A large pharma company recently came to me to discuss energy supply and its need for guaranteed electricity. The company had to take out expensive insurance to cover a power failure event that could interrupt their production line. Why is this a big deal? We’ve all lost refrigeration for a few hours.
After talking with the company, it became clear that a power loss lasting only 1 minute can result in a major economic hit because much of the pharmaceuticals are made in large batches to amortize the costs, and increase production. With a power loss, it’s not just a temporary interruption, it’s a lost batch. And the market value of a lost batch can easily reach millions of dollars.
The pharma company agreed that a microgrid capable of covering a power interruption would be highly valuable not just in terms of avoided losses but also in lower overall insurance costs.
For big pharma or other companies that can never lose power, a microgrid is not just a functional element – providing increased energy reliability — but it also serves as a piece of energy insurance and reduces an operational cost in the form of business insurance.
Because the company could have a reliable, dedicated, microgrid power supply to cover any interruptions, its insurance company could justify lowering its primary rates a substantial amount.
This pharma company now says that its “favorite” insurance is a dedicated microgrid that covers the production area, and is used to offset energy expenses when in stand-by mode.
What a concept — a favorite insurance policy — which works in the background, saves money in the foreground, and saves organizations millions of dollars in the case of bad luck (which is more and more likely these days).
After crunching the numbers, we discovered that the cost savings would pay for the microgrid in only 3 years if the unit was sized to cover the key production lines. This short ROI is certainly justifiable in the view of the company’s finance department.
Beyond pharma, small companies that rely on continuous production, the same cost-benefits would apply. For a beer brewery that must keep the brew at a given temperature, or a warehouse that needs to be kept cooled, the use of microgrid as insurance for lowering insurance is a real phenomenon. For individuals, the cost advantages would be more of a concept in terms of safety and security in times of extreme weather events.
Perhaps, solar, wind, and hybrid microgrids with diesel gen sets should be best viewed as usable insurance policies that protect us from power outages, which are now becoming more frequent. Who knows, maybe even the big insurance companies will start buying a stake in microgrids? That’s a policy that I could get behind.
Now if only the other insurance policies could do this, I’d start looking at insurance in a whole new way.
Dr. Skumanich will be moderating a panel on microgrids at the upcoming POWER-GEN conference in December. You can register to attend here.