Craig: Hello everyone. I’m Craig Noxon, VP of Enterprise Sales at REC Solar and today we have a special guest expert. So, Sam Booth. Welcome Sam. Sam is Principle Engineer over here at REC Solar and today we’re going to be responding to a lot of questions that have come up and that we have taken regarding planned power outages and specifically some of the impacts within California and discussing how businesses, cities, schools can prepare for energy uncertainty in the future.
So, Sam, welcome to Solar Tea Time. We appreciate you joining us.
Sam: Thanks, Craig.
Craig: Great. So, since the power outages and planned power outages in California in late October, as I’ve mentioned, we’ve gotten a lot of questions about how to keep businesses up and running with things like solar and storage, generators, microgrids. Sam, you know, in general people are worried about this and how these shutoffs can impact their business, and, in some cases, people are concerned for their own safety.
So, I have a few questions. I wanted to kind of get the ball rolling and we can kind of discuss this over the next 20 minutes. Sound good?
Sam: Sounds great.
Craig: So, Sam, maybe you can start us off. So, you’re moving to California. You are well aware of the issues at play. What are some of the implications for businesses for planned power outages and emergency outages?
Sam: Yeah, that’s a great question Craig and, you know, definitely our economy is really dependent upon electricity these days and businesses especially are dependent on electricity for a lot of their operations and it’s hard to find a commercial industrial customer that isn’t using electricity and doesn’t view electricity as critical to really getting their business going and getting the job done. I would say that outages – whether they’re planned or unplanned – are always problematic for energy users and are particularly problematic for businesses that are ever-increasingly kind of dependent on that energy.
Historically the electrical grid has been pretty reliable and you see that over the last 50 years of statistics for outages but really this has been changing over the last few years as we see an increasing number of weather events like hurricanes on the east coast, ice storms, and then the public safety power shutoffs we have been having in California and what’s interesting about those is, outages are not only more frequent, but they are much longer than they have been in the past.
So, it was pretty rare previously to have a three-day outage for a large number of customers but that’s really what we’re starting to see in California and, as you mentioned, REC Solar’s offices are in California and we have really felt these outages first hand and we’ve seen it as our staff lives in these communities and we see places like grocery stores that aren’t able to maintain their inventory, agricultural producers that aren’t able to process their harvest because they need that manufacturing equipment. They aren’t able to water their crops because they can’t get the pumps to work to push the water out. Schools are closed and office workers are basically driving around looking for places where they can work and places that have power.
So, if you think about your question of, “What are the implications of that?” there are a lot of lost productivity and a lot of lost revenue from that. You know, on a macro scale, the way most people think about is something like, in my region or my city or my state has a gross domestic product per day and without power a lot of that doesn’t happen. So, the output is reduced.
Sonoma County asked Moody’s actually to look at this. They estimated about a 35-million-dollar economic impact for a 24-hour outage and there was a Stanford professor that looked at this too and estimated about two and a half billion dollars of impact from the October outage.
At a customer level it’s much more specific of, “I lost my process. How long does that – let’s say my manufacturing process. How long does it take to restart and how many orders have I lost and how much inventory have I wasted?”
So, overall, the implications are business-specific but we see that outages are increasing for businesses as they are increasingly dependent on electricity. So, it might be time to start considering options for resiliency.
Craig: Yeah, great. So – and what are some of those options for resiliency, Sam? What can people and customers do?
Sam: Yeah, just to clarify that, most of the interest we have been getting is around electricity but there is certainly some interest in heating and cooling but most of the impact we have seen is focused on the impact from not having electricity and that can take a few different forms in terms of options. There can be pretty simple things like UPS power supply for a server or a backup diesel generator. Backup generators can be loud. I don’t know if you’ve ever sat next to one, but you can’t hear anything standing next to them. They can be hard to permit. They require regular O&M. They aren’t necessarily that simple.
Other options are solar and storage where the storage can be used to provide that backup power and recharge with the solar PV or a hybrid system that takes the solar and storage and they add a generator or combine power. Kind of the best option for a customer, like any good question, it really depends on what makes the most sense for any customer. Some of those initial options like a UPS or a generator are really designed to be kind of backup power options and maybe operate for a few hours. They are not necessarily a really strong resiliency solution or designed for what we’ve been facing like three-day outages with these power shutoffs.
So, I like to start kind of thinking about solutions by asking a few questions and it starts out with basically trying to figure out why someone is interested in resilience and trying to understand the impact they have faced from outages in the past and how frequent have they been? How long do they have? This kind of helps design the system in terms of maybe how often you need it to operate and how long of an outage it should survive.
I also like to ask about what loads are critical for most businesses. Not every load in the office or in the manufacturing facility is critical. So, what are your critical loads? Where are they on your electrical system? The reason I ask where they are is, sometimes it can be pretty easy to isolate them and just power their critical loads in their outage. Sometimes you may have to pick up some non-critical loads and it’s actually cheaper to build a larger system to do that and then try to ask a few more questions about, “Do you have any existing distributed generation like rooftop solar already or a backup generator already?”
