Inside the first municipal solar-plus-storage project in the US
Stacking revenue streams to finance the project was a success, Village of Minster officials said
There are some things that just seem to go together. Like Superman and Lex Luthor, Kim and Kanye, and love and marriage, solar and storage are an obvious pairing, right?
So obvious, in fact, that one utility executive said she felt surprisingly unsurprised by the proposed Tesla takeover of SolarCity. “Solar and storage are always paired in microgrids,” said Lisa Cagnolatti, vice president of Southern California Edison’s customer division at the Grid Edge World Forum 2016 session. “We have been waiting for those markets to come together.”
But the marriage between solar and storage started before Tesla proposed to acquire SolarCity. Last year, the Rocky Mountain Institute published a report saying distributed energy resources paired with storage could pave the way for massive “load defection.” But for utilities, combining solar and storage is another option to boost grid resiliency while integrating more renewables into the power mix.
Take the Village of Minster in Ohio. Leaders of the public power utility in that town had long been solar advocates when they were approached by CEO Michael Hastings of Half Moon Ventures, a development and financing company. The company proposed what is now the United States' first municipal utility-owned solar-plus-storage project.
“I had put the concept together before and was looking for the right project,” Hastings told Utility Dive. “Minster had the qualities I was looking for, beginning with quality partners who wanted to get the project built.”
Backed by Half Moon Ventures, the Minster utility’s power purchase agreement (PPA) anchored a 3 MWac solar array and 7 MW/3 MWh lithium-ion energy storage system installation.
Investor details are confidential “but we are doing fine financially," Hastings said. "The best answer I can give you to whether we are satisfied with the return on our investment is that I want to do more solar plus storage projects.”
Breaking it down
Like many small Midwestern electric cooperatives and municipal utilities, Minster officials wanted solar to diversify its portfolio and hedge against fuel price volatility, said Donald Harrod, Village of Minster administer. A project with solar developer American Renewable Energy was in the works.
But the deal fell apart when Ohio lawmakers failed to enact a law to put in place solar renewable energy credits (SRECs). The SREC revenue stream would have made financing possible. “Without SRECs, we could not make the project work on our own budget and Ohio regulation limits our debt,” Harrod said. "Then Half Moon Ventures approached us.”
But Hastings wanted to add storage and, initially, the utility was reluctant. Half Moon Ventures brought in S&C Electric, a 105-year-old, international electric services provider. The utility’s system had long relied on S&C switches, Harrod said. “We saw them as proven providers who would use technologies that would do what they promised.”
Confident S&C would deliver, the muni exercised the unique ability of small independent utilities to act quickly. “When we see an advantage for the community’s citizens, we don’t have to worry about what is best for shareholders,” Harrod said.
The PPA with Half Moon sets the utility’s price for solar energy-generated electricity at $0.07/kWh, Harrod told Utility Dive. The resulting all-in $0.095/kWh cost for power matches the muni’s average retail electricity rate, allowing the Village to basically break even on the power transaction.
Other benefits in the project’s deal are providing Minster with significant savings. “On a budget of $7 million per year, we are saving about $1 million per month, which allows us to avoid raising rates on our customers, who are also the citizens of our village,” Harrod said.
Many see energy storage as a technology that is five years off, said David Chiesa, senior director of S&C Global Business Development, who worked with Harrod during development. “But S&C has 20 utility-scale storage systems and over 175 MWh of capacity in five countries with 12 battery suppliers and five different chemistries,” Chiesa said. “It is a technology that is viable today and the Minster utility leaders saw that.”
The success of the Half Moon project has now prompted Harrod and other town leaders to think about the potential of a microgrid.
Additionally, the public-private partnership is an indication that utilities are beginning to understand how “the use of and expectations for the grid are going to fundamentally change,” said Michael Edmonds, president of S&C U.S. Business Division.
Inside the deal
Despite the Village of Minster’s relative conservative reputation as a community, they saw the benefits of the deal, Harrod said.
After Minster accepted the idea of storage, Half Moon acquired the proposed project from American Renewable Energy and made the solar developer the engineering, procurement, and construction contractor (EPC), while bringing S&C as the energy storage system EPC.
The Minster City Council backed the decision on storage, passed ordinances, and made an 18 month development possible. The utility worked out maintenance agreements for both the solar and the storage systems.
Minster’s normal load is 15-16 MW, and its peak load is 23-24 MW, both surprisingly large for such a small population. “If you were to fly over, all you would see is cornfields, silos and church steeples,” Harrod said. “But we have three major industries that employ about 1,200 people to 1,500 people.”
That was a big reason why having a reliable local power supply to supplement deliveries from Dayton Power and Light (DP&L), Minster’s generation and transmission provider, was important to the muni’s leaders.
The utility is very aware of the need to provide the region’s key employers with reliable electrical service. A power outage lasting more than 15 minutes would likely cause the two large metal working companies and Dannon Yogurt, the biggest U.S. yogurt maker, significant losses, Harrod said. “Dannon could lose millions in wasted milk and wasted yogurt.”
