Customer-owned microgrids will be the dominant ownership model in the near-term, while MaaS offers a completely new business model with flexible growth opportunities, says Lux Research
BOSTON, MA – February 4, 2014 – 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 utilized 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.
“The complex planning required to deploy microgrids is enabling innovative business models to emerge as focus grows on local power quality and grid-wide performance, coupled with improved distribution generation and automation,” said Dean Frankel, Lux Research Associate and the lead author of the report titled, “Microgrids: How Business Model Innovation Will Support New Development 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% increase in IRR. Similarly, gas price fluctuations can drastically swing microgrid economics – a 50% price increase from $4 to $6/mmBTU can completely wipe out any economic benefits of a microgrid implementation.
The report, titled “Microgrids: How Business Model Innovation Will Support New Development Opportunities,” is part of the Lux Research Grid Storage Intelligence service.