Operation Cost Minimization of Domestic Microgrid
under the Time of Use Pricing Using HOMER
Shahab Khormali
ERAdiate Project, Univesity Science Park
University of Zilina
Zilina, Slovakia
shahab.khormali@uniza.sk
Abstract—This paper presents operation cost minimization of a
domestic grid-connected microgrid under a time of use pricing
scheme. Modeling, simulation and optimization of the proposed
hybrid microgrid system including traditional and renewable
power sources, energy storage systems and loads are performed by
HOMER software based on the total net present cost.
Gonbadekavoos industrial park in north-eastern Iran is considered
as a domestic grid-connected microgrid and input data such as
load, solar radiation, wind speed and energy price profiles are
adapted from Gonbadekavoos region. Different configurations of
power sources along with energy price sensitivity analysis in three
periods of low, intermediate and peak load periods are investigated.
Obtained results illustrate impact of energy prices on the
integration rate of energy generating units specifically renewable
energy fraction in order to minimize the operating cost of
microgrid.
Keywords—Microgrid, operation cost, time of use pricing,
HOMER software
I. INTRODUCTION
Microgrids (MGs) integrate different distributed energy
resources (DERs), energy storage systems (ESSs) and
controllable electric loads in distribution grids to improve grid
reliability, efficiency, and security. Integrated components in a
hybrid MG cause unique challenges in distribution network
control and operation which can be solved by an energy
management system (EMS) [1].
Microgrid energy management systems (MGEMS)
autonomously determine the optimal operation of MG through an
accurate algorithm in the presence of all constraints (e.g. supply
and load power balance, equipment performance specifications,
safety, battery charging rates, fuel supply, noise or pollutant
emissions) [2], [3]. An advanced EMS provided the optimal
operating strategies in a typical grid connected MG system by
considering the cost as competitive objective function and the
emission constraints. The cost function is including both the
selling and buying costs of exchanging power with the upstream
grid and the start-up costs of DERs [4]. Single-objective
optimization technique to minimise MG operation cost in the
presence of new type of loads such as plug-in electric vehicles
(PEVs) and data centres (DCs) is reported in [5]. In [6], an
iterative optimization approach following total energy deficit,
The research described in the paper was supported by the ERAdiate project of
the University of Žilina, Grant agreement no: 621386, EC 7th FP Project.
978-1-7281-1334-0/19/$31.00 ©2019 IEEE
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Ebrahim Niknam
Gonbadekavoos Electricity Distribution Company
Golestan Province Electricity Distribution Company
Gonbadekavoos, Iran
ebrahim.niknam96@gmail.com
total net present cost and energy cost for sizing the components
of a stand-alone hybrid system including photovoltaic (PV), wind
turbine (WT), diesel generator (DG) and battery energy storage
system (BESS) is developed. A detailed techno-economic
analysis to obtain the cost-effective sizing of the microgrid
considering a yearly load growth over the project lifetime based
on HOMER PRO is proposed in [7]. With the aim of reducing
the consumption of non-renewable energy source and minimising
the operational cost of a hybrid system, technical and economic
analysis of a PV-natural gas hybrid power system by using
HOMER is investigated in [8]. In [9], domestic, industrial,
agricultural and base transceiver station load in a remote village
in South India was estimated and identified the optimal option for
renewable energy-based electrification and compared it with
conventional grid extension using HOMER software. By using
HOMER, potential implementation of hybrid system including
PV, WT, DG and BESS to determine the technical and economic
feasibility of the system based on different system configurations,
namely stand-alone DG system, hybrid PV-DG with and without
BESS, hybrid WT-DG with and without BESS are analysed in
[10]. Feasibility of a grid-independent system in the presence of
renewable and non-renewable energy sources (fossil fuels) based
on economic optimization by using the HOMER software as the
optimization tool for a medium-size hotel at Kish Island in Iran is
examined [11].
