Energy usage in the U.S. continues to rise, driven by new technologies like electric vehicles and giant, AI-centric data centers. The nation’s electric grids are straining to keep up, and as a result, energy costs are climbing rapidly. In this environment, what can facilities operators do to keep the lights on and energy costs affordable? For many facilities, the answer is a microgrid.
What Is a Microgrid?
A microgrid is a self-contained system of energy generation and storage that can provide much of the power a facility needs for normal use. Depending on the microgrid, it can also provide all the power needed to keep a facility operational in the event of a systemwide failure of the public utility grid.
The U.S. Department of Energy defines a microgrid as ‘‘a group of interconnected loads and distributed energy resources within clearly defined electrical boundaries that acts as a single controllable entity with respect to the grid.’’
A 30-minute power outage can cost a medium or large business more than $15,000. Reliable microgrids keep facilities running when the public energy grid fails.
In plain English, microgrids are small-scale power grids that operate independently to generate electricity for a localized area, such as a manufacturing facility, university campus, hospital complex, or military base. They usually consist of several types of distributed energy sources—such as solar panels, wind turbines, fuel cells, and diesel or natural gas generators—coupled with an energy storage system. Normally, microgrids are connected to the main utility grid, but they can also be disconnected and operate in “island mode,” meaning they function autonomously to deliver power on their own.
Benefits of a Microgrid for Facilities Management
Facilities that absolutely must maintain power, such as hospitals, have been among the early adopters of microgrid technology. But as costs for key components like solar panels and storage batteries have come down, other types of facilities are investing in microgrids as well. Microgrid Knowledge lists eight ways that facilities benefit from having an independent energy system:
- Reliability – A microgrid can ensure your facility has power even when disasters hit. Superstorm Sandy, for example, knocked out power to 8 million customers when it hit the East Coast in 2021. Some outages lasted more than two weeks. Facilities that had their own microgrid were able to disconnect from the public grid and (in some cases) continue operations until power was restored.
- Resilience – Even in cases where a microgrid is insufficient to fully power operations, it can be used to maintain vital functions during a natural disaster, allowing the facility to resume normal operations more quickly when the main grid is restored.
- Lower energy costs – Energy generated onsite, from solar panels or other technologies, can be used instead of higher-priced power from a public utility. Advanced microgrid controllers can adjust the balance of power sources as energy prices rise and fall during the day—using more internally generated power when prices rise and shifting back to utility power when rates drop.
- Clean energy – Microgrids often utilize green power sources such as solar, wind, and fuel cells, helping companies reach their sustainability goals.
- Utility grid backup – A microgrid can act as an additional resource that public grid operators can call upon during peak-demand periods. This not only helps the local community but also generates revenue for the facility that owns the microgrid.
- Cybersecurity – National security experts have expressed concern that a hostile cyberattack against a U.S. public utility could cause widespread power outages. The growing use of microgrids is decentralizing the energy infrastructure in the U.S., making it easier to guard against these threats.
- Uninterrupted productivity – The cost of power outages to the U.S. economy ranges from $25 billion to $70 billion annually. Just a 30-minute outage can cost a medium or large business more than $15,000. Reliable microgrids keep production lines running during a power outage.
- Community well-being – In the event of a power outage, the facility served by a microgrid becomes an island of energy. For example, during Superstorm Sandy, Princeton University’s microgrid kept the power on while most of New Jersey was dark and chilly. First responders were able to use university facilities to get warm and share a pot of coffee.
Potential Cost Savings
While there are upfront costs (see below), microgrids provide significant cost savings over time:
- Pittsburgh International Airport’s switch to a solar and natural gas microgrid led to a reported $1 million in savings during its first year of use.
- A California winery built a microgrid based on solar technology and reduced its monthly energy bills from $15,000 to $1,000.
- A cold storage facility in California is projected to achieve more than $43 million in lifetime savings.
- A food service logistics provider in Southern California is installing a microgrid that is projected to save over $192,000 a year by optimizing low-cost solar and battery storage.
Savings like this occur through several mechanisms:
Solar savings
Solar panels deliver energy at a much lower cost than traditional utility grids. Over the past decade, costs associated with solar panels have fallen by 90%, and battery costs have dropped by more than 90% as well.
Load shifting
Microgrids equipped with battery storage enable facilities to shift their energy use to take advantage of time-of-day pricing. They can charge batteries during cheaper off-peak hours and then draw on that stored electricity during expensive peak hours.
Reduced demand charges
Utilities typically charge commercial and industrial customers based on the highest level of energy consumed in a given period of time (often just a 15- or 30-minute interval) during the billing cycle. These charges can account for as much of half of a facility’s electric bill. Microgrid controls can optimize battery use to reduce the amount of power that needs to be drawn from the utility at any given time, reducing peak utilization.
