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

Energy As A Service: An interview with CEO Karen Morgan

Energy As A Service: An interview with Karen Morgan from Dynamic Energy Networks

Dynamic Energy Networks (DEN) launched in order to provide customers and investors with an opportunity to tap into the hyper growth “Energy-as- a-Service” market. It is an energy infrastructure platform that owns and operates microgrids to provide energy to the commercial and industrial, municipality, healthcare, university campuses and the military sectors. 

Energy As A Service: An interview with Karen Morgan from Dynamic Energy Networks

The company formed a strategic alliance with Schneider Electric and The Carlyle Group and has a top executive team which formerly worked with Hitachi and RET Capital. It develops holistic and flexible solutions to deliver predictable, reliable, secure and resilient energy solutions which can run in parallel or completely independent of the utility grid.

REM spoke to Karen Morgan, DEN President & CEO to find out more about the company and its plans for transformation of the energy market.

Can you tell me about DEN and what it does?

Dynamic Energy Networks is a global energy infrastructure platform. We own, operate and manage energy infrastructure in key market sectors, such as the commercial and industrial, municipality, healthcare, university campus and military sectors.

What is the Energy as a Service market?

Energy as a Service redefines the relationship between users and sources of energy. It shifts the cost and the risk to DEN, as a third-party owner, and enables optionality or choice of energy source.

For example, let’s say a hospital has a combined heat and power (CHP) plant and would benefit from adding solar and storage. DEN could acquire the existing CHP plant and integrate solar and storage to create a microgrid solution at no cost and no risk to the hospital. This allows the hospital to redirect their capital and resources internally, and shifts a capital expenditure to an operational expenditure. These bespoke solutions could be in the form of a long-term power purchase or concession agreement.

Can you tell me more about the microgrids you intend to provide?

We provide something much broader than microgrids; we provide energy infrastructure. Energy infrastructure is the integration of critical technology components and, in the case of microgrids, it might include a base load, such as combined heat and power (CHP) plus solar and storage. It could also include other energy resources, such as energy efficiency and smart technology solutions that interact with the microgrid. We design and optimize our microgrids and infrastructure using best-in-class partners and solutions that are most appropriate for the facility, geography and needs of the customer.

Our microgrid designs ensure resilience of a facility in cases where the traditional utility grid fails. For example, we design solutions to ensure business continuity and lifesaving critical infrastructure for hospitals and disaster relief centers. DEN’s infrastructure can operate completely independent of the utility, that is, in ‘island mode’ or in parallel with the grid.

I notice that you quite often work with the military, what extent is the military trying to decarbonise now?

Both Carlyle and Schneider Electric have a long history with the military. We see a very strong commitment from the military to decarbonize and be good citizens in their own geography. One of the major offerings to the military, though, is resilience. Microgrids and distributed energy resources enable independent power on site to the military base and to the local community in the event of a utility outage. Resilience, secure and reliable energy is paramount to military operations and microgrids are the solution.

What advantages does your solutions have over what other companies are doing?

I think what we’re really trying to do is play a major role in the transformation of the energy market. Our Energy-as- a-Service model is a differentiated value proposition today, where we take the risk out of the equation and deliver predictable, efficient, secure and resilient energy to our customers. We’re moving from a static utility market to a very dynamic and interoperable marketplace where this integration of flexible capital and critical infrastructure will drive the transformation of the electricity markets. We refer to it as ‘Utility 2.0’.essential, for this market to mature, that we get these cornerstone players investing in the transformation.

How do you expect to grow over the next few years or so?

Our growth will be based on our ability to deliver bespoke and modular solutions to the markets we identified in a programmatic and repeatable fashion. The ability to scale will be predicated on working with best-in-class engineering firms, developers and others, in addition to our anchor partners, Carlyle and Schneider Electric.

Originally Published on Renewable Energy Magazine