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Measures to stimulate the micro-grid market


Dr. Thomas Hillig

Onsite power generation at remote locations presents an attractive business case for many renewable energy companies but at the same time requires considerable market introduction efforts, says Dr. Thomas Hillig.

In many traditional renewable energy key markets, framework conditions are changing and solar and wind energy suppliers have to look for new profitable market segments. Off-grid solar- or wind-diesel hybrid applications, a special form of microgrids, have been identified by many players as an attractive market segment for the future. Many remote applications are normally powered by diesel gensets. Due to transport, theft and taxes electricity based on diesel is often rather expensive. Solar and wind energy often can generate substantial cost savings. The business case can be summarized as replacing expensive diesel electricity by inexpensive renewable energy if renewable energy is available. As solar and wind are intermittent sources of energy an important task of the diesel gensets is to balance fluctuations and to provide power whenever there is not enough renewable energy, e.g. when there is no solar irradiation at night.

For decades, renewable energy has been used in off-grid applications, frequently in rural electrification involving NGOs and international organizations. Recent cost-improvements for solar and wind energy also allow for addressing commercial and industrial markets, in which projects can be typically realized much quicker.

Among the most popular off-grid segments we see solar and wind energy in mining, tourism, telecommunication, agriculture, food and beverages. Typically, the more remote the location is, the better the business case.

The limitations of basic hybrid concepts

From a commercial perspective, the main obstacles are that the lifetime of the renewable energy assets is sometimes longer than the expected need for electricity in these industrial applications. In addition, the remote offtakers usually do not consider power generation as their key competence and prefer to pay by the kWh instead of investing in power generation infrastructure. From a technical perspective, the main challenge is the intermittency of solar and wind energy and the characteristic of diesel gensets that they can normally cannot be operated at lower loads – below 30% - 40% - and that they have a ramp-up time of several minutes. As a result and in order to avoid unexpected power losses in case of shading or decreasing wind, diesel gensets in basic set-ups are never switched off and are constantly running for providing a so-called spinning reserve.

New solutions

A broad range of solutions has been developed to overcome the limitations. On the technical side, diesel gensets have been optimized in various ways, so they can be operated at low loads, and weather forecast devices have been developed to forecast sudden changes of the weather conditions. Additionally, hybrid controllers have been developed that can improve the integration of renewables into off-grid microgrids. Storage solutions address a broad range of issues such as balancing intermittencies, improving power quality and providing energy during night time or medium-term low wind situations.

To overcome the described commercial problems, solar and wind solutions have been semi-mobilized so that they can be dismantled and rebuilt somewhere else, which opens business opportunities for applications that require electricity during shorter periods such as in construction, for refugee camps, in military applications or in mineral exploration, an early stage in the mining process. Furthermore, the technical developments have been accompanied by business model innovations. Offtakers can buy renewable energy from IPPs per kWh if they commit through long-term PPAs. Similarly, there are first rental and leasing solutions available for hybrid energy systems and microgrids. External financing – especially for larger renewable energy solutions – is offered by various investment companies.

Growing importance of sales and marketing 

The main challenge regarding this new focus on industrial and commercial customers is often on the sales and marketing side. This is no surprise as solar and wind markets mainly have been regulated markets in which marketing and sales only played a secondary role. On the project side, the main focus consisted in securing land or roofs, organizing the grid connection, securing financing, engineering and the construction stage in combination with a broad range of legal aspects.

The end-consumers of electricity normally were not a direct target of many renewable energy companies. Many renewable energy customers slowly start to react and build up marketing and sales competencies. It can be observed that hybrid solutions have matured considerably from the technical and financial perspective, however, the total number of projects does not reflect this development. Only a few renewable energy companies communicate actively into the channels of their target industries. Integrated approaches that combine and coordinate different sales and marketing tools can only be observed very rarely.

Major challenges

Particularly big are the challenges at the beginning of the market related processes when engineering players want to introduce new products or solutions. The situation is very special as new product introductions typically do not occur very frequently. Even companies in industries that are more focused on marketing related topics tend to struggle with this situation, only very few players have specialists for this kind of challenge. Consultants that combine specific industry knowledge and thorough market introduction know-how are extremely scarce – especially in the engineering-driven renewable energy sector. Many companies simply try to introduce new products in an unstructured process following a trial and error procedure. Quite often it can be observed that it takes new market entrants years to win the first reference projects.

