MICROGRID FINANCING GETS EASIER
Projects below 5MW gain traction with investors
The arguments for development of renewable microgrids have long been compelling. Utilities, municipalities, and large-scale industries like mining are all under pressure to lower their carbon footprints. Yet, while continued operation of fossil-fuel based power plants becomes increasingly untenable, the possibilities for directly replacing utility-scale legacy plants with equally large-scale renewables-based alternatives are often limited.
Add to this the increasing unreliability of large-scale, long-distance power transmission due to aging infrastructure (see California) and you have a strong case for resilient, locally controlled clean power solutions.
The catch has historically been getting distributed microgrid projects financed. The good news is that, according to a new report from Woods Mackenzie (via GreenBiz
), this is becoming easier. In summarizing the Woods Mackenzie report, GreenBiz Sr. Energy Analyst Sarah Golden points to four emerging developments that are stimulating investor interest in microgrids.
Historically, microgrids were custom engineered and built on a project-by-project basis. The business and technology risks needed to be evaluated case-by-case, which only made sense for a few larger projects. Now, as clean microgrid technologies mature and prices decline, investors can look at multiple projects using the same or similar designs and technology, thereby streamlining due diligence and reducing risk.
Increased standardization means that financers can now evaluate multiple smaller projects, with similar components at different locations, as part of a single portfolio instead of individually.
DEMAND FOR RESILIENCE
GreenBiz’s Golden cites a study from the Rocky Mountain Institute, which shows that California businesses affected by last year’s planned power shutoffs “would have saved money if they had bought solar plus storage outright” instead of continuing to depend on grid suppliers.
MICROGRIDS AS A SERVICE
Wood Mackenzie points to an emerging business model that is leveraging each of these developments to create attractive opportunities for investors and offtakers alike. MaaS involves third-party financing options for microgrids in which the energy offtaker does not own or maintain the power-producing assets. These arrangements promise resilience without upfront or ongoing costs, a much cheaper option than buying or renting backup generators or interrupting operations, thus making microgrids accessible to communities and businesses with small energy loads.
The upshot of this is that The US microgrid market is growing, with a record 546 microgrids installed during 2019. Most of those projects were below 5 MW. This continues a trend where smaller, more modular projects have consistently grown each year since 2017. As the market has grown, it has also attracted increasingly diverse financiers.
Read more here and here.
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