The microgrid market is expected to grow into a $39.4 billion market by 2028. Since microgrids have all the necessary components to sustain power provision with or without support from the general grid, they have been the main solution for achieving enhanced resiliency specifically in times of weather disasters. As these become more frequent, potential investors are searching for different strategies to enable and bring down to earth these new emerging opportunities. Utilities still are debating if they should fight or boost microgrid deployments, potentially leaving good business cases in hands of other third parties and in that way losing both the customer and its associated energy consumption plus the potential creation of new revenue streams through the delivery of innovative energy offerings and improving customer-facing reputation.

Microgrids are a viable option for utilities and their customers to optimize local or even system-wide conditions. These improvements including reliability, resiliency and economic value as targeted grid enhancement solutions and non-wires alternatives. For years, mainly due to the lack of technological development and associated high costs of deployed DERs and system controls costs, microgrids were left out for high profile customers with bulky wallets such as large campuses and healthcare. Nowadays, microgrids have gained in standardization which leads to a decrease in deployment costs and the deployed assets are not only cheaper but also greener - a growing demand as well.

But if microgrids are such a good solution in theory, why haven't they taken off? A recent Schneider Electric survey on executives, energy and sustainability professionals from corporations earning +250M USD may have the reason why: They are an unknown technology. Out of 16 climate-related technologies and strategies microgrids were only better known than biomimicry.

New business models beyond the classical capital-intensive, customer-owned proposition may shed a light on these solutions. As an end customer who is looking to enhance energy resiliency but doesn't have the expertise to evaluate, design, implement and finally operate these complex systems, which assets are included and at which price is still not the main issue if they have the burden of managing that complexity. Business models that move away this burden from the customer to the provider are quickly gaining traction in the space as a key enabler of previously locked opportunities. These business models have achieved increased attention as the technology gains traction and as potential investors determine what role they might play in these markets.

Energy or Resiliency as a Service (E/RaaS)

The model offers a flexible ownership structure and presents one of the best opportunities to capitalize on the growing microgrid market. There's a PPA in place which may have an equity and debt financing structure with part of it depending on energy delivered (MWh) and another component of capacity charges (MW). This is an opportunity for utilities and third-party financiers to strategically collaborate with customers to diversify from traditional power services opportunities. Implementing microgrids is often best managed by the actual developers who specialize in these power systems.

An interesting utility project with this approach is being built up by Entergy in all four served states. The Power Through offering is delivered through a Resiliency as a Service business model and targets all classes of C&I customers with the delivery of microgrids based on natural gas fire backup generators. The customers have full use of the assets and when left unused, the utility can dispatch these DERs for system-wide resiliency needs. Utility or financial partners’ capital is used to procure the assets and the owner pays them overtime. In this way, there's a cost-sharing component that benefits both end customers and the utility seeking to improve grid performance, especially through weather disaster events and highly reducing customers upfront costs.

This interesting business model allows utilities to retain ownership of assets, which can also include PV + storage and other more novel DERs, allowing further standardization of these energy resources, of the management software, build a known use with them and include them in their own DER roll out programs. This lowers risks and builds confidence.

The growing trend can be seen in the graph below where the EaaS business model was negligible until 2017 in the US.

Globally, according to Navigant - Guidehouse, while over 80% of all microgrids deploy some form of EaaS, if the market is broken out based on project capacity, the current microgrid market is evenly split among the following models: EaaS, government funding (in the form of direct grants - these projects tend to be pilot projects or serve public purposes), owner financing (traditional approach), Utility Rate Base (traditional utility funding for new infrastructure common for remote microgrids on physical islands) and other (either using a different financing approach or the financing approach was not ascertained due to lack of data). This means that there's still quite a good number of opportunities to be tackled.

Growth in strategic partnerships will drive more flexible “as-a-Service” business models. In recent years, we've witnessed a significant increase in mixed or third-party ownership business model structures in efforts to increase power resilience and efficiency, and this trend will continue. One of the innovators providing full turnkey microgrid solutions including the financing component leveraging on a partnership with Warburg Pincus is Scale Microgrids.

Pay as you go (PAYG)

PAYG is another innovative business model gaining traction, especially in the developing world. Widespread use of mobile payment, significant solar resources and declining costs of PV and storage, coupled with increased awareness and education on these technologies, have been key drivers in the implementation of this business model.

As most households in rural areas have low and variable incomes, flexible payment models will be important in making energy services appealing to customers especially in off-grid configurations. Is good to remember in 2020, over 800 million people (or over 1/10th of the global population) still lack energy access. In India for example, this business model is used to deliver profitable solar-driven microgrids which serve nearly 30 end customers per installation. In these deployments, companies can charge usage fees to recover their costs with the help of smart meters which are enabling off-grid providers to invest in the assets they need to expand electricity services.

This model challenges the standard "packaged" offering of appliances and the associated power supply. Customers don't receive any service for which they haven't paid. As a result, payments often can be made in smaller amounts than would otherwise be possible, and customers have greater control over their consumption and thus of their spending.

This concept is usually delivered as follows. Firstly the installation of the DERs (usually PV + small storage) is put in place. The energy service provider sends a payment reminder to the customer via SMS and the customer makes the payment through mobile applications. Once the payment is processed, a code is generated which the customer introduces in the PAYG platform and the electricity supplied is kept on for the prepaid number of days. After that, a new SMS is sent to the customer to repeat the cycle.

PAYG model is usually delivered in different segments or tiers according to customer needs as seen below.

If you would like to discuss on microgrid buisness model, technology innovations and turnkey providers, join us in our next Microgrid forum where we will have Enchanted Rock as our presenting innovator. In case you lost the last microgrid forum where we covered feasibility and design, please follow this link for the event recording or follow up on Xendee's Storefront which was our presenting innovator there.

Resources:

• PAYG plans for off grid energy services
• Microgrid business models and value chains
• Ramping up global microgrid opportunities
• Microgrids vs Virtual Power Plants
• Entergy Power Through Project
• IRENA: PAYG models
• Microgrid Knowledge