Then try to look at energy bills for a customer and the reason I ask the energy bill questions is because we are looking at electric rates and demand charges and what we’re trying do in a lot of these systems is trying to find out if that business can get any savings from grid connected renewables and storage. So, we like to look for projects that can ideally provide cost savings both when they are grid-connected from the solar produced and maybe from demand charge savings with a battery in addition to the solar and also, how do you use those assets for resiliency, perhaps through a microgrid?
Craig: Yeah. So, it’s a good point. You know, interestingly people often – I call it – fight the last war, right? They understand that they had an outage before. So, they may prepare to fix that problem in the future but the challenge with that is that, that exact problem may or may not materialize but building something from a resilient architecture that is able to deal with multiple different kinds of problems and different outages, I mean, I think that’s kind of what you’re talking about, creating something.
And an interesting point you just brought up there which was talking about backup. How do you know if your backup really works or not, right? You only know when you test it and that test that you did on a Tuesday doesn’t necessarily mean it’s going to be ready on a Thursday.
So, I think you are kind of leading to the word “microgrid” that you just talked about. Can you talk a little bit about what is a microgrid? So we define the term and then what should customers be thinking about if they’re looking into a microgrid?
Sam: Yeah. So, broadly a microgrid is basically just a group of interconnected loads and distributed generation behind a utility meter and this can happen at sort of a building level or a cluster of buildings or even a campus or a utility feeder. It might help with a few examples.
So it could be something like a data center with backup diesel generators for the building or a manufacturer that has a few buildings on a single feed or the University of California at San Diego or Marine Corps Air Station Miramar that have really large microgrids that cover most of their facilities on a campus level.
REC Solar also worked with Montgomery County in Maryland to design a microgrid to cover some of their critical facilities. So the important thing is that it has some mix of generation and load, and it’s behind a meter. The size can vary and also that it can operate on both grid connected mode and island mode and you need a few kind of components to make that work.
The first thing you need for that system to work – in island mode – is basically a way to isolate the system electrically from the utility. So should the grid go away and you want to operate your microgrid, you need to make sure it is not grid-connected in that case and you need a generation source that can come back online and start everything up and be the voltage and frequency reference. S, the loads and other generation think, basically, that the grid is back, and they can come online and then at a longer time scale, you basically need enough generation and load to match and you need a system to control that load.
If it’s designed properly, kind of like you were saying, it will work on a Tuesday in the afternoon and it’ll work on the weekend and it will work in the winter and work in the summer but it takes some thought and engineering and good analysis to make sure it’s going to work in all those cases and it gets slightly more complicated as you get down into other levels of what load is critical versus what load is essential.
You can also design systems where they’ll power what you deem as critical loads that need to have it every time, 100% of the time. So there might be some loads that you want most of the time but you’re willing to maybe turn them off some of the time or things like a refrigerator where it can survive a few hours of not being on. So, you just really need to run it for 20 minutes every hour but it doesn’t need to be on all the time.
A couple of other kind of interesting considerations to think about are does one want to count on natural gas being there or do they want to use diesel or renewables? Things that either don’t have a fuel supply or have onsite fuel and how much reliability and redundancy do I need and what goals does my organization have as I think about what else I might be able to do with this distributed generation that I’m perhaps putting in for resiliency needs but how can I also help bring me sustainability and cost savings in addition to that?
Craig: Yeah and be useful throughout – when you don’t have an outage. I mean, I think that is the important point although there are some other benefits to some of the other technologies that you mentioned as well. You know, just – I wanted to clarify because we get this question sometimes – just to clarify that in a grid outage, a solar-only solution is also going to shut down even though the sun is shining. By law, it is not going to continue to create power for you unless, as you mentioned, you are islanded behind the meter in a microgrid fashion.
So, I just wanted to make sure everyone was aware of that but there are components that you can use solar with to create that microgrid. So, maybe can you talk to us a little bit about what is the cost breakdown of that microgrid? Then, my part two of the question is how are customers evaluating that return on investment for the resiliency they’re getting on a microgrid?
Sam: Yeah, both are good questions. As far as the cost breakdown, it really depends on what kind of option you’re going to want to go with for your microgrid. So, when you do that homework and you figure out kind of what system makes sense, you probably want to come up with a few capital cost options and look at them.
So, things like diesel generators can look cheap upfront at a few hundred dollars a kilowatt hour, but they have kind of low capital costs and higher operating costs and maintenance costs and other things but they don’t come with any savings. Solar has slightly higher upfront costs but the fuel is free. So, you might be getting a payback of something like three to five years on your solar system but it’s coming with higher kind of upfront capital costs.
Batteries in the three hundred to eight-hundred-dollar kilowatt range – a lot of these costs are ranges because they are highly dependent on things like the size and the mounting structure and when you look to the microgrid, you have your generation sources – whatever you kind of deem necessary for your project – and you add maybe 10-20% for a controller and maybe smart switch gear and other things on top of that but it’s also dependent on what your system needs.
