Microgrid Economics

Microgrid Economics

My earlier blog (Apr. 14, 2015) showed a preliminary design for a Microgrid module system with concrete cylinder storage. What capital costs ($/W) could be expected for a complete system (collectors, storage and ORC engine) if it were produced in China? What will be the cost of energy over the plant's lifetime?

I think the answer to the first question is about the same capital cost as a current natural gas fired generator if you include the distribution costs. The big difference is that the Microgrid system would provide electricity day and night for no fuel cost.

Most microgrid systems divide into 3 cost categories: collection, storage and conversion. For Focused Sun, collectors are the array of Microgrid modules, storage is the concrete cylinders and conversion is the ORC engine. Understand that the costs I’m presenting are forecast costs: the costs you could expect after a few dozen of these systems have been installed.

First consider collection. Here we assume the system is NOT built in the West. According to our BOM (Bill of Materials), the collector cost assuming pilot production quantities is $400 for raw materials, labor and the Focused Sun royalty. An array of 300 Microgrid modules would cost $120,000 or $1.2/W for the 100 kW system. In the West, labor costs are typically 10X higher. The same Microgrid modules made in the West modules would cost $170,000 giving a cost per Watt of $1.7/W.

Heat storage is the cost of concrete cylinders and their heat transfer piping at $70,000 or $.7/W. Each Microgrid module has 30 kW-hr of heat storage. The concrete has a cost of less than $5/kW-hr and lasts for decades. Compare this with batteries at $400/kW-hr that last only a few years.

We think the 100 kW ORC engine can be mass produced in China for about $80,000 or $.8/W. I’ll discuss why I think the Chinese can make ORC engines this size in more detail later.

All told, the plant cost is $270,000 or $2.7/W. In the West with our higher labor costs, the estimated costs are $320,000 or $3.2/W. If we were only producing electricity for the microgrid, these costs are more than the going price for a PV solar farm.

But wait. We have leftover low-grade (less than 100C) heat from the ORC engine. That heat can double its return on investment. That's the same as cutting its payback in half. It’s the combination of heat and power that makes this system economical. Applications should use both electricity and heat. Heat uses in the commercial/industrial market are hotels, district heating, desalination, air-cooling, laundries, refrigeration, food processing and fabric processing.

But how to apportion the capital cost of the heat versus the electricity? Focused Sun uses a computer analysis to forecast the heat and electrical energy we could expect from a 300 module Microgrid system. Back in the day, we were among the first to use monthly weather data to estimate performance of our MIT solar module. We could only get weather data from 10 cities. Today it’s much easier: the U.S. National Renewable Energy Laboratory (Golden CO) does it for nearly 200 US cities (http://rredc.nrel.gov/solar/old_data/nsrdb/1961-1990/redbook/).

Where I live Las Cruces, NM is closest to El Paso, TX. Using NREL data for “DIRECT BEAM SOLAR RADIATION FOR CONCENTRATING COLLECTORS (kWh/m2/day)” for El Paso TX gives the monthly averages of solar radiation of various types of reflecting solar collectors including our single N-S rotational axis with horizontal collectors (http://rredc.nrel.gov/solar/old_data/nsrdb/1961-1990/redbook/sum2/23044.txt).

Using this data, our computer analysis based on NREL collector type says the 100 kW system will deliver 260,000 kW-hr of electricity a year plus 870,000 kW-hr of low grade heat (less than 100C) each year. Assumptions we use include a reflection efficiency of our mirrors at 88%, collector heat loss at 10%, ORC electrical generation efficiency at 20% and heat delivered to it and ORC engine heat loss at 10%.

In the US, heat from natural gas typically costs $0.04/kW-hr; electricity costs $0.12/kW-hr. At these energy costs, the system’s electricity savings are $31,000/yr and its heat savings are $35,000/yr. The combined savings total $66,000/yr. Then 47% of the total savings come from electricity ($31K/$60K) and 53% come from heat ($35K/$66K). Note that heat savings double the total savings; heat produces as much savings as the electricity.

That means 47% of the plant’s $270,000 capital costs are apportioned to electricity ($127,000) and 53% apportioned to heat ($143,000). The cost per Watt of electricity is $127,000 for 100 kW of electricity or $1.3/Watt. This is a little less than the going cost of a PV solar farm that doesn’t have energy storage. Note that the economics of the entire system requires that the leftover heat from ORC engine is used locally. If the heat isn’t used, then the cost per Watt is much more: $270,000 for 100 kW of electricity is $2.7/W.

