Why Energy Resilience Should be Valued in Project Economics

By: 2022 New York Fellow Gauri Dixit

The aftermath of Hurricane Ida left close to a million electricity customers without power for almost 3 weeks. In February 2021, winter storms in Texas led to power outages lasting for days. It is evident that power outages are going to increase in the future due to weather-related events and aging grid infrastructure and businesses need to seek out resilient energy solutions to weather-proof their facilities and ensure uninterrupted operations.

While behind-the-meter (BTM) renewable energy assets like solar and battery storage can help achieve utility bill savings through mechanisms like time-of-use arbitrage and demand charge management, energy solutions like BTM sustainable microgrids offer the added benefit of resilience — they can island a facility from the utility grid during an outage and enable continuous operations. Resilience is recognized as a benefit of microgrids but rarely included in the project’s economic analysis because it’s often seen as just a deemed benefit added in to make the project look good.

Microgrid project economics should value resilience because these solutions avert real economic losses for businesses that can be quantified thus enabling us to value resilience. Valuing resilience can also lead to a more optimal system design capable of delivering additional on-bill utility savings to the customer.

Businesses can potentially lose millions of dollars in sustained outages. For example, groceries stores lose upwards of $30,000 in a one-day outage, a luxury hotel in California reported $500,000 of losses due to Public Safety Power Shutoffs (PSPS) in 2019, and critical facilities like hospitals face a potential loss of life during sustained outages. Not accounting for these avoided losses in project economics severely undermines the benefits of microgrids.

A primary reason for energy resilience not being valued is the absence of an industry standard for doing so. While there is no perfect one-size fits all approach, there are multiple ways that resilience can be valued. A common way to value resilience is to account for avoided outage costs. This includes any loss of perishables or assets, business interruption costs, and costs to recover. Facilities can calculate the Value of Lost Load (VoLL), which is usually a $/kWh value multiplied by the load lost during an outage to estimate the total outage costs. Another way to characterize VoLL is as a $/hr value multiplied by anticipated future outage quantities and durations.

Another way to value resilience for customers who know what their backup strategy would have been without the microgrid, is to include the cost of backup power. For critical facilities like hospitals or remote facilities like military camps, often the backup strategy is purchasing a diesel generator. The cost of the backup power is the value of resilience here as this represents the customer’s willingness to pay for avoiding an outage. Including the avoided cost of backup power in microgrid project economics or just comparing the two energy solutions will result in valuing resilience.

This research from NREL shows that when energy storage is not economical, adding a value of resilience can help make it economical, and in scenarios where it already is economically feasible, the value of resilience may result in a larger optimal system capturing more savings for the customer.

Let’s consider the case of a luxury hotel in Northern California that faced multiple PSPS outages in 2019 and knows its outage costs. Without accounting for the value of resilience, the cost-optimal design for the facility results in a 250 kW solar array constrained due to available area. This financed solar energy system with annual Power Purchase Agreement (PPA) costs has Net Year-1 savings of $16,984 and a Net Present Value of $243,610 over 20 years.

Based on the hotel’s previous experience, their estimated cost of outages is $6799/hr. The facility has faced multi-day outages in the past, but acknowledging the uncertainty of future outages, we adopt a conservative annual outage duration projection of 10.5 hours. Incorporating this value of resilience into the economics makes it economical to include 125 kW / 250 kWh of battery storage, a 380 kW dispatchable generator, and advanced switchgear and controls in the system. A quick resilience analysis with NREL’s REopt indicated that on average the system can survive 30-hour outages. Along with the benefit of resilience, upgrading the solar project to a microgrid enables capturing revenues from energy arbitrage and demand charge management for the facility. This improved system more than doubles the utility savings from the solar-only system, with Net Year-1 savings of $30,231 and a Net Present Value of $492,887 over 20 years.

Accounting for the value of resilience doesn’t just flip the economics, but also makes for a better energy solution with increased savings for customers from value streams like energy arbitrage and demand charge management. Additionally, with a larger system more of the customer’s utility costs are offset making them less vulnerable to future utility rate escalations.

Whether it’s using a static VoLL, outage costs per hour or the cost of backup power, accounting for the value of resilience is important to not undermine the benefits of microgrids. Sustainable microgrids are the perfect solution to the ever-increasing need for energy resilience but these investments are often based on a cost-benefit analysis and without the value of resilience factored in, some of these investments are not economically viable. Adopting a mechanism to value their resilience benefit will enable microgrid deployments to scale and eventually lead to a cleaner, more resilient electric grid.

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