This paper deals with operation cost minimization of a local
MG including PV, WT, DG, combined heat and power (CHP)
and BESS based on HOMER optimization software and Time of
Use (TOU) pricing scheme. The main objective is obtaining
minimum operation cost by applying flexible ranges of regional
TOU pricing and considerable potential of solar and wind
resources in the geographic region of Gonbadekavoos in north-
eastern Iran. It is worth to note that sensitive analysis through
different energy prices with regards to TOU pricing scheme and
three periods of low, intermediate and peak loads in the network
was investigated. Applied regional TOU program reduces peak
load of the network and increases the integration rate of various
energy generation sources with optimum operating costs which
could finally optimize the operation cost of the MG.
The paper is organized as follows: HOMER software
architecture, optimization algorithm and cost analysis are
summarised in Section II; modelling, simulation and optimization
of domestic hybrid MG are presented in Section III; results of
numerical application in HOMER are reported in Section IV;
finally, conclusion is presented in Section V.
II. HOMER SOFTWARE
HOMER (Hybrid Optimization Model for Electric
Renewable) is an optimization tool for designing and performing
economic feasibility analysis of a hybrid power system.
Simulation, optimization and sensitivity analysis are three main
tasks which can be performed by HOMER to find the optimum
system configuration [12]. HOMER simulates, optimizes and
performs a sensitivity analysis on the hybrid MG system to
determine the optimal architecture, structure, size and control
strategy of the system for both stand-alone and grid-connected
applications [12], [13]. HOMER requires input data such as load
demand, power resources, power system component details and
costs, constraints, control strategy to perform the simulation,
optimization and sensitivity analysis and result optimal sizing,
total capital cost, TNPC, energy cost, capacity shortage and fuel
consumption as outputs.
Once the required input data are loaded into the HOMER
tool, it starts to model a system and determine technical
feasibility and life cycle cost of system for every hour of the year
in the simulation process. Possible configurations for a hybrid
power system based on Total Net Present Cost (TNPC) is
available at the end of simulation process [12]. The optimization
process starts after simulating the entire possible solutions of
hybrid power system configuration to compare different types of
system configuration from the lowest to the highest TNPC and
find the optimum system configuration. Since, the system
configuration based on TNPC is varied depending on the
sensitivity variables (e.g. global solar, windspeed and the price of
fuel) then HOMER can repeat the optimization process for every
selection of sensitivity variable for the hybrid renewable power
system. The optimal solution of hybrid renewable energy system
is referring to the lowest TNPC.
Total net present cost of the system, , which is also
known as life cycle cost is calculated by HOMER using (1)
where , is the total annual cost including the annualized
cost of system components, component replacement and
operations such as fuel system maintenance. is capital
recovery factor and given by (2), where and are the number
of years of the project (project lifetime) and the annual interest
rate for the project lifetime, respectively [12]. HOMER ranks
the system according to the NPC where the system with the
smallest NPC is given the highest ranking.
III. MODELING, SIMULATION AND OPTIMIZATION
This study has considered Gonbadekavoos industrial park as a
local grid-connected hybrid MG where is in the geographic
region of Gonbadekavoos in north-eastern Iran.
A. System Architecture
The proposed grid-connected hybrid MG model includes PV
and WT as renewable energy sources, DG and CHP along with
Thermal Load Controller (TLC) as back up energy sources,
BESS for storing energy and both electric and thermal loads.
Different system configurations based on combination of various
resources and components are modeled and evaluated to meet the
loads. The configuration which is referring to the lowest TNPC
with consideration of all system constraints is selected as an
optimal solution. The general schematic diagram of proposed
hybrid MG is shown in Fig. 1.
B. Load Profile
The load profile of proposed MG, Gonbadekavoos industrial
park, which represents the hourly pattern of electricity usage
during a day is applied as inputs in HOMER tool. The main part
of the load is linked to electricity usage of the industrial
machines which are operating in different factories of the
industrial park. The load is classified into electrical load and
thermal load where the electrical load is an electric demand and
the thermal load is the demand for heat. Daily electrical load
profile of proposed MG is presented in Fig. 2 (a). The average
value of load is 2511.9 kW and the peak load value is 7202.2
kW. Fig. 2 (b) depicts the daily profile of thermal load which is
controling by the TLC and connected to the AC line. The
average value of thermal load is 0.47 kW and peak value is 2.09
kW.