ORC engine pricing is based on Mitsubishi’s Turboden Division that have sold ORC engines since 1980. Small engines (100 kW) are priced at $2.5/W, bigger engines (1 MW) at $1.6/W and their largest engines (10 MW) at $0.8/W. When you look at the Turboden website, most of their installations are in the 1 MW to 10 MW range. Far fewer are as small as 100 kW. Clearly, they are not set up to mass produce the smaller engines that we need.

China manufactures products less expensively than Western production because China does not have the high fixed costs (mostly professional salaries) of Western companies. In my experience – 5 years running a sourcing company in China – China can price a product at half the Western price. My choice of $0.8/W for a 100 kW ORC engine reflects lower Chinese pricing as well as the economies of scale of mass production. If a Western company like Turboden can produce a 10 MW engine for $.8/W, Chinese manufacturers should be able to match that price/Watt for mass produced 100 kW engines.

The bottom line is that a Focused Sun microgrid system produces steady power for about the same capital cost as utility electricity if the heat produced is also used. But that’s the capital cost.

What about the plant’s cost of energy? For energy costs, the Levelized Cost of Energy (LCOE) is the cost of energy over the plant’s lifetime which we’ll assume is 20 years. As noted above, the electricity portion of the plant costs $127,000 and produces 260,000 kW-hr of electricity annually. The heat portion costs $143,000 and produces 870,000 kW-hr of heat annually.

To find the LCOE, we also need to know the maintenance and operation costs. Let’s assume a two man maintenance crew working single shift at $2400 annual wages in a non-Western country. Annual maintenance expenses are estimated at 2% of the initial capital cost. The total cost of about $10,000/yr means $4700/yr goes to maintenance of the electricity portion and $5300/yr goes to maintenance of the heat portion.


Given these parameters, we can calculate the LCOE for each type of energy independently. The LCOE equation can be found on the internet, for example at http://large.stanford.edu/courses/2010/ph240/vasudev1/. Using a 10% discount rate to include the time value of money gives an LCOE of $0.075/kW-hr for the plant’s electricity. Using the same formula for heat delivery gives an LCOE is $0.023/kW-hr.

Both these values are less than utility heat and electricity in most places. In fact, to calculate the solar savings of our microgrid plant, we used average US energy values of $$0.04/kW-hr and 0.12/kW-hr respectively. And since we’re storing energy, we can deliver heat and electricity from the ORC engine 24 hours a day and 7 days a week. That’s steady power for less than utilities charge.

By comparison, the chart below shows LCOE electricity values for various types of energy from the International Renewable Energy Agency, IRENA: (http://www.irena.org/menu/index.aspx?mnu=Subcat&PriMenuID=36&CatID=141&S...).

Notice that $.075/kW-hr is below all Solar Photovoltaic, Concentrated Solar (CSP) and Offshore Wind. It’s about equal to Biomass, Geothermal, Hydro and Onshore Wind. It’s also lower than the average Fossil Fuel power. Not bad for delivering steady power day and night. And that price won’t go up in the future since the capital cost has already been paid.

In many regions, electricity is not only less reliable – 6 to 8 hours of power a day are common in developing countries – but more costly. I’ve calculated the cost of electricity by diesel generators in Africa and found it costs $0.35/kW-hr. Even in America, electricity can cost $0.44/kW-hr if you are a Tier 3 consumer in northern California.

Island communities also pay high prices for electricity. We have had interest from many island nations like Malta, Indonesia and the Philippines. There the fuel to produce electricity must be imported making energy costs especially high. Renewables are a much better deal than fossil fuels for these island communities.

Another comparison is the cost of heat. At $0.023/kW-hr, our heat LCOE is very low. While America has used fracturing to tap into its bountiful gas energy, even natural gas heat in the US is $0.04/kW-hr to $0.05/kW-hr. Heat from other sources is more pricey. I recently switched from propane heat to natural gas heat when Zia Gas put a gas line out our way (we live 2 miles past the Las Cruces city limits). I was pleased to see my heat cost drop by better than half. Propane, at $0.12/kW-hr, is three times more expensive than piped natural gas. It's also tied to the cost of oil which is likely to increase as the world uses more oil.

A last concern with economics is risk: new products have a higher risk than old, reliable products. We combine three components: collector, storage and conversion. Only our collectors have not been proven in the marketplace. Cement has been used to store heat at 300C by the Europeans for decades. ORC engines have been made by substantive companies like Siemens and Mitsubishi for decades. Only our linear Fresnel collectors have not yet been proven. Yet the linear Fresnel concentration method is itself decades old, invented by Francia in Italy in the 1950s.

What we bring to the party is a low cost way of making linear Fresnel mirrors. Sandwich fabrication, which we pioneered on solar panels with Chevron in the 1980s, is the lowest cost method to make the mirrors. We have squeezed the costs out of linear Fresnel to make the most economic solar energy approach available today.

Shawn