Out with the old and in with the new: Microgrids

When I was growing up in America, I remember at least once every summer being in the kitchen and all of a sudden hearing the hum of the refrigerator stop and the illuminated time on the microwave go dark. Brownouts and blackouts have only increased over time - it’s now not uncommon to learn of entire countries, like Puerto Rico, losing power in the face of extreme weather events.??

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What would it take to rethink, redesign, and reinvent our energy system? I had the chance to tackle that exact question with three energy all-stars, Liana Jo Ault , Marilyn Waite , and Dr. Thomas Hillig , through Nokia’s #RealAction campaign.?

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View from the lightbulb manufacturing floor?

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From my perspective, I often think back to my grandmother who was born in 1916. For most of her career, she worked in a lightbulb manufacturing facility. She lived through the Great Depression, the nuclear era, the invention of the television and transistor, the space race, and the rise of the Information Age. In her lifetime, the world has gained incredible access to new technologies that bypass many of the antiquated assets like the inefficient lightbulbs she used to help create. I remember going to the supermarket with her and us purchasing her first LED light – a lightbulb that uses 75% less electricity than the ones she used to help create.???

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It’s time to take the same lightbulb analogy and apply it to our energy systems at large. Rather than rely on fossil fuels, we’ve harnessed the energy of the sun, wind and ground heat. Rather than install old fashion cables and wires, we’ve devised smart controls and internet-of-things that allow for more communicative wireless systems. And perhaps most importantly, rather than relying on dated legislation and regulation to dominate how energy systems are installed and maintained, we’ve seen a new dawn for progressive policy and regulation that embraces cleaner, decentralized, more resilient and local energy sources through microgrids.?

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What excited me about being involved in Nokia’s Real Action: Green, local energy – Microgrids program here is that I got to work with fellow industry experts and influencers who come at this issue from different angles, for example, renewable technologies and digital communications technology.?

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Enabling policies?

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My very first assignment in one of my first jobs was to work with small island development states (SIDS)—which account for one third of all the countries in the world—on their energy transitions. SIDS mostly rely on 99% imported diesel fuel which can cost up to 10x per kilowatt-hour for end-consumers compared to what we see in the US or Europe. Where energy can hover around $0.10 per kilowatt hour, some SIDS are paying $1.00 per kilowatt hour. Meanwhile, SIDS have some of the best solar, wind and geothermal resources in the world.?

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I’ve also worked on microgrid development in rural parts of Sub-Saharan Africa and Southeast Asia - where 789 million still lack access to basic electricity. Microgrids offer the least cost solution to give potential customers access to Tier 4 power—meaning energy to power devices and appliances that can lead to true economic development.??

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Across all of these settings, I’ve found commonalities in policy and regulation that ubiquitously are needed for a successful microgrid project. Whether it’s a floating solar campaign in the Seychelles or microgrid development in Sierra Leone , common factors that made these projects successful have been: (1) stable policy that communities, developers, and financiers could depend on; (2) streamlined interconnection and net-meeting regulation so microgrid developers could buy power from the grid in times of underproduction and sell surplus power in times of excess; and (3) offering competitive and predictable tariff structures for microgrid operators.? With progressive and reliable policies in place, there is fertile ground for microgrids to be developed.?

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’Dos’ and ‘Don’ts’ of Microgrid Finance?

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From my time working in emerging markets, I’ve learned some ‘dos’ and ‘don’ts’ regarding raising money for infrastructure projects. The most important golden rule when embarking on any investment project is to align risk and reward. Making sure we are aligning the return expectations with capital providers is the best way to guarantee success for a microgrid.?

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Don’t:?

Do not rely on venture capital dollars who expect software-like returns for their investments. Microgrids are infrastructure projects, which typically yield lower returns compared to what Silicon Valley is looking for.?

Do not assume you will not need subsidy capital or government incentives. Subsidies, or money from governments aimed towards promoting economic and social advancements, are the reasons nearly all grids in developed markets exist. The Rural Electrification Program in the 1930s single-handedly helped create America’s grid infrastructure - mostly on the backs of subsidies. To assume we no longer need subsidy capital to upgrade our systems can set the wrong expectation.?

Do not take on expensive debt. Interest rates are ballooning, and assuming high interest rate debt to develop a microgrid could lead to the financial collapse of a project. Shop around for smart, experienced investors who can offer lower cost of capital debt and one who have ideally backed renewable energy microgrids in the past.?

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Do:

Work with investors who have financed microgrids before. Most renewable energy microgrids require a mix of debt, equity, and subsidies. For debt and equity, work with investors who understand the return profile of a microgrid and offer capital in line with those returns.?

Find a suitable infrastructure insurance to underlie your assets. There is always risk of something ‘going wrong’ - and ensuring you have a supportive policy to back-up your system for any ‘oops’ incidents winds up paying dividends in the long-term.??

Source grant capital where possible. Grants or subsidies are available in many markets to help microgrids become cost competitive with utilities. These are often offered because microgrids help governments achieve their carbon reduction targets and offer more reliable power to residents and commercial users.?

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Through the Nokia #RealAction program, what inspires me most is from real world examples Liana Jo Ault , Marilyn Waite , Dr. Thomas Hillig , and I have been able to draw from. We’ve seen what it takes for an island nation that knows very little about renewable energy to build a policy framework from scratch, attract developers with the right kind of financing, and break ground on their first microgrid system. We’ve seen microgrid developers illuminate the homes for low-income residents who had never seen a lightbulb turn on in rural parts of Africa. And we’ve seen the will of regulators, developers, financiers, and communities work together in tandem towards their shared vision of a more resilient, affordable, and cleaner future.??