IEEE Electrification Magazine - March 2014 - 99

TAble 2. The s&C Microgrid Cost evaluation Tool.
Unit
Customer's annual energy use

kWh

Customer's electrical rate

US$/kWh

Annual demand charges

US$

= Total annual electricity costs

US$

Percentage reduction in electricity demand realized through use of a microgrid

= Total annual savings from microgrid

US$

Direct costs for DG

US$

Direct costs for islanding infrastructure

US$

*One time expense= total direct costs for microgrid

US$

Number of hours DG is expected to operate annually

Hours

Number of watts used in 1 h of operation

kWh

Cost of fuel source for DG

US$/kW

X
1

= Total variable cost for microgrid operation
-

Annual operation costs

US$

Annual maintenance costs

US$

= Total recurring costs for microgrid operation
+

Cost of outage for 1 h

US$

Standard average interruption duration indices

SAIDI

Standard average interruption frequency indices

SAIFI

= Total cost of reliability improvements

US$

TOTAL COST SAVINGS FROM MICROGRID

US$

4
=

Note: U.S. dollars are used as an example. It could be the currency of any country.

The electrical Rate
One of the major factors in determining the potential cost savings
through efficiency is the customer's
electrical rate. electric rates vary significantly across the world for any
number of reasons. Regardless, they
play the largest part in deciding
whether reducing demand through
the use of DG is economical. For
example, in Illinois, the average retail
price of electricity for an industrial
customer is about US$0.8/kWh. In
hawaii, that price is more than four
times the rate in Illinois at about
US$0.33/kWh. The average rate in the
United States is about US$0.13/kWh.
When we plug in some hypothetical numbers and dollarize the effect of
the rates, it becomes clearer why using

the DG in a microgrid as the primary
source of power rather than the utility
is often not economical. If we assume
that the customer uses 240,000 annual
kWh, our equation works out to the
values shown in Table 3.
Between the United States average and hawaii, there is a difference
of US$48,000 a year. This is a big difference, which is why we see areas
with higher electricity rates, such as
islands, making microgrids work for
them. The fact is that, for most customers, the utility rate is more economical than running DG when you
factor in the additional costs.
In addition to electricity rates,
most large customers pay a demand
charge, which covers the utility's operation and maintenance costs for the

infrastructure needed to support their
loads. These demand charges are typically negotiated and require the customer to meet a certain power factor.
Most importantly, demand charges can
include peak demand charges. Whether through peak demand charges or
time-of-use rates, the economics
behind microgrids become more
appealing when you consider the possibility of reducing your demand during peak periods, which is called peak
shaving. If rates are higher, say around
the hawaii level, in the middle of the
day, customers can save even more
money by reducing their load.
Some would argue that it is the
reduction of these peak demand
charges that can threaten utilities.
The truth is that there is a joint
IEEE Electrific ation Magazine / MARCH 2 0 1 4

Table of Contents for the Digital Edition of IEEE Electrification Magazine - March 2014