Economic Analysis

Microgrid Investment

There are multiple benefits from investing in microgrids, however financial models from investors of microgrids have yet to been established, primarily due to the complexity of capturing the value of an advanced controller that differentiates microgrids. As investors continue to understand how to monetize microgrids and develop investment models, microgrids are expected to see rapid growth in popularity. Recently, institutions have relied on government grants to partially aid in the funding for microgrids, and have used other strategies such as direct ownership, vendor financing, energy service contracts, debt financing, and bonds to fund the remainder. Those implementing microgrids have used other common energy financing models as a template for financing microgrids. Two common examples are a power purchase agreement (PPA), used by independent power generators and solar companies, and a energy savings performance contract (ESPC), a model that revolves around sharing cost savings between the contractor and the customer (Siemens, 2016).

Microgrids tend to vary in cost, depending on the scope and the type of microgrid. The main expenses that account for the total cost are the distributed generation assets, grid automation, microgrid automation software, development and installation costs, and energy storage. Much of the value from microgrids comes from the complexity of the controllers, as the complexity of these controllers increases, so does the profitability. Simple controllers keep the microgrid running constantly, and energy is purchased from the grid when there is not enough energy to meet demand. However, as the controllers become more advanced, the microgrid can optimize energy costs by switching autonomously between the grid and the microgrid based on gas and electricity prices. Microgrids are also able to produce revenue by selling ancillary services (Siemens, 2016). Ancillary services are defined by FERC (The Federal Energy Regulatory Commission) as “Those services necessary to support the transmission of electric power from seller to purchaser, given the obligations of control areas and transmitting utilities within those control areas, to maintain reliable operations of the interconnected transmission system.” (FERC, 2016). These ancillary services would include frequency control, in which the microgrid could help maintain stability in the main grid, and black start capabilities, in which the microgrid would help restore power to the main grid in the event of a blackout. Microgrids can also earn revenue by participating in grid demand response programs, where the microgrid can reduce its power dependency on the macrogrid when the macrogrid is under strain (Siemens, 2016).

Solar Estimation Method

To estimate the total cost of a solar power plant at Metzgar we used solar costs estimated per Watt (Kabir, 2018, Parkinson, 2015). These estimations break down the costs into three sections: installation, acquisition, and the PV cells themselves. Each metric had both a high and low estimate, which will give us a range of pricing options for both of our Metzgar solar alternatives. For installation costs the high cost was $0.65/W and the low cost was $0.45/W. For acquisition costs the high cost was $0.50/W and the low cost was $0.20/W. For PV cell costs the high cost was $0.50/W and the low cost was $0.40/W. This makes the total costs per Watt between $1.65 and $1.15. Additionally, these solar projects are expected to have operation costs each year. The estimations for operation costs come from the Stone House Group’s estimations for rooftop solar on Kirby Sports Center (Hayes, 2018). The annual operation costs for both Metzgar alternatives are assumed to be proportional for to the Kirby Sports Center options. The solar panel requirements come from using the total annual energy consumption from the Office of Sustainability (Fechik-Kirk & DeSalvo, 2018). We estimate daily solar irradiation to be 4 peak hours per day (Zientara, 2018).

 

Metzgar for Metzgar

Implementing solar panels to power the Metzgar sports complex is likely a sound economic solution for the energy needed for the entire complex. The land that is currently being unused by the school has ample room to support solar panels that could make the complex energy independent. (Fechik-Kirk & DeSalvo, 2018, Ferretti 2018) This means that Lafayette would not have to purchase land from any nor remove the farmer currently leasing part of the land Lafayette owns around the Metzgar complex. (Ferretti, 2018) The annual energy costs of Metzgar is estimated to be the same as the average building energy cost at Lafayette (Fechik-Kirk & DeSalvo, 2018). To estimate the cost of the solar system at Metzgar we use the solar estimation method described earlier, using those source for daily solar irradiation and solar panel cost. We estimated initial costs of this system to be about $407,00 to $214,000. The annual operation costs are estimated to be $27,000 per year. Additionally, if the Metzgar facilities are not being used consistently throughout the day, which they often would be due to the practice schedules of teams, the college would be able to sell the excess energy produced by the solar system to the Macrogrid as energy credits.

