How Much Does Electricity Cost with a Solar and Battery Microgrid?

4 September 2020

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Microgrids provide a viable solution to improve energy resilience, especially in regions where the electricity grid has limited capacity. Solar power systems by themselves cannot operate as a stand-alone electricity source. However, when they are used as part of a microgrid with energy storage and other generation systems, they can help achieve a low kilowatt-hour cost overall.

In large-scale applications, solar panels can now produce electricity at a lower cost than conventional power plants running with fossil fuels. A microgrid can take advantage of low electricity costs from a solar array, while using dispatchable energy sources to provide reliability.

Microgrids in Australia: Installation and Electricity Costs

According to a study by the Australian Renewable Energy Agency (ARENA), microgrid projects that rely on solar power and batteries have an installed cost below $4 million per megawatt of capacity. The following are two examples from Australia, already in operation:

  • The DeGrussa Copper Mine uses a 10.56 MW solar array with energy storage, with a cost of $39,477,750.
  • The Garden Island Microgrid uses a 2 MW solar array and a 2 MW / 0.5 MWh battery, combined with wave power and a desalination plant. The project value was $7,498,712 according to ARENA.

In both cases the cost per megawatt of capacity is close to $3.74 million. While this is higher than the cost of stand-alone solar power, a microgrid can continue operating when disconnected from the grid. This is not possible with conventional solar power, reducing its usefulness in places with a limited grid capacity.

According to IRENA, the levelized cost of electricity (LCOE) for microgrids has been in the range of $100 to $150 per megawatt-hour, or 10-15 cents per kilowatt-hour. In places with suitable conditions for pumped-storage hydroelectricity, this could be reduced below $100/MWh in theory.

Operational Advantages of a Solar Microgrid

Companies with operations in remote places have traditionally relied on diesel generators to operate. However, this has three main disadvantages:

  • Companies rely on scheduled diesel deliveries, which can be disrupted by external factors such as extreme weather.
  • Diesel generation costs are high, typically above $300 per MWh. Based on research by IRENA, a microgrid can reduce this by 50% or more.
  • Diesel generation produces around 300 kg of CO2 per megawatt-hour, which increases the environmental impact of corporations using it.

By switching from conventional diesel generators to solar microgrids, corporations can reduce both their electricity costs and environmental footprints. They can also improve their energy resilience, by using an electricity source that reaches the site for free every day – sunlight.

Even when there is an electric service available, its cost can be significant in remote regions. For example, companies in Western Australia must often pay more than 40 cents per kWh. Microgrids have a high upfront cost, but their electricity cost over time is much lower than the electric service available. In these cases, a microgrid brings three main benefits: lower electricity costs, lower emissions, and energy resilience.

Financing a Solar Microgrid Project

When microgrid projects are compared with diesel generation or electricity services in remote regions, there is often a large difference in kilowatt-hour costs. Even if the initial investment is high, the savings potential is also considerable.

Large corporations can use low-interest financing options to deploy microgrids, and then use the cash flow from energy savings to cover loan payments. The microgrid covers its own costs, and the company using it can achieve a net cost of zero. A microgrid project can achieve synergy with energy efficiency measures – the total kilowatt-hour consumption is reduced, and the cost of each kWh is reduced simultaneously.

Loan financing also frees capital to be invested in other projects, such as plant expansions or technologies that increase productivity. The energy savings achieved by a microgrid can also be reinvested, or they can be used to cover the new operating costs that come with expansions.

The Australian Government has created the Regional and Remote Communities Reliability Fund, which will provide $50.4 million in financing for microgrid feasibility studies before 2024. The first round of funding was carried out in June 2020, with a total value of $13.2 million.

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