Financing the Next Generation of Resilient Power

Hurricane Sandy was a stark reminder of the fragility of our electric grid. Clean Energy Group (CEG) has produced a series of papers and webinars looking at how a new generation of resilient power systems can help to address this problem. Its Nov. 20 webinar, “Financing Resilient Power,” scheduled to follow the publication of the paper “Financing for Clean, Resilient Power Solutions,” specifically focused on strategies for financing such systems.

There has been a proliferation of distributed solar systems over the last decade. Henry Misas, senior project engineer at Bright Power, Inc. and webinar panelist, reports that the vast majority of these systems are grid-dependent and incapable of supplying power in the case of a blackout.

Facilities that depend on uninterrupted power, from hospitals to financial institutions, typically use diesel backup generators that sit idle until called upon in emergencies. Yet according to Rob Sanders, senior finance director at CEG and webinar panelist, over 50 percent of these generators failed during Hurricane Sandy, costing billions of dollars in damages.

CEG sees a better solution in the form of integrated solar power and energy storage systems. Depending on the system specifications, these systems can meet some or all of a building’s energy demand when the grid is down.

Such systems are ideally suited for affordable housing and assisted living facilities, which could operate on reduced load and allow residents to shelter in place during severe weather events.

Sanders points out that a key advantage of integrated solar and storage systems over backup generators is their ability to provide ongoing value in the form of reduced energy and demand charges along with ancillary services such as frequency regulation.

CEG’s paper identifies four financing strategies that have been successful in funding other clean energy projects and may be suitable for resilient power systems. These are public and private ownership structures; bond financing; clean energy financial institutions; and credit enhancements.

While these strategies are designed to engage all types of stakeholders – including government organizations, developers, financial institutions, and individual investors – one particular group has taken the initiative in recent years: state governments.

Sanders reports that, in the aftermath of Hurricane Sandy, states in the Northeast have committed over $400 million of funding for resilient power projects. New Jersey, for example, launched a $200 million Energy Resilience Bank in July 2014. Modeled closely on the green banks seen in Connecticut and New York, this organization aims to address many of the failures in resilience that Hurricane Sandy highlighted. The organization provides loans, grants and credit enhancements to finance clean, resilient power solutions in critical facilities. Smaller grant and loan programs are also underway in Connecticut, Massachusetts, New York, Maryland, California and Hawaii.

At a federal level, applications opened in July 2014 for the Department of Energy’s $4 billion Renewable Energy & Efficient Energy Project Solicitation, which provides loan guarantees for up to 80 percent of project costs across a range of technologies – including microgrid and resilient power programs.

If the case for solar and storage resilient power systems is so strong, why has adoption been so slow? The short answer is that batteries are still incredibly expensive and are a difficult investment to justify unless there is some way of capturing the value they provide. Fortunately, there has also been progress on this front.

In 2011, FERC Order 755 mandated that owners of dispatchable power sources such as battery systems be fairly compensated for the ancillary services that these systems provide, Todd Olinsky-Paul, project director at Clean Energy States Alliance, said while moderating the webinar. He said the PJM Interconnection is a functioning ancillary services market making New Jersey a particularly suitable location for solar and storage systems. New York ISO and California ISO also have ancillary service markets. While New England ISO has lagged in this department, it is scheduled to comply with FERC Order 755 by March 2015.

One other factor is the cost of electricity demand. Adding a battery to a solar system won’t reduce the total amount of energy a facility consumes, but it will give the facility flexibility over when it is consumed. This can be very valuable in regions with high demand charges and time-of-use pricing. For this reason, Hawaii and New York were identified by Sanders as particularly attractive locations for resilient power systems.

Finally, the value of resilience itself must be taken into account. Beyond financial implications, loss of power in critical care facilities such as hospitals, assisted living facilities and water treatment plants can impact basic services and even result in loss of life. The message from CEG is that we have undervalued these systems for far too long. Its paper outlines how the right incentive structure and financing strategies can help us avoid making this mistake again.

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