Metzgar for Campus

Implementing solar panels at Metzgar to power the entire campus would be a significantly larger investment than installing solar panels just to power the Metzgar complex. This alternative would involve removing the farmer currently leasing part of the land Lafayette owns around the Metzgar complex (Fechik-Kirk & DeSalvo, 2018, Ferretti 2018). After removing the farmer, the college would lose the money that he previously paid leasing the land each year. Assuming the college is able to secure distribution back to campus from a large solar array, the school would need roughly 90 acres in order to power the entire school only on solar located at Metzgar (Ferretti, 2018). Using the assumptions from earlier in this section, the estimated initial costs of this system is between $30,514,000 and $2,267,000. The annual operation costs are estimated to be $2,000,000 per year. This large investment in solar would be risky for the school because the entire campus would be reliant on a single energy source. Therefore, if the sun did not shine enough, the school would have to go back and purchase energy from UGI, their current energy provider, and negate all the money they have invested in become carbon neutral. It would also lengthen the time that the school would require to break even from the initial capital costs.

CHP for Anderson Courtyard

A CHP microgrid for Anderson Courtyard is the most appealing option economically of all the microgrid options. CHP is extremely efficient when it comes to energy usage, as the traditional macrogrid typically only reaches efficiencies of about 30% to 40%. However, CHP is able to reach efficiencies of up to 80% to 90%, allowing the college to reduce energy costs long-term (Hirsh, 2018). The steam powered engine that the college already has would significantly reduce the upfront cost of installing a CHP microgrid. However, there are still multiple initial investments the college must make in order to implement a CHP microgrid. A combined heat and power system to power the entire campus would cost approximately $6.4 million dollars, however over a 15 year life cycle, the college would end up seeing by year 4 about $210,000 – $220,000. By year fifteen the cost of the CHP microgrid would decrease to $3.9 million dollars (Hayes, 2018). Anderson Courtyard accounts for 15% of the schools energy usage, so we would expect the present value of the cost of a CHP microgrid for Anderson to be about 590K (Fechik-Kirk & DeSalvo, 2018). This equates $66 dollars per MT of CO2 emissions saved by installing the microgrid (Hayes, 2018).

 

Solar Panels for Kirby

Kirby Sports Center is the building with highest energy usage on campus, thus there is plenty of potential for energy savings by powering Kirby with more renewable energy sources. The installation of solar panels is estimated to cost between $433,219 to $622,000. The expected additional operating costs over a 15-year life cycle would be $621,124, with a present value of $429,684 (Hayes, 2018). However, there is the potential for net-metering. During sunny days, especially during the summer when energy use is at its lowest, the college could sell the excess energy produced back to UGI for credits off the energy bill. Along with the microgrid capabilities and the reduction of the carbon footprint from Kirby, a solar microgrid also provides the college with long-term savings potential.

Economic Conclusion

Overall, we have concluded that each of the alternatives would save Lafayette money and contribute to the Climate Action Plan. With the two larger investments, the Anderson Courtyard CHP and Metzgar for Campus alternatives, raise concerns due their high initial costs. It may be difficult to secure the capital to fund the projects. If both power plants were built, they would constrain Lafayette’s energy to a single source of power, natural gas and solar respectively. This means the CHP alternatives effectiveness dependent on the price of natural gas or alternative fuel. Likewise the solar project would be dependent on the solar irradiation. It would be risky for the school to become dependent on one of these sources of energy. Any decrease in the school’s ability to produce power would mean either switching back the macrogrid or leaving the campus without power. Even though the larger projects would pay for themselves, it is worth considering the constraints these alternatives would have on Lafayette’s power generation.

The smaller projects, the Metzgar for Metzgar and Kirby Solar alternatives, would be used only to offset some of the power needs of the two buildings. This means that both solar arrays would have the ability to send unused electricity either back to the macrogrid or to other parts of campus. This means that any excess energy would either generate profit through net metering back to the macrogrid or reduce power expenses for other parts of campus. If solar irradiation is low, the buildings would still be able to plug back into the macrogrid. As a whole, the small solar projects make sense because of their lower relative cost and the complete usage of all power generated.

Solar power generation could work well for campus given the timing of high electricity usage. At Lafayette electricity usage peaks around 2:45 pm (Fechick-Kirk & DeSalvo, 2018). This means that solar panels would be producing close to or at capacity during the time that the most energy would be demanded. During these peak times electricity is also at its most expensive, maximizing the cost savings from the solar power generation. Additionally, Lafayette spends more money on air conditioning during the summer than heat during the winter. This means during the summer months, when the sun is out more, a solar power system would be generating more power to offset Lafayette’s energy usage. As a whole, a solar power system would coordinate with Lafayette’s energy needs.

The economic feasibility of these alternatives is largely dependent on the social cost of carbon used to calculate the value of the CO2 reduction achieved through the more renewable energy sources. While the projects should save the college money, factoring in the emission related externalities of Lafayette’s current energy usage, could make the microgrid options more economically viable. The higher the social cost of caron is estimated to be, the more important it will be for Lafayette to invest in renewable energy. Based on the money that could be made for the smaller projects, investing relatively small amounts in renewable energy could make economic sense if the cost of carbon is high enough.