And I think the focus on cost is as good thing to think about, but it really misses some of the point that people should be thinking about, “What is my return on investment?” to your second question and how to evaluate that for a resiliency project can be difficult but I tend to think about it as basically, one side of the equation is the grid connected value and savings I can get out of my system plus whatever value I put on resiliency. Basically, it needs to be greater than the capital cost of the system and the O&M cost and then I have a positive business case and I can kind of calculate a standard return on investment the same way I would for any other project.
The tricky part about that tends to be how to value resiliency. So, you can do it kind of like we talked about in the beginning with some kind of macrolevel indicators or you can look at your own particular business and your history of outages and kind of what that may have cost you.
So, one interesting example is trying to look at – sorry, did you want to add something?
Craig: No, I was just going to say, you know, your comment earlier that there was this study done that the cost of that downtime was $34 million and I was just, in my head, thinking, “That number seems really small to me.” I mean, it is very contingent on an individual business. Certainly, if you are in a financial services organization, for example, $34 million is maybe what you might lose in a few seconds to a minute, certainly much shorter than a 24-hour period.
So, it’s very dependent on individual customer business and what does that potential downtime mean to them in terms of lost revenue, in terms of risk, reputation, so on and so forth. It’s a very interesting study and I think you’re making the point that it depends very much on the individual business as to what that cost is.
Sam: One other point to that is when we do modeling for these projects sometimes, we basically look at what is the financially optimum solution? So, we looked at a project recently for a school and the financially optimum option that would save the school the most money would be about a megawatt of solar, about 200 kilowatts, and 800 kilowatt hours of battery. It was about a 1.3-million-dollar net present value.
If you take that same school and say, “I want us to survive an eight-hour outage,” you basically have a pretty similar sized solar system with a little bit bigger battery. You add in some additional cap x for the microgrid controller. So, your net present value drops a little bit to about $1 million and the point there is not kind of the numbers but it’s basically, in this scenario and a lot of scenarios, you can still get cost savings and resiliency. You might not quite get as a much cost savings but you can have a cost-effective project that also brings resiliency and then if you have a value to that resiliency, that is what pays for that adder whether that means $200,000 or $2 million moving forward with your project.
Craig: Yeah. Create a value for it or understand it and sell it to the CFO and the financials, or really the CEO in this case, as you’re getting a cost savings and your resiliency is free, or this is what your resiliency is costing you.
The interesting thing is that it is in part that you are trying to create resiliency so that you can future proof it, right? Because, as I mentioned, we’re always kind of fighting the last war. We’re not sure what’s going to happen, but the trend seems to be going in the opposite direction for resiliency from the grid, specifically in California but it’s not isolated there. There are new challenges, new problems coming up all the time.
Much are weather related that are causing more outages and we get this a lot on the sales side for corporate customers that there is – at the end of the day, they are not in the energy business but they need to protect the downside and risk mitigate it. So, hence there is a lot of interest. Hence, we are having this Solar Tea Time.
So, Sam, I want to go toward wrapping up. It’s a big discussion we could talk about for hours here but, you know, can you maybe talk a little bit more about the challenges that you see to creating this resiliency and investing in these types of services?
Sam: Sure. Yeah. So from a technical side, a project I worked on with the military and others, we see a few challenges around things like how do you model the system to make sure it’s going to work in island mode? So this can be somewhat complex.You need to have a good team that understands that you’re basically building a small, isolated power system that needs to balance out – let’s say – variable solar protection. It may need to change some of the kind of system protection settings on your relays and other things for islanded mode and it has kind of a different sort of testing and commissioning protocol than a standard solar system.
So as folks are kind of thinking about this system, that is just kind of a really quick overview. There are a number of unique technical challenges to review and then, often the harder challenge can be that this business case, a lot of times customers have identified that they have a need for resiliency but they don’t know how to do projects and they’re not really sure how to evaluate them.
So, we talked a little bit about those solutions and then kind of one of the number one questions I always get is, “Okay, we want to do it. We’re interested but I don’t have money. How can I move this system forward?” and there are a few companies that offer financing for resiliency solutions and have the ability to basically package the cost savings and the resiliency into kind of a finance resiliency offering. So, that’s one of the things that we’ve worked on that I think has been a big barrier in the past and that is starting to be solved with kind of a finance solution.
So, kind of making the business case and looking for financing and part of that making the business case is really that value and resiliency we talked about and also, some kind of technical challenges.
Craig: Yeah, and just to add to that, if you’re trying to sell this project internally, I would certainly try to enlist your CEO, your CFO, or if there is a corporate risk manager. Certainly, you can have an ally in your CTO or CIO on the data center side. It’s something that they have been dealing with forever.
So, when you’re looking to try and find the financing and find the internal funding for this, it’s good to cast kind of a wider breadth than your typical energy project because resiliency, downtime, risk mitigation is something that certainly hits the C level of any company or large organization.
So, Sam, thank you for sharing your insights and helping us, all of our audience, better understand the importance of energy resiliency and also, welcome to the team. Sam comes to us from NREL. So, it’s great to have that kind of experience on our team.
It’s time to wrap up. If you have other questions or want to talk more about this subject or others, feel free to email us at email@example.com and we’ll be sure to get to those questions and hopefully provide you with some good answers. So, on behalf of everyone at REC Solar, cheers. Have a good day!