Self-contained “microgrids” are emerging as a viable power option for users from datacenters to telecom stations to single family homes. While customer-owned microgrids are standard today, a new business model, microgrid-as-a-service (MaaS) offers a flexible ownership structure and presents the best opportunity to capitalize on this growing market, according to Lux Research.
Lux Research used 15 different generation sources and cost/revenue inputs to build a bottom-up microgrid financial model giving the internal rate of return (IRR) and levelized cost of energy (LCOE) as metrics for given sector- and business-model-specific input assumptions.
While all models of microgrid development can potentially be profitable, MaaS — where the installing entity owns and finances the microgrid on behalf of the subscribing customers or power purchasers — provides the most flexible growth opportunities.
Lux Research analysts built and evaluated several models in order to assess opportunities for utilities, and impact-investors and technology developers. Among their findings:
· Customer-owned microgrids and MaaS yield similar returns — but to different parties. Based on an industrial base case, with 10 MW of generation from solar and natural gas, as well as energy storage, the returns for the customer-owned microgrid and MaaS are identical. However, the customer-owned model places all financial risk on the customer, while the MaaS model offers an opportunity for utilities and third-party financiers to strategically capture customers while diversifying from traditional power service opportunities.
· Pay-as-you-go (PAYG) model shows promise in developing world. Small-scale PAYG microgrid models can help profitably serving the 1.3 billion people who lack access to electricity. In India, Mera Gao Power runs profitable solar-driven microgrids, serving 25-30 paying customers per microgrid installation.
· Electricity and gas prices impact microgrid economics. As the retail rate of electricity increases, microgrids become a no-brainer investment as every 1 cent per kilowatt-hour increase in electricity rate translates into a 2 percent increase in IRR. Similarly, gas price fluctuations can drastically swing microgrid economics — a 50 percent price increase from $4 to $6/mmBTU can completely wipe out any economic benefits of a microgrid implementation.