,
= (1)

(1 + )
= (2)
(1 + ) − 1 Fig. 1. General schematic diagram of proposed hybrid MG

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Fig. 2. Daily load profile: (a) electrical, (b) thermal
C. Solar Resource Data
Monthly average of daily solar irradiation and clearness
index of the studied region is applied as input data of renewable
sloar resource into HOMER simulation. Fig. 3 shows monthly
average of daily solar irradiation and clearness index for
Gonbadekavoos region which is obtained from an average of 22
years of NASA surface meteorology and solar database. The
scaled average annual of daily solar radiation and the average
clearness index in this region are 4.25 kWh/m2/day and 0.52,
respectively.
D. Wind Resource Data
Second available renewable resource of proposed hybrid MG
is wind. Monthly average of wind speed data for
Gonbadekavoos region at 50 m over the surface of earth which
is obtained from average of 10 years of NASA surface
meteorology and solar database is reported in Fig. 4. The scaled
annual average of wind speed is 4.84 m/s.
Fig. 3. Monthly average of daily solar irradiation and clearness index
Fig. 4. Monthly average of wind speed
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E. Fuel Price
The diesel and CHP generators are considered as a backup
component in the proposed MG. The diesel and natural gas price
for DG and CHP are input data for HOMER tool which are set
to 0.16 $/L and 0.04 $/m3 according to the cost of the diesel and
natural gas in Iran in 2017. The minimum load ratio considered
suitable for DG and CHP are 25% and 10%, respectively.
F. Electricity Price Tariff
To encourage consumers for changing the mode of electricity
consumption and avoiding the peak electricity consumption
TOU pricing is one of applicable energy tariffs in the power
system. In this study, the main grid energy price is considered
based on TOU tariff price and it is inserted as an input data into
HOMER tool. This tariff is defined for industrial loads available
in proposed MG and it may be suitable for customers who use
most of their electricity during off-peak times. Since the
assumed MG is a grid-connect microgrid then the price for
buying energy from the main grid and selling-back energy to the
grid for all three periods of time are considered. TOU tariff
periods and prices are reported in Fig. 5 and Table I,
respectively.
G. System Component
The proposed MG includes components where the
specifications of the modeled components are needing to use as
input into HOMER. Component’s properties are size, initial
capital cost, replacement cost, operation and maintenance
(O&M) cost and lifetime.
Fig. 5. TOU tariff periods
TABLE I. TOU PRICE TARIFF
Buy Price Sell-back Price
TOU Periods
($/kWh) ($/kWh)
On-peak 0.53 0.42
Part-Peak 0.40 0.32
Off-Peak 0.26 0.21
 Since the over production of electricity at the proposed MG shifts. According to the current electricity price scheme, utilizing
can be sold to the main grid then a grid is modeled in HOMER distributed generation sources except DG and CHP, due to the
and both annual buying and selling capacity of the MG is set in low price for fuel in Iran, are not economical solution. This study
HOMER as input data. The sensitivity variable of the study is considers possibility of using distributed generation sources
the energy price and the study evaluate different solutions based especially renewable sources by applying regional TOU pricing.