Actually, the professionalization regarding marketing and sales of many renewable energy and storage companies is often driven by investors. Especially when sales success is slow and behind expectations the owners tend to get involved and sometimes make sure that missing capabilities are added, externally or internally.

Certain information about markets is essential for targeted marketing and sales activities. So it is no surprise that market intelligence starts to play an increasingly important role. Relevant information goes beyond target customers, and could include, for example, competition, complementary solutions, potential partners or potential substitutions for the new product.

Depending on the solution, providing financing might be an excellent trigger for sales. One of the main aspects during the rollout process is the creation of trust. In this context, certifications, testing and references might play an important role. Guarantees, service concepts and remote monitoring are just a few examples that numerous companies consider in their go-to-market strategies. A market launch plan should also cover different sales channels and communication tools. While many companies think at some stage about a number of the mentioned examples, only a few manage to combine and coordinate them consistently during the market introduction process. A combination of marketing know-how and industry knowledge is a prerequisite for successful product launches.

As the marketing and sales strategies of many engineering-driven renewable energy and storage companies are not very mature, this area is often a good field for differentiating and creating competitive advantages.


ABOUT THE AUTHOR
 

Dr. Thomas Hillig is the founder of THEnergy.
 

FURTHER INFORMATION
 

www.th-energy.net 

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Comments

ANUMAKONDA JAGADEESH said

17 March 2016
Excellent.
Microgrids in India
As per the Census of India 2011: 55.3% households are connected to the grid. But, the availability of electricity supply continues to remain poor; 75% get less than 6 hours supply. *Per capita consumption is only 8 kWh per month *44.2% use other energy sources for lighting apart from electricity *72.4 million households which is about 350 million people, use kerosene *About 1.0 million households use solar for lighting (mostly individual household lighting systems) *1.2 million households go dark after sunset *145 million households with no electricity or less than 6 hours electricity supply. Although a large section of rural India is connected to the grid, they do not receive electricity consistently *Most villages receive less than 6 hours of electricity *Around 9,000 remote villages in India where the grid may never reach due to geographical constraints *What role can mini-grids play in meeting this massive energy poverty challenge? “Cost of (reliable) power per kWh: For a comparison of the landed cost of power (LCOP), the generation and transmission/distribution costs need to be compared. Typically, grid power can be generated at a lower cost (more fuel choices and scale). However, this power needs to be transported to the point of consumption. This requires building the last mile infrastructure (distribution grids). Also, in certain parts of the country transmission and distribution losses are above 30%. For micro-grids, the key cost driver is the challenge to provide uninterrupted power as this might require expensive storage solutions. Cost assessments: Micro-grid power based on a mix of solar, wind, biomass, diesel and storage for a 10 MW system could cost around INR 12-15/kWh. The cost of new coal power is INR 6/kWh. By adding 20% T&D losses, it amounts to INR 7.2 kWh, which is approximately half the generation cost of mini-grid power. A deeper analysis would need to take into account, the cost of building new distribution infrastructure and define a rough cut-off point, beyond which it is cheaper to go for a micro-grid. Climate effect of each choice: This depends on the technology used. Renewable energy technologies (and also diesel gen-sets) lend themselves more to smaller solutions as needed in micro-grids. Fossil (mainly coal) powered plants to be efficient need to come in minimum sizes that make them useful only for grid power. Thus, micro-grids – typically built around renewables, plus perhaps diesel and storage – are more climate friendly. If we assume that micro-grids produce entirely clean power (no diesel), then they reduce emissions significantly. India, because of its high share of coal, has a power specific factor of 1.33 kg of CO2/kWh. If we assume that 300 million people will get access to electricity and then consume around 10% of the power of – by global standards very low – Indian average (680 kWh/year), the carbon savings of mini-grids will be in the range of 27 million tons per year. This is about 1.3% of India’s emissions”(How to provide energy access in India: Mini-grids or grid extension to India,,Bridge to India,Aug 27,2014)
Dr.A.Jagadeesh Nellore(AP)

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