North America is the global leader, due to two states: Alaska and Hawaii.

Remote Microgrid Capacity with Wind Capacity, World Markets: 2Q 2014

(Source: Navigant Research)

Wind has fallen out of favor for at least three reasons:

  • Unlike solar PV, small wind turbines historically have required greater operations and maintenance (O&M) investments.  In many remote locations, local expertise is hard to find.
  • Many remote locations do not benefit from an adequate wind resource assessment.  If you’re constructing a 100 MW wind farm, you can justify the expense of a detailed wind resource assessment.  This is not the case for just one or two wind turbines in a remote microgrid.
  • The variability of wind is immense, requiring a more nimble and sophisticated control system for a microgrid.

Both, Not Either

Despite these negatives, many remote microgrid developers still see value in wind.  In many cases, wind power is still half the cost of solar PV.  In fact, the ideal scenario is not just solar or just wind as renewable options, but both.  The sun shines during the day; the wind often blows at night.  Incorporating both of these renewable resources enables the use of a smaller energy storage device – a technology that is currently often viewed as the weak link among hardware choices for a microgrid due to high cost.

Furthermore, there are many wind turbines that now offer direct drives, eliminating the gearbox that is the most common point of failure, which contributes to high O&M costs.  If such wind turbines can be installed without a crane, as is the case with Eocycle’s, some of the installation headaches also go away.

 

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