Rochester Institute of Technology RIT Scholar Works Theses 3-11-2015 Grid parity analysis of stand-alone hybrid microgrids: A comparative study of Germany, Pakistan, South Africa and the United States Jawad M. Siddiqui Follow this and additional works at: https://scholarworks.rit.edu/theses Recommended Citation Siddiqui, Jawad M., "Grid parity analysis of stand-alone hybrid microgrids: A comparative study of Germany, Pakistan, South Africa and the United States" (2015). Thesis. Rochester Institute of Technology. Accessed from This Thesis is brought to you for free and open access by RIT Scholar Works. It has been accepted for inclusion in Theses by an authorized administrator of RIT Scholar Works. For more information, please contact [email protected]. Grid parity analysis of stand-alone hybrid microgrids: A comparative study of Germany, Pakistan, South Africa and the United States by Jawad M. Siddiqui Thesis Submitted in Partial Fulfillment of the Graduation Requirements for the Degree of Master of Science Science, Technology and Public Policy Department of Public Policy College of Liberal Arts Rochester Institute of Technology March 11, 2015 GRID PARITY ANALYSIS OF STAND-ALONE HYBRID MICROGRIDS: A COMPARATIVE STUDY OF GERMANY, PAKISTAN, SOUTH AFRICA AND THE UNITED STATES A thesis submitted to the Public Policy Program at Rochester Institute of Technology By Jawad M. Siddiqui Under the faculty guidance of Dr. Eric Hittinger Submitted by: Jawad M. Siddiqui Accepted by: DR. ERIC HITTINGER - Faculty Thesis Advisor Assistant Professor Department of Public Policy College of Liberal Arts DR. FRANZ FOLTZ - Committee Member Associate Professor Department of Science, Technology and Society/Public Policy College of Liberal Arts DR. BENJAMIN H. DEITCHMAN - Committee Member Visiting Assistant Professor Department of Public Policy College of Liberal Arts Abstract Grid parity for alternative energy resources occurs when the cost of electricity generated from the source is lower than or equal to the purchasing price of power from the electricity grid. This thesis aims to quantitatively analyze the evolution of hybrid stand-alone microgrids in the US, Germany, Pakistan and South Africa to determine grid parity for a solar PV/Diesel/Battery hybrid system. The Energy System Model (ESM) and NREL’s Hybrid Optimization of Multiple Energy Resources (HOMER) software are used to simulate the microgrid operation and determine a Levelized Cost of Electricity (LCOE) figure for each location. This cost per kWh is then compared with two distinct estimates of future retail electricity prices at each location to determine grid parity points. Analysis results reveal that future estimates of LCOE for such hybrid stand-alone microgrids range within the 35-55 cents/kWh over the 25 year study period. Grid parity occurs earlier in locations with higher power prices or unreliable grids. For Pakistan grid parity is already here, while Germany hits parity between the years 2023-2029. Results for South Africa suggest a parity time range of the years 2040-2045. In the US, places with low grid prices do not hit parity during the study period. Sensitivity analysis results reveal the significant impact of financing and the cost of capital on these grid parity points, particularly in developing markets of Pakistan and South Africa. Overall, the study helps conclude that variations in energy markets may determine the fate of emerging energy technologies like microgrids. However, policy interventions have a significant impact on the final outcome, such as the grid parity in this case. Measures such as eliminating uncertainty in policies and improving financing can help these grids overcome barriers in developing economies, where they may find a greater use much earlier in time. i Dedication I dedicate this thesis to my loving family, whose prayers and support have helped me achieve everything. I also dedicate this to my friends who have always been there for me. I dedicate this to the people of Pakistan who continue to persevere in the face of many hardships and challenges including terrorism. ii Acknowledgements Thanks to Allah Almighty for all His blessings which have enabled me to live up to the expectations of my family, colleagues, friends, teachers and supervisors. I wish to thank my committee members for their continued support, guidance and expertise. A special thanks to Dr. Eric Hittinger for his unconditional support, guidance, help and the countless hours of meetings. Thank you sir, I could not have done it without your help. Thank you Dr. Franz Foltz and Dr. Benjamin Deitchman for agreeing to serve on my thesis committee. A special thanks to Peggy J. Mack for all the administrative support throughout this process. I would also like to acknowledge and thank my friends Faridoon Ahmed and Uzair Shah for their help on obtaining important data from Pakistan. A special thank you to my roommate and close friend Paul Bevilacqua for the many hours of proofreading and valuable feedback. Finally I would like to thank the IIE and USEFP for the Fulbright Scholarship. Thank you for showing confidence in my abilities and giving me a chance to pursue graduate studies in the United States. iii Table of Contents Abstract ............................................................................................................................................ i Dedication ....................................................................................................................................... ii Acknowledgements ........................................................................................................................ iii Table of Contents ........................................................................................................................... iv List of Tables ................................................................................................................................. ix List of Figures .............................................................................................................................. xxi List of Abbreviations .................................................................................................................. xxx List of Symbols ......................................................................................................................... xxxii Introduction ..................................................................................................................................... 1 Microgrids And Public Policy ..................................................................................................... 4 Literature Review ........................................................................................................................ 6 Research Question ..................................................................................................................... 17 Methodology ................................................................................................................................. 20 Levelized Cost of Energy (LCOE) ............................................................................................ 20 The Four Locations ................................................................................................................... 21 United States. ......................................................................................................................... 22 Germany. ............................................................................................................................... 23 Pakistan. ................................................................................................................................. 24 South Africa. .......................................................................................................................... 24 Research Methodology .............................................................................................................. 25 The Optimization Models.......................................................................................................... 26 iv The Energy System Model (ESM). ....................................................................................... 27 NREL’S Hybrid Optimization Model for Electric Renewables (HOMER). ......................... 29 Data Collection and Conditioning ............................................................................................. 30 Input Data .................................................................................................................................. 33 Inflation rate. ......................................................................................................................... 34 Cost of capital rate. ................................................................................................................ 35 Generator costs. ..................................................................................................................... 37 Diesel fuel prices. .................................................................................................................. 38 Solar PV costs. ....................................................................................................................... 39 Battery costs. ......................................................................................................................... 46 Inverter costs. ........................................................................................................................