IEEE Electrification Magazine - March 2014 - 37
policy provisions and incentives for renewables, energy efficiency, energy storage, demand-side management, and chp.
a commercial focus to the microgrid opportunity will be
appealing to third-party developers because it will provide
more effective access to private capital markets for microgrid
hosts or government entities. Without such a business orientation, effective microgrid development will depend on direct
funding by microgrid hosts, such as universities and public
agencies, as well as utilities. the host-funding approach will
restrict implementation and introduce uncertainties that
will constrain microgrid applications. critical support among
a handful of states will also foster better market penetration
with access to capital. minnesota has tools to show
leadership for microgrid development.
critical to financing success will be
an understanding of both the costs and
sources of economic value that
microgrids can provide. historically,
projects offered emergency services and
little more. they were not integrated or
interconnected with the grid and generally have served only a single facility. a
more modern, integrated microgrid will
provide secure sources of power with
high levels of quality and reliability
through a combination of on-site generation, storage, distribution, and energy
management technologies. microgrids
that make the most of each of these values, and exploit the full range of revenue streams and incentive opportunities, will be in a better position to attract
third-party financing, especially if they consolidate them in
easily understood financial analysis.
moreover, the best financing opportunities might be
obtained by combining multiple microgrid projects together into a portfolio. While an individual microgrid project
might be too small to attract interest from private equity
and institutional investors, for example, a group of
microgrids could achieve the scale needed to raise costeffective financing-most likely through a secondary-market transaction after most or all of the assets are
operating. such a microgrid portfolio "Yieldco" could even
provide opportunities to raise equity or debt financing in
public markets.
treating microgrids as infrastructure investments will
allow developers to begin accessing broader and deeper
pools of funds, including bond financing. numerous possible
structures can be explored and exploited for specific projects,
including public benefit funds, such as Xcel energy's renewable development Fund; pace loans and loan-loss funds;
tax-equity pooling matched with bonds for debt; establishing
new asset classes for infrastructure, especially to attract
investment by pension funds; credit enhancement with
bond financing; regional bond banks; special bonding for
microgrids; statewide pools; and project or contract aggregation. credit enhancement will be key to reducing the risk of
development. this will increase the credit rating of a project,
which reduces the cost of debt capital
for financing.
congress is also considering legislation (the master limited partnerships parity act) to extend master
lps (mlps) to renewable energy
assets. mlps help project developers
and investors avoid double taxation
and thereby attract capital at lower
costs. mlps generally are publicly
traded entities that operate like a
corporation but do not pay corporate income taxes. after raising capital in the public markets, mlps
distribute the income to shareholders, who pay taxes at their personal
income tax rate.
Whether microgrids could qualify for mlp treatment will
depend on the legislative outcome as well as development
approaches that structure projects specifically to qualify. the
opportunity for microgrids might be substantial as it would
create opportunities to access new investment pools.
Critical to financing
success will be an
understanding of
both the costs and
sources of economic
value that microgrids
can provide.
Federal Incentives
existing financing strategies are being adapted and implemented to accelerate access to funding under clean energy
finance requirements for federal, state, and local financing.
several tools are emerging that can benefit microgrids,
especially as the clean energy sector seeks alternatives to
traditional tax-equity funding. historical reliance on tax
equity-driven structures has yielded one-off deals with
high transaction costs and has subjected the renewable
energy industry to feast-and-famine cycles that have hindered rational long-term success.
Minnesota Incentives
minnesota has tools to offer upon review that could
provide support or credit enhancement value to
microgrids. minnesota has enacted a system benefits
charge-via the Xcel energy renewable development
Fund, established in 1999 in legislation authorizing
Xcel's on-site storage of spent nuclear fuel-and legislation to facilitate pace bonding (H.F. 2695 and H.F. 3729).
minnesota is one of 15 states, along with Washington,
d.c., and puerto rico, that have public benefits funds for
renewables-projected to offer in the aggregate nationwide Us$7.7 billion by 2017. minnesota raised Us$19.5
million in 2012 and offered in the aggregate Us$339 million from 1999 through 2017. the minnesota fund does
not have a current expiration date. one microgrid project advocated by the University of st. thomas was conditionally selected for funding under the latest Xcel
energy renewable development Fund solicitation process. clearer guidance on how future funding will be
allocated by the state could help microgrids access
IEEE Electrific ation Magazine / MARCH 2 0 1 4
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