Big Money Is Getting Into Microgrids

The Carlyle Group will put hundreds of millions of dollars toward owning and operating microgrids, tackling the industry’s financing challenges.

Can big money help standardize microgrid development?

 

 

 

 

 

Can big money help standardize microgrid development?

Most companies have a hard time coming up with the upfront cash to build a microgrid, and financing one can be a major headache.

Theoretically, that headache would go away if an entity with functionally unlimited capital bought the project and operated it on behalf of the customer in exchange for service payments.

The Carlyle Group, the Washington, D.C.-based private equity behemoth, set up a business unit last fall to do just that. Dynamic Energy Networks (DEN) will deploy Carlyle capital to create microgrids, then operate them in an energy-as-a-service model for long-term contracts.

This model has been deployed in a few instances already; it eliminates upfront capital requirements and caters to customers that want cleaner or more reliable power but don’t want to be in the energy asset management business.

But up until now, nobody has funded the model at this scale. Carlyle has set aside an initial pot of $500 million, but DEN President and CEO Karen Morgan said at DistribuTech Wednesday, “There is no cap on that.”

This entrance is a big deal in the hardscrabble world of microgrid development. Large corporate and municipal customers want the resilience and environmental benefits that microgrids can provide, but nobody’s cracked the code on how to make it cost-effective at scale.

No one with this much money has given it a serious try. Carlyle’s interest may prompt other private equity firms to consider microgrids as an investment vehicle.

DEN approaches its work more like an equity investor than an energy services company. That gives it a high degree of flexibility in shaping its deals compared to, say, a utility. DEN plans to focus on new builds, primarily behind the meter, but it can buy existing assets or renovate them if a good opportunity arises.

A key hurdle to the fledgling microgrid industry has been lack of repeatability, which drives up costs. The scale of funding here opens up the possibility of enterprise-wide microgrid contracts and other forms of big thinking. Indeed, the leadership won’t be interested in small one-offs, a category that describes nearly every microgrid built so far.

“A lot of assets have been sold at the facility level; this is really a C-suite solution,” said Morgan, who previously led Renewable Energy Trust Capital, which owned utility-scale wind and solar.

C-suites might be easier to access when the firms involved share the same parent company. Carlyle owns some 270 portfolio companies and manages $40 billion of real assets including energy, infrastructure and real estate. DEN could easily keep itself busy catering to that market.

“It is a clear differentiated advantage, and it’s something that we’re leveraging significantly,” Morgan said of the relationship with Carlyle.

The group hasn’t announced any projects yet, but several are in the works.

Once they get finalized, DEN won’t be the developer, but it will have input, Morgan said. DEN will work with a handful of best-in-class EPCs to build projects, and has a partnership with Schneider Electric for microgrid controls. That firm was an early pioneer of the microgrid-as-service model in its work with Duke Energy.

If all goes according to plan, DEN would resemble an independent power producer, getting paid for electrons flowing from its fleet of generators, which happen to be located inside microgrids.

That platform will be worth $3 billion to $5 billion in the next three to five years, Morgan said.

“The complexity around microgrids and energy infrastructure, particularly behind the meter, is what is very compelling to us, because there’s a lot of value that’s created in delivering those integrated solutions,” she said. “That’s where we can capture more value: We’re efficient in how we execute, from a capital perspective as well as technology and partnering perspective.”

Extracting profit from microgrids has proven notoriously difficult so far. Perhaps the early entrants just weren’t thinking big enough. It’s a lot easier to play the long game when you have a few hundred million dollars to spend.

Originally Published on Greentech Media

Microgrids – Resilience for Healthcare

Steve Pullins, Vice President of Development (Dynamic Energy Networks)

Maybe it’s me getting old, or maybe it’s going through the discussions with my Mom about Assisted Living, or maybe it’s the loss of life in a Florida healthcare facility during a hurricane, that my attention has turned to resilience in healthcare.

