Our latest in thought leadership to help you effectively decipher the market news and sector information that impacts your energy procurement and energy management efforts.

September 4, 2018

NY REV & The Path to DER Financial Viability

by Margie Miller

Reforming the Energy Vision or REV, calls on all NY State residents to take a new look at how they use energy and how they can alter that usage to assist in the Clean Energy Goals that New York State has set for the next 30 years. NY REV employs a combination of Energy Efficiency programs, renewable energy generation/ Microgrid development projects, and Carbon Reductions Programs in its’ roadmap for achieving these goals. An intended outcome of these programs and projects is the stimulation of economic activity and economic development while producing a healthier environment and a more resilient electricity grid. New York’s Clean Energy Plan has set the following goals:

40 % Reduction in GHG emissions from 1990 levels. Reducing greenhouse gas (GHG) emissions from the energy sector—power generation, industry, buildings, and transportation—is critical to protecting the health and welfare of New Yorkers and reaching the longer term goal of decreasing total carbon emissions 80% by 2050.

 50% Generation of electricity must come from renewable energy sources. Renewable energy sources, including solar, wind, hydropower, and biomass, will play a vital role in reducing electricity price volatility and curbing carbon emissions.

 23% Decrease in energy consumption in buildings from 2012 levels. Energy efficiency results in lower energy bills and is the single most cost-effective tool in achieving energy objectives. 600 trillion British thermal units (TBtu) in energy efficiency gains equates to 23% reduction in energy consumption by buildings.

In addition to these specific goals, NYREV challenges all of us to think outside industry norms to produce new solutions to the aging infrastructure of our electrical system. The New York power grid was built to accommodate peak loads which may only present themselves a few times a year. The ratio of the average load to the system’s peak load is currently about 51%. That means we have to maintain a power system that can provide almost twice as much power at any given moment while most of the time we only really need 50% of that ability. The result is an inefficient and consequently costly power grid to administer. In order to be able to keep up with the cost of electrical infrastructure improvements, solutions need to look at reducing peak load, or shifting peak load with demand side management systems, energy efficiency projects and energy storage plants. These types of solutions are less expensive than upgrading sub-feed stations and transmission lines, and they can be funded by private investment.

If you are planning to install renewable energy and storage technologies at your facilities to improve your carbon and green footprint, please take a step back and consider how they could be worked into a larger plan for your internal energy reliability needs.

What is a Microgrid?

A Microgrid is a group of interconnected loads and distributed energy resources within clearly defined electrical boundaries that acts as a single controllable entity with respect to the power grid. A Microgrid can connect and disconnect from the grid to enable it to operate in both grid connected or island mode.

A Microgrid is a combination of Distributed Energy Resources which is serving load. It can be a very large Microgrid or it can be a small Microgrid that serves just one business with under one Megawatt of load. A Microgrid can combine several types of DER (Distributed Energy Resources) which can supply energy to the host but not the entire requirement of the entity while being grid connected to receive supplemental power when needed with the ability to sell excess power back to the Utility.

So why would a business consider building a Microgrid and how would they justify the cost?

During the past five years, the number and severity of summer and winter storms hitting the eastern United States has increased, causing damage to the electrical system and resulting in widespread outages and loss of property and income. Most scientific research indicates the frequency and severity of these storms will continue to increase. The power grid also faces both physical and cyber terrorism threats. FERC estimates that if just 9 key substations were taken out by either of these types of threats, it would take weeks, possibly months to restore the electric service.

If you build a Microgrid to cover your baseload, then you can maintain your critical infrastructure during emergency events when the central power grid fails. This serves multiple purposes—one you can maintain minimum operations while the power grid is down and—two—you can return to full operation quickly because you are already operating when the system is restored.

Resilience is the ability to prepare for and adapt to changing conditions and the ability to withstand and recover rapidly from disruption and other outside factors. Having independent power sources available to you that can be isolated from the grid during failure, can protect your facilities and allow you to continue operations at a base level.

Building a Microgrid can also meet highly desirable, publicity rich, environmental goals by combining clean energy technologies like CHP plants based on natural gas or biomass, solar plants, thermal and battery storage or fuel cells. The renewable energy credit (REC) can in turn be used to offset Renewable Portfolio Standard requirements or assist with meeting internal Carbon Neutral policies.

The “traditional” way of evaluating demand side management projects is to weigh the cost of construction against the benefit received and determine the payback period of the project and the return on investment. These calculations focus on hard costs and verifiable savings. What is missing from the “traditional” calculations is an evaluation of the cost of Resiliency and what it means to your company

The first step in valuing Resiliency is to determine the Value at Risk for your company for an entire year. This is the most difficult part of the calculation because it involves estimates for revenue loss, value of assets lost due to the electricity outage and other values that may not be easily measured.


Three Scenarios to Consider:

Total Value at Risk (VAR) per Hour:                        $955/hr

Total Operational Hours:                                           6,000

5 Year Average of Expected Yearly Outages:         4.16 hrs


VAR Scenarios % Value at Risk Operational Hours Value of Unserved Hour
Scenario A 40% 6,000 $2,292,000
Scenario B 60% 6,000 $3,438,000
Scenario C 100% 6,000 $5,733,000
VAR Scenarios VUH Per Scenario Expected Outage Annual VUH
Scenario A $2,292,000 4.165 $9,546,180
Scenario B $3,438,000 4.165 $14,327,600
Scenario C $5,733,000 4.165 $23,877,945


The table above lists three scenarios at which differing percentages of the total VAR is exposed and then multiplied by the total operational hours to calculate the Value of an Unserved Hour (VUH). Depending on which scenario you feel most likely to occur, you multiply that amount by the number of expected hours of outages per year and you get the total cost to your business for these outages or the value of Resiliency.

If you combine the Value of an Unserved Hour (or Resiliency) with income which can be derived from selling the excess power of the Microgrid back into the power grid or using the Microgrid to participate in Ancillary Services Markets and Demand Response Programs, the revenue stack created can justify the cost of construction and provide a reasonable payback period. The value of Resiliency is both pertinent and essential to managing the risks posed by the ever growing threats of extreme weather events or terrorism either physical or cyber. The costs of these events can be catastrophic – protect your company by considering the value of constructing a Microgrid and moving your operations into the next generation of electricity management.