Decarbonization solutions for sustainability
How Microgrids can build Resilience-against Climate Change and Pandemics in a fast-changing world. Part I
Building Resilience against the Next Global Storm
Climate change has been increasingly regarded as one of the most significant global risks of our time. The effects of climate change on people, economies, industries, companies and governments have already resulted in widespread change as investors grapple with the risks and instability of these issues over time. The Covid-19 crisis has now put into perspective the severe system shocks that can occur and indeed, portray how fragile our global systems are, including our traditional power systems, to handle such disruptions and changes.
The world has seen a shift and understands more clearly the need to balance short term profitability optimizations with long term resilience-planning and protection, as McKinsey states in one of its articles.
Although emissions will be to some extent reduced in 2020 as a result of Covid-19 impacts on industries and economies, it is now clear to all the impact that climate change could have should its effects move from a more gradual to a sudden impact.
Microgrids can build resilience against climate change and extreme weather events – such as hurricanes, floods, and other climatic events – as well as sudden economic shocks such as brought on by Covid-19.
In the past couple months since world economies have come to a sudden and unplanned halt, we have seen how feedstock supply and demand fluctuations of fossil fuels such as oil and diesel, have invoked cost volatility, supply chain disruptions and inflexible long-term contracts have placed tremendous pressure on certain offtakers in certain markets, particularly those in isolated grids or islands.
“Microgrids displace fossil fuel reliance, especially for example diesel consumption in isolated grids such as islands, or for mines or industrial facilities connected to weak grids.
Microgrids effectively offset and displace fossil fuel reliance, especially for example diesel consumption in isolated grids such as islands, or for mines or industrial facilities that are either off-grid or connected to weak and unstable grids. While the price of oil has dropped through the floor so far in 2020, the price of diesel has only come down around 20%. Supply chain disruptions and logistics challenges as well as reduced demand – have placed certain power consumers in an inflexible position, where some are locked into long term ‘take or pay’ contracts, and have no current demand for this fuel while markets are in lockdown or hibernation mode. Lack of storage space across fossil fuel supply chains has placed many players in an awkward and unenviable position. There are clearly huge economic and risk benefits in the case when one can eliminate or largely reduce feedstock needs altogether.
Since microgrids reduce this reliance by producing power from the sun or wind and storing it with a battery, the opex costs are predictable and very low, once the higher capex cost to install a system has been provided.
Based on current tariffs in off-grid locations, and the current costs for battery systems and photovoltaic systems, depending on a client’s particular case, microgrids can achieve payback periods in a space of 5-8 years, and can provide significant added benefits to a client beyond this purely financial value.
“Microgrid systems can be managed autonomously, and can provide ancillary services such as frequency control, voltage regulation and enhanced power quality.
For example, microgrid systems can be managed autonomously, and can provide ancillary services such as frequency control, voltage regulation and enhanced power quality. Customers can typically save up to 60-90% of their annual diesel costs when a microgrid is installed.
In countries where economic decline may be happening, such as many markets with the global recession projected to occur as a result of Covid-19, having a resilient microgrid can hedge against buying commodities such as fuel in weakened local currencies. Reduced supply shipments of fuel results in fewer risks and tighter fleet management. Therefore, an industrial facility in a country with a weakened or unstable electrical grid, or a mine located in a remote area, can build in resiliency and have sleeker operations and reduced risk of external forces impacting their production.
In Part II of our series, we will continue where we left off, and aim to quantify the Cost of Resilience.