Whatever the reason, my exploration of resilience in healthcare has led to a few discoveries.

·     The senior population is doubling in the US

·     New medical technologies are bringing transformation (70% of hospitals are adding wings, buildings, and satellite facilities in the next 3 years)

·     Hospital energy use is 2.5 times a commercial building of the same square feet area.

·     Energy costs are a top concern of healthcare CEO’s (expected to double over the next 20 years)

·     Some hospitals in Ontario Canada have cut medical staff to enable paying the rising utility bills.

·     Hospitals must be at “full strength” during major storms, not limited to the portion of the hospital served by emergency generation.

Healthcare CEO’s have a dilemma. Do I spend our precious capital dollars on new technology and the life-saving measures it brings, or do I spend it on improving our energy situation?

For my personal reasons above, I hope the CEO decides to continually improve healthcare’s core mission.

Energy is not a core mission of healthcare. But, it brings to healthcare an energy dilemma. The growth of hospitals in footprint (often incremental in nature), digital technologies (requiring better power quality), and mission in the community (especially during storms) means more aggressive energy planning. The necessary energy planning must recognize the “new normal” in healthcare – growing senior population, rapidly emerging digital technologies, rising energy costs, increasing number and severity of major storms. Flexibility and resilience must become core to the energy objectives.

Healthcare (hospitals + the associated network of facilities) performance must be at its highest when the utility grid is most challenged – major storms. Major storms stress the community in public safety – the result is more accidents and injuries. Plus, the major storms make all other healthcare functions more difficult. Hence the need for healthcare to be in full performance mode.

However, most hospitals are set up to have only a portion of the hospital powered by emergency generation when the utility grid is lost. Most hospitals have critical circuits (operating rooms, intensive care units, etc.) powered by emergency generators on limited fuel supply. While there is not good data that tells us how much, most of the feedback suggests that a vast majority of hospitals are powered at a 50% level or less.

The healthcare “new normal” requires a more flexible approach to energy supply and improvements in the resilience of that supply. Flexibility recognizing that healthcare is in a digital transformation, and resilience recognizing that the community leans more heavily on healthcare during major storms and utility grid outages.

After exploring the intersection of healthcare and energy over the last 3 years, it is clear that Microgrids (in its many forms) offers the flexibility and resilience needed in healthcare to drive more self-determination and mission support from energy.

Microgrids, being an on-site energy resource, can add greatly to the flexibility of energy services as healthcare facilities expand with new digital technology-filled wings (70% of hospitals over the next three years).

Microgrids, being an on-site energy resource, can become the hospital-wide energy supply when a major storm hits and/or the utility grid is lost. This does not reduce the emergency generation, but adds to it. In fact, with seamless transitioning to an island mode when the utility grid is lost, the emergency generation may not be required to start, keeping it as that life safety backup needed – a defense in depth approach. Plus, instead of the hospital functioning at partial mission, the Microgrid enables a fully functioning hospital throughout the storm and aftermath.

While hospitals are at the center of the discussion, the rest of the healthcare system – urgent care clinics, assisted living centers, nursing homes, and doctor’s offices – can benefit from the same flexibility and resilience thinking. After all, if the rest of the healthcare system collapses when the utility grid is lost, the hospital will be expected to pick up all the slack.

There is a very good report on “Healthcare Microgrids,” Microgrid Knowledge, 2017 that delves into several important aspects of how Microgrids are perfectly aligned to provide the flexibility and resilience the healthcare industry needs for the new normal.

There are a few very good examples of where the Microgrid has transformed the hospital into a fully-functioning, islanded operation, when major storms hit:

·     Dell Children’s Medical Center (Austin, TX)

·     Utica College / Faxton-St. Luke’s Healthcare (Utica, NY)

·     Shands Cancer Hospital at the University of Florida (Gainesville, FL)

This needs to be the norm rather than the exception.

Originally Published on LinkedIn