Demand response
Demand response programs offer savings to facilities that reduce power usage during high-demand periods. By enabling facilities to draw less energy from the public grid during these periods, microgrids allow organizations to take advantage of these cost-saving programs.
Selling power
A microgrid can be designed and built to generate and store more electricity than a facility needs. This gives microgrid owners the option of selling excess energy to the local public utility, creating a new revenue stream.
Lower insurance costs
Improved property resilience—the ability of a property to adapt to and withstand external disturbances—can sometimes lead to lower insurance premiums. And during an era in which insurers are reassessing their coverage due to the increased frequency of natural disasters, companies that can show greater infrastructure resilience also increase the likelihood of remaining insured.
Installation Costs
There are two primary ways to acquire a microgrid. One option is to purchase equipment and build and manage the microgrid in-house. This may require a significant capital investment up front, but can make good economic sense in the long run. Or, organizations can avoid the capital expenditure by leasing equipment from an energy-as-a-service (EaaS) firm. EaaS firms own the equipment, and handle both installation and maintenance, making them a good option for companies that want energy independence but lack the capital needed for their own microgrid.
Long term, companies will reap the most benefit by owning their own microgrid. But before taking that step, keep the following capital investments and other costs in mind.
Equipment and Installation
About 75% of the upfront cost of a microgrid typically goes towards equipment and installation. These include:
- Generators – Natural gas generators cost about $700 to $1,000 per kilowatt. Diesel generators may cost more.
- Energy storage – Battery storage systems run between $300 and $400 per kilowatt hour of discharge capacity.
- Renewable energy – Prices for energy sources such as solar panels vary based on capacity and technology.
- Control systems – Controllers, the “brain” of the microgrid system, can range from $50,000 to $90,000, depending on how many sensors, assets, or site-specific solutions you need to control.
Construction
Construction oversight and project management account for about 15% of upfront costs, including labor, site preparation, and logistical expenses. Geographic and climate challenges can drive these costs higher.
Design and engineering
Costs including surveying and analyzing the electrical system, creating plans, and ensuring regulatory compliance make up roughly 10% of upfront costs.
Permits and regulations
The cost of obtaining the necessary government approvals varies by jurisdiction, and can be significant. In addition, any delays in obtaining the needed permits may drive up overall expenses.
Maintenance Costs
As with any system, regular maintenance is essential. Costs will vary based on the microgrid’s size and complexity and the technologies used. For example, coastal locations may experience corrosion, while desert locations can expect increased dust accumulation on solar panels.
Equipment should be regularly inspected, cleaned, and serviced as needed. Solar panels require periodic cleaning, and inverters need to be replaced on a regular basis. Wind turbines require regular inspection of blades and gearboxes, and frequent lubrication of moving parts. Generators need periodic servicing and fuel management. Batteries for energy storage have relatively short life expectancies and may need to be replaced frequently, while control systems require software updates and cybersecurity protection.
Much of this maintenance work requires specialized equipment and personnel. Fortunately, microgrid controllers can utilize predictive and prescriptive analysis to identify items that need maintenance before breakdowns, saving money and preventing major problems.
When Does It Make Sense to Install a Microgrid?
Every facility has different needs when it comes to energy security. If uninterrupted power is critical for your organization’s mission, if the local utility’s power is not always reliable, or if your business is seeking to reduce energy costs and/or its carbon footprint, a microgrid may be the answer. To help you determine if that’s the case, here are five key questions to consider.
- What are your strategic goals for the microgrid?
Are you looking for 100% renewable energy? Maintaining resiliency during outages? Earning income by participating in energy markets? Or perhaps a combination of all these factors?
- What are your energy consumption patterns?
How does your facility use energy? When is peak demand? Does your demand change throughout the day and throughout the seasons?
- How will you finance the microgrid?
Have you explored state or local utility financing and incentives? Does it make sense to buy and operate your microgrid or would it be better to partner with an EaaS firm that would minimize your upfront costs?
- How much are you willing to pay for increased resilience?
How many hours of resilience do you need? Would the microgrid you can afford provide that level of resilience? Long term, how would the hourly energy cost of your microgrid compare to the hourly energy cost of your local utility?
- Can you future-proof your microgrid?
Technology will undoubtedly change during your microgrid’s lifespan. Will it be possible to incorporate new technologies? You may want to use solar today, but perhaps fuel cells or some other system will become standard in 10 years. Can you design your microgrid to allow you to swap energy sources if needed?
Getting answers to these questions will help you make a cost-effective decision, whether that’s building your own microgrid, contracting with an energy-as-a-service provider, or continuing to rely on your local public utility.