The ongoing pressure to control costs has led many oil and gas operators to look at an evolving technology: the development of microgrids to provide power. In many cases, these grids offer flexibility, reliability and cost savings that they don’t get from traditionally distributed power or from portable diesel generators.

Microgrids are a combination of technologies that give additional flexibility to users of electrical power. Microgrids by definition are energy generation systems that can disconnect from the grid and continue to power isolated facilities even when the larger electrical grid is unavailable.  In essence, they have two components: a power generation source and the capability to be removed from the grid itself. These plants can use any fuel for generation, including solar, wind, natural gas, diesel and fuel cells. Many of these new plants have the capacity to store locally generated power through some form of battery. The microgrids also need infrastructure and controls to isolate from the grid and to control voltage and frequency.

Microgrids are suitable for operations that have a high value for reliability and/or have unreliable power supply. Industries other than oil and gas include hospitals, colleges, first responders/911 call centers or isolated areas.  

"All of these microgrids are tailored to specific needs,” said Charles Palmer, managing director, power and gas at Opportune LLP.
Industrial power users, including oil and gas operators, have shown a growing interest in microgrids as renewables become more economic and valuable. Operators in the Permian Basin, as an example, may be drawn to microgrids because the surge in demand for power may overwhelm the capacity of local utilities. Convincing a utility to build new transmission lines is a slow, painful and highly regulated process, leaving operators to look at other alternatives, Palmer said.

Historically, oil and gas operators have brought in diesel-powered generators, which have provided a short-term source of power. In some cases, these generators still rely on the local grid to bring power to an isolated drilling location and, as a result, may not be as reliable as a microgrid.


 

Although oil and gas operators in the U.S. are studying the new technologies carefully, in many cases, the amount of capital required does not justify the benefits of increased reliability. The economics of the plants depend in part on the cost of generation, which has fallen in recent years for solar, wind and battery technologies. The newer technologies still depend to some degree on economies of scale, but far less so than traditional power generators.

Some operators are willing to pay a premium for microgrids if they have a strong need for reliability in an area that is relatively unreliable. The evolution of batteries has allowed storage economics to continue to fall and made alternative sources of power more attractive, Palmer said.

Black & Veatch designed a microgrid at Shell's Technology Center in Houston. The microgrid incorporates solar photovoltaic panels, a natural gas reciprocating engine and an advanced battery storage system. It was installed earlier this year to power a 200-acre Shell Technology Center Houston campus.

Midstream companies in particular are looking at microgrid technologies because most of them are price takers for a commodity they see is overpriced. Microgrids are increasingly becoming a reliable, cost-effective source of power, said Emily Easley, principal of ERE Strategies.

Oil and gas operators are also interested because operating costs are often higher than expected because of unforeseen spikes in power prices. They are looking at microgrid looking for a renewable or a storage solution. Oil and gas investors have a lot of interest in these technologies because the current model does not give them the flexibility to negotiate the price of the electricity they consume. Before contracting a microgrid, these operators look into are what infrastructure is necessary to produce its own power and how much will that save them over the life of their operations.

"There is a huge value to offset your power cost," she said.

The construction of power generation infrastructure associated with microgrids is a long-term expense. A solar farm, for example, is a 30-year asset. Some smaller operators in the Permian and other oil basins may not need power for that long.
 
One potential problem with implementation of renewable energy in the oil field is financing. Renewables are considered lower risk and are highly leveraged relative to other industries. Many oil and gas operators are already heavily leveraged and unwilling or unable to take on the additional debt that generally comes with financing the construction of the assets. This makes it harder for smaller operators to obtain financing for the microgrids, although larger operators with bigger balance sheets don't generally have this problem. Larger operators have longer investment horizons that give them more flexible alternatives.
 
"For the smaller companies it is harder to justify the additional capex required for infrastructure," she said.

For many other oil and gas operators, the technologies are a concept under exploration and only a few providers offer a unified product. Companies which use these technologies tend to be commercial or industrial users who build microgrids in the 1 MW to 10 MW range, said Isaac Maze Rothstein, research associate with Wood Mackenzie. Many of the traditional suppliers of diesel generators, including Aggreko and Caterpillar, are also providing microgrid options.

In addition to potential cost savings and additional reliability, the microgrids have a third advantage: they can help meet sustainability goals that many companies have put in place. The trade-off for many operators is a learning curve for a new technology.