May 06, 2019
MBA Students Research Practicality of Solar Power
Students in the Energy Business track worked with green tech energy company Fluence to investigate the economic viability of solar-plus-storage based power plants, resulting in media attention from key energy industry publications.
The Tepper School of Business MBA curriculum includes optional tracks that focus elective coursework toward a specific career path or field. The Energy Business MBA Track includes courses in energy finance, energy engineering, energy policy, and risk analysis, culminating in a capstone course in which students participate in a semester-long project addressing a contemporary business problem posed by a real-world industry partner.
This academic year’s capstone project featured Fluence, an energy storage and services technology company that is a joint venture of Siemens and the AES Corporation. Colleen Lueken, Lead Data Scientist at Fluence and a Carnegie Mellon University College of Engineering Ph.D. graduate in Engineering and Public Policy, worked on the project alongside a student group consisting of second-year MBA students Matt Beers, Panagiotis Bourtsalas, Ben Cerroni, Dave Deckelman, Brian Freeman, Zack Lippert, and Tom Reeves.
With the guidance and supervision of track coordinators Chris Telmer, Associate Professor of Financial Economics, and Jay Apt, Professor of Technology and Co-Director of the Carnegie Mellon Electricity Industry Center, the student group looked into the economic viability of solar-plus-storage power plants.
The energy industry has recently recognized that the combination of solar photovoltaic panels and battery storage (solar-plus-storage) facilities are viable alternatives to natural gas peaking plants, which generate energy from natural gas only when the demand is high. The MBA student group analyzed data from hundreds of natural gas units around the U.S. to determine if these solar facilities with 4-6 hours of electricity storage could do the same for mid-merit plants (sometimes called shoulder plants), which adjust the amount of power they provide as demand fluctuates.
“To the best of our knowledge, nobody has asked this question before,” Telmer said. A white paper produced by the students and Fluence has been generating interest from key energy industry journalists and publications such as Energy Storage News, pv magazine, and Renew Economy, highlighting the significance of this new research.
Energy Business MBA Track
Capstone projects like these are intended to exercise a broad range of skills that MBA students have gained in their Tepper School curriculum. “It is case-based education at its best: substantial, unstructured, and about as real-world as it gets,” Telmer said. “Tepper is committed to educating the future leaders of the clean energy industry.”
For Lippert, the track was a primary reason he chose the Tepper School for his MBA. “Prior to business school, I worked as an energy engineer on energy efficiency and renewable projects,” he said. “I wanted to leverage the program to pivot my role in the industry away from engineering and toward product and business development.”
During the spring of 2018, students in the energy track worked with Apt and Telmer to select what kind of project they wanted to pursue for their capstone experience. When the students identified energy storage as one of their interests, Apt connected with Lueken, for whom he served as a doctoral thesis adviser while she was studying at Carnegie Mellon. AES and Siemens both have long ties to the Carnegie Mellon Electricity Industry Center, attending the Center’s annual meeting where Ph.D. students and faculty present their research. Lueken was pleased to partner with Apt and Tepper on a research project for Fluence, which is developing large-scale projects for solar-plus-storage facilities, that in turn generate energy via solar panels and store it in batteries for distribution.
“This project was a great engineering-economic analysis that shows the benefits of pursuing sustainable energy sources,” said Apt. “Our goal with the energy track, and especially the capstone project, is to give our students the tools to make the business case for what they want to do in their energy careers. Right now many of them want to be a part of moving away from traditional energy sources and managing the transition to renewables.”
The students obtained data on hourly energy generation and storage capacity for natural gas plants and sorted them into six clusters based on their power generation profiles. They used this data to form hypothetical solar-plus-storage facilities that would match the general energy output for each of the six clusters, located in five geographic regions with power grids controlled by a regional transmission organization: California, the Midwest and parts of the Southern U.S., southern Texas, New England, and Mid-Atlantic states.
To determine the economic viability for solar-plus-storage facilities compared to natural gas generators, the student group created cash flow models comparing the costs of building and operating both kinds of power plants to the income from providing power to the regional grid. The models incorporated regional natural gas prices and factors that impact the efficacy of solar power, including solar irradiance, ambient temperature, and air speed.
The model also accounted for additional revenue streams from ancillary services, which vary across regions but generally involve adapting the rate of energy generation and storage to accommodate changes in demand on the overall power grid. One of the most common is known as frequency regulation, for which plants will offer to adjust their energy output for sudden, large surges or drops in demand on the grid, which benefits other plants that cannot easily make such adjustments.
Ancillary services can provide significant income. However, the markets for these services can be volatile, particularly that of frequency regulation, so the students looked at viability with all ancillary services included, with ancillary services included except for frequency regulation, and without ancillary services.
According to the white paper, when revenue from all ancillary services are included in the models, solar-plus-storage facilities can mimic mid-merit plants in four of the five regions reviewed, as well as three of the six clusters for the New England Region. Without frequency regulation, this is true only for lower-output plants in three of the regions, but not for those in the northeast. Without any ancillary services, solar-plus-storage facilities are viable only in the California region.
As the white paper notes, this preliminary model does not account for additional external factors, such as fluctuations in natural gas prices, currently on an upward trend. Natural gas plants may also be subject to financial penalties due to carbon emissions in some regions. “The project is limited in terms of scope and depth,” Telmer noted. “Seven MBA students had to be able to do it, while taking other classes, in one semester, so the question being asked was kept contained along a number of dimensions.”
A blog post from Fluence about the project cites a key outcome of the study: The team developed a new metric for the cost of energy that incorporates ancillary services, which can now be adapted by researchers to include factors like the reduced carbon emissions of solar-plus-storage facilities. The findings have generated interest from major industry media publications and have been cited extensively in several articles that make note of the significance of the conclusions the project participants reached.
“During the project, I learned about the flexibility of utility-scale energy storage technology and its huge potential in helping overcome major drawbacks of the current power grids and facilitate the transition to the grid of the future,” said Bourtsalas, one of the students in the Tepper School Energy Business MBA Track. “These benefits come with some limitations that need to be managed, both technical and financial, such as the ones we tackled during the capstone project.”
Bourtsalas and teammate Lippert both noted how important this project was in helping them to develop their skills in project management and financial modeling. “These will be very impactful in any class or job I have after graduation,” Lippert said. “Without the ability to quickly parse and analyze the hundreds of thousands of data points, we wouldn’t have been able to provide a high-quality report for Fluence.”
Telmer, one of the faculty advisers on the project, said that this represents the deep and rigorous educational approach of the Tepper School. “An MBA student with an engineering background who worked hard in their finance classes and who then joined an appropriately supervised team of peers should be able to perform the analysis contained in the white paper,” he said. “One should expect this sort of analysis from Tepper students.”