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3 business reasons for a mind shift on microgrids

Sponsored: Microgrids can provide the solution to the sustainability dilemma and offer other business benefits, learn why now is the time for on-site microgrids.

Solar farm

Now is the time for on-site renewable microgrids. Image courtesy of Schneider Electric.

This article is sponsored by Schneider Electric.

The world is facing an urgent sustainability dilemma.

The SEC climate disclosure rules, corporate net zero goals and climate-friendly federal policies are accelerating the business demand for clean power. As per the American Clean Power report, 2022 was a record year with nearly 20 GW of corporate procurement. After years of wind-focused procurement, corporations are showing more interest in solar power, as well as in solar and storage corporate deals.

Yet Bloomberg New Energy Finance, which tracks the RE100 members progress to achieve 100 percent renewable electricity, reports that there will be significant shortages of clean power supply to keep up with the corporate demand. There will be price increases due to demand-supply mismatch — last year PPA prices were up 30 percent — and risks in on-time delivery due to the long interconnection queues and permit issues. Corporations face shortfall risk in reaching net zero goals and are exposed to risks in price hikes and their brand.

Here's where microgrid technology comes into play. Microgrids are self-contained electrical networks that draw from on-site energy sources (solar panels and batteries) and can operate either in concert or independently of the grid. Microgrids offer a straightforward solution for elevating clean energy and energy resilience at the level needed to power more technologies in our digital world. In 2021, total electricity consumption in the United States was 13 times greater than in 1950. Yet the grid cannot keep up. Accordingly, microgrids stand out as a viable 21st-century solution for the 20th-century energy infrastructure paradox.

But here’s the catch: turning to microgrids as a way out of the sustainability dilemma is not top of mind for many U.S. companies and organizations.

We need an urgent mind shift. Taking a closer look at the value of microgrids reveals that they not only are good for diminishing greenhouse emissions through electrification and shoring up energy resilience, they also are good for a company’s operations and bottom line. Here are three reasons microgrids are worth strategic consideration by any executive decision-maker.

Cost resilience sustainability graphic

Microgrids: Balancing Cost, Resilience and Sustainability Goals. Image courtesy of Schneider Electric.

1. Ensuring uptime through energy resilience

The traditional grid simply cannot handle widespread digital transformation across sectors. The American Society of Civil Engineers gives America’s energy infrastructure a C-minus. Recent headline-worthy power outages across the nation are not a coincidence. The perfect storm of aging infrastructure, weather events and high demand often results in grid failure that leaves a trail of frustration, inconvenience and, sadly, sometimes death.

The upcoming SEC climate disclosure rules are demanding a risk mitigation plan which further brings resilience and electrification to the forefront. This poses a dilemma for energy-intensive and energy-sensitive companies to maintain a business continuity plan as well as preserve their margins. Microgrids can supply resilient energy at predictable cost that helps energy-intensive and sensitive customers for business continuity against climate and price risks.

Through onsite Energy as a Service microgrids, GreenStruxure helps organizations achieve decarbonization and business continuity goals. The Montgomery County (Maryland) Animal Shelter — a critical organization that houses animal control facilities, an animal medical facility, an adoption center and other animal services — has deployed a GreenStruxure Energy as a Service microgrid to keep the facilities running during power outages caused by weather or other unforeseen events such as downed power lines from a small plane crash. Microgrids keep operations running even during prolonged power outages.

2. Meeting regulatory and/or market drivers for sustainability commitments

The day when taking action to reduce carbon footprints is mandatory is not far away. Consider, for example, that the European Union is on the cusp of implementing the Corporate Sustainability Reporting Directive (CSRD), which will require that certain large U.S.-based enterprises operating in the EU report sustainability metrics. The SEC, too, plans to require ESG disclosures per its proposed rule for all publicly traded companies in the U.S. 

Right now, the United States and Canada greatly lag the European Union when it comes to sustainability performance. The Climate Change Performance Index scorecard compares the climate performance of 59 countries and the EU, "which together account for 92 percent of global greenhouse gas emissions." The CCPI 2023 rankings list the EU at 19, the United States at 52 and Canada at 58. Clearly there is work to be done to catch up.