In addition, Village leaders see the solar plus storage installation as an economic development tool. Dannon has indicated it is considering Minster as a site for a new redistribution center because of the project’s appeal.
Half Moon Ventures handled the financing through a set of investor-partners, so the Village of Minster was not involved, Hastings said.
The solar array qualified for the 30% federal investment tax credit, and the utility provided land for the project, which was adjacent to the substation to connect the project, Hastings said. But his main focus was not on the tax credit, the free land or the interconnection. “What makes the investment work is the stacked value streams," he told Utility Dive.
Stacking value streams
The S&C storage system and LG Chem battery were sized to keep the installed cost as low as possible while meeting the technical requirements of the utility and Half Moon Ventures.
The investor’s plan was to make the deal work by obtaining three specific services from the energy storage system. To add to its
own revenues, the project was contracted with regional transmission operator (RTO) PJM interconnection to bid into its frequency regulation market.
The batteries had to be big enough to provide that service while still providing the utility with both peak shaving capability and power quality stabilization and voltage regulation.
Use of the battery storage allowed Minster to defer a $350,000 purchase of reactive power compensation hardware needed to integrate the solar in its grid.
The utility is also able to earn capacity credits and gets reduced transmission charges because of its diminished use of PJM electricity. “Together they will be worth thousands of dollars more than what we could earn from farming,” Harrod said.
Half Moon Ventures’ returns from the PJM frequency regulation market is another value stream.
Remuneration from this stack of values is enabled by the S&C energy storage systems design, beginning with the power electronics, Edmonds said. “Our power electronics are controlled by our own storage system-specific power controller that we developed from the ground up."
The power controller is embedded software, similar to firmware on a smartphone, he said. “It is the brain of the system.”
Obtaining a stack of revenue streams from solar plus storage “is a great business model,” Hastings said. “We want to keep refining and fine tuning the details and learning how to make it work better.”
Half Moon has six similar deals in advanced discussions, he said. Because of the importance of the PJM frequency regulation market revenue stream, all six planned installations are in that that grid operator’s footprint, Hastings added.
“We have ideas about how to add more value streams but we have not yet figured out how to monetize them,” he said.
Coming soon: a microgrid with islanding
Now the Village of Minster is ready to move beyond solar plus storage.
Concerned about protecting Dannon and the metal industry customers from costly outages, the municipal is planning its own microgrid.
Microgrids are a part of the transformation of the grid, according to Edmonds. “$26 billion is lost every year by consumers from sustained outages and momentary outages cost $52 billion per year,” he said, referencing a Lawrence Berkeley National Lab report. “An outage in Minster would become part of the cost of yogurt.”
Enthusiasm for microgrids is spreading among many kinds of utilities. Florida Power & Light, a vertically integrated company which has demonstrated little enthusiasm for distributed energy resources, sees significant benefits from micro-grids for improving reliability, Dave Herlong, Smart Grid & Innovation Director, said during the Grid Edge conference.
Commonwealth Edison, the dominant distribution utility in Illinois, is investing in at least five pilot projects in and around Chicago, Shay Bahramirad, Director of distribution system planning and smart grid technology, said.
These responses show how the need for reliability is helping drive micro-grid growth, Edmonds said. Microgrids won’t completely replace the grid, he noted, but as the management of two-way electron flows improve, the grid will “contain” a series of microgrids.
“As we get smarter, control will become more local, he added. “A change is coming but it will not completely replace central generation.”
Minster’s first step will be a community solar plus storage installation on the same farm land as the current project, Harrod said. “It will eventually be part of the microgrid. But we are not limiting it to solar. We are considering wind and distributed generation, too. We want to look at all the possibilities.”
The vision is of a microgrid that would keep Minster up and functioning during any power failure. “We want to be able to island and be sustainable by ourselves without relying on the DP&L feed,” Harrod said.
As Minster expands its microgrid, S&C will install a series of 5 MW blocks of storage, gradually expanding the muni’s ability to ride out 15 minute DP&L outages. Stored energy must ultimately be adequate to balance system needs regardless of how much distributed generation is available, Edmonds said. To handle that, S&C will build in a microgrid controller specifically for when the system is islanded.
Minster will almost always be on the grid but on the occasions it's not, the utility can keep the Village’s power on, he explained. When the muni is back on the grid, the stacked value streams will resume providing savings and earnings.
Financing for the microgrid would likely come from a public-private partnership similar to the one between Minster and Half Moon Ventures, according to Edmonds. "The cost of the larger ESS and new generation sources can be offset by new value streams like black start, energy shifting, and peak shaving to DP&L."
Microgrids are definitely part of S&C’s future because the energy storage sector has become “a red ocean” from the metaphorical blood left in the water by aggressive competition, Edmonds said.
“Companies that haven’t been in the business more than six months are bidding on utility energy storage project offerings but it is not clear they will be around when the winning bids are announced,” Edmonds said. “There are software companies that seem to have three strategic alternatives: be acquired, chapter 11, or chapter 7.”
With the microgrid sector just emerging, utilities like Minster don’t know how to put all the pieces together yet, he said. “S&C wants to help them package projects while the ocean is still blue.