Fortunately, recent regulatory directives are calling for heightened commitments to reversing climate change. For example, Canada has established a Federal Sustainable Development Strategy 2022 to 2026 to drive and guide Canada’s clean energy policy. In the United States, the Executive Order on Tackling the Climate Crisis at Home and Abroad calls for a government-wide approach to the climate crisis. We are starting to see proposals for certain sectors to meet sustainability metrics as a funding requirement. Specifically, the Centers for Medicare and Medicaid Services (CMS) plans to allocate Medicare/Medicaid funding based on sustainability/emissions reduction progress.

Companies are responding to market pressures as well. We know from a 2020 McKinsey US consumer sentiment survey, for instance, that "more than 60 percent of respondents said they’d pay more for a product with sustainable packaging." Within the consumer product goods (CPG) industry, the impact of a microgrid deployment could be significant when you consider that a global CPG company typically comprises a large manufacturing facility, the fleet itself, warehousing and logistics, distribution and end-customer companies — that is, the retail companies that are placing higher demands on the CPGs to green up their operations.

By interconnecting all parts of its business, a CPG company can harmonize its electrification and decarbonization efforts for greater impact. For example, Bimbo Bakeries USA, which produces Entenmann and Sara Lee brands, is designing and deploying solar-powered microgrids at its six California-based locations. Combined, the microgrids will reduce carbon emissions by about 25 percent, while supplying about a fourth of the electricity needs at each production facility. Among all the decarbonization options in the market, on-site Energy as a Service is the safest, de-risked and most affordable solution, and it is a must-have solution in any decarbonization strategy of a company.

3. Optimizing energy costs via energy flexibility

While energy resilience and sustainability are major drivers for microgrid adoption, so is energy cost optimization. Microgrids enable site operators to leverage energy flexibility to optimize their energy mix and grid balancing. What does this mean? By enabling bi-directional energy flows —thanks to digitization — microgrids allow energy consumers to become energy prosumers (both consumers and producers of energy). Microgrids give prosumers direct means to participate in grid services such as demand response programs that offer lower rates for off-peak use, as well as wholesale market participation by selling clean energy from local renewable sources back to the grid.

There are cost incentives as well for microgrid adoption. For example, the Inflation Reduction Act (IRA), which intends "to help the U.S. trim greenhouse gas emissions by 40 percent below 2005 levels to start the next decade," includes a tax credit incentive for deploying a microgrid. The IRA expands the existing solar Investment Tax Credit (ITC) to include energy microgrids, storage technology, biogas property, microgrid controllers and linear generators. These microgrid technologies are eligible for a 6 percent base credit rate or a 30 percent bonus credit rate for any property that begins construction before Jan. 1, 2025.

Now, let’s talk about CapEx deferment and outright operational cost savings from microgrids. An Energy as a Service (EaaS) business model — an innovative risk-transfer solution for deploying on-site energy infrastructure without any upfront capital investment from the microgrid customer — allows companies to avoid the burden of designing, financing, owning, installing and managing the microgrid. The agreement with EaaS providers such as GreenStruxure and AlphaStruxure is based on delivering long-term outcomes on cost predictability, energy resilience and reliability, and greenhouse gas reduction based on key customer metrics.

Leveraging a GreenStruxure EaaS agreement, for example, Bimbo Bakeries is engineering its microgrids to incorporate solar arrays and battery storage capacity, which will be engaged during peak demand periods to avoid peak usage charges. Accordingly, the microgrids will qualify for California financial incentives. On-site microgrid systems will deliver zero-carbon energy covering 25 percent of the energy needs for the sites and reduce 25 percent Scope 2 emissions. It will be delivered in the Energy as a Service business model with predictable price and no utility price escalation risk, thus saving money for Bimbo.

Make the mind shift

These three reasons — resilience, sustainability, and cost —make for a strong business case for microgrid projects. The rallying cry certainly is there. Now we just need to accelerate the mind shift to make widespread microgrid deployments come to fruition. We cannot take a half century to embrace the energy transition in this way. The planet simply will not wait for us.

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