on applying various TOU energy price. Integration percentage of It is assumed that the MG utilize the its electricity production
different energy production resources in in the proposed MG with during the peak demand periods to minimize operation cost of
the sensitivity analysis of the current price and optimum price are MG and facilitate the sustainability of the main grid. During non-
considered. The inflation and discount rates are assumed 2% and peak hours, the electricity produced by MG will be sold to the
8%, respectively. main grid. The study evaluates different solutions to increase the
integration rate of energy producers according to the electricity
Different configuration of the system is developed by market strategy while the proposed time usage tariffs are based
HOMER based on applied input data and various size of on regional load studies and energy prices. Sensitivity analysis by
components and energy resources. HOMER tool finds the using different prices of electrical energy in the three periods of
optimum configuration of the hybrid MG by the minimum low, intermediate, peak load was investigated and the lowest
TNPC which includes initial, replacement and O&M costs. The operational cost based on optimum configuration of the hybrid
MG components, technical data and economical assumptions for MG by the minimum TNPC is determined. Fig.6 and Fig. 7
each component including size, initial, replacement, O&M costs display the integration percentage of power sources based on the
and life time are summarized in the Table II. current electricity price scheme and flexible regional TOU
scheme, respectively. By applying the current price scheme, CHP
TABLE II. PROPOSED MG COMPONENT INPUTS AND VARIABLES generator due to low price for natural gas in Iran is only operating
Capital Replacement O&M Life-
power source while by applying the optimum and flexible
Component Size
cost cost cost time regional TOU pricing scheme the renewable fraction for
2000 1072 1072 10 25 electricity production is increased to 11.3%.
PV
(kW) ($/kW) ($/kW) ($/year) years
3 831 831 8 20
WT
(kW) ($/kW) ($/kW) ($/year) years
1000 206.434 206.434 10 15000
DG
(kW) ($/kW) ($/kW) ($/hour) hours
200 10 7.5 0.01 40000
CHP
(kW) ($/kW) ($/kW) ($/hour) hours
200 200 200 0 20
TLC
(kW) ($/kW) ($/kW) ($/year) years
1000 241.287 241.287 2412 15
Battery Fig. 6. Energy production fraction of different energy sources based on the
(kWh) ($/kW) ($/kW) ($/year) years
2000 750 750 0 25 current electricity price tariffs
Inverter
(kW) ($/kW) ($/kW) ($/year) years
1000 15000 15000 368 25
MG (MW) $/Km $/Km $/Km years

IV. RESULTS
Simulations and optimizations results, and discussions
regarding the obtained results are reported in this section.
HOMER displays the optimal results based on minimum TNPC
by considering the above mentioned technical and economical Fig. 7. Energy production fraction of different energy sources based on the
assumptions (see Table II) and constraints which are set in optimum TOU price tariffs
HOMER as boundary conditions and restrictions. The project life
time is assumed as 25 years with 2% inflation rate and 8%
discount rate. Minimum load ratio suitable for DG (25%) and
CHP ( 10%) are considered while diesel and natural gas price for
DG and CHP are set to 0.16 $/L and 0.04 $/m3 according to the
cost of the diesel and natural gas in Iran in 2017.
Gonbadekavoos industrial park in north-eastern Iran is
assumed as grid-connected hybrid MG which is connected to a Fig. 8. Minimized total operating cost versus total capital cost of proposed MG
medium voltage (MV) network by means of a 40 MVA
transformer. The proposed MG includes industrial loads of
factories and buildings that are active for 24 hours and three

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 TABLE III. INTEGRATION PERCENTAGE OF POWER GENERATION SOURCES FOR BOTH CURRENT AND OPTIMUM PRICE SCHEMES
Sell Price Sell Price Sell Price Buy price Buy Price Buy Price Diesel Natural Generated Production
Energy Off-peak Part-peak On-peak Off-peak Part-peak On-peak Price Gas Price Energy Fraction
Source ($/kWh) ($/kWh) ($/kWh) ($/kWh) ($/kWh) ($/kWh) ($/L) ($/m3) (kWh) (%)
0.04 0.06 0.08 0.007 0.015 0.03 0 0
PV
0.21 0.32 0.42 0.26 0.40 0.53 4,227,499 18.6
0.04 0.06 0.08 0.007 0.015 0.03 0.04 1,168,200 5.31
CHP
0.21 0.32 0.42 0.026 0.40 0.53 0.04 1,752,000 7.70
0.04 0.06 0.08 0.007 0.015 0.03 0.16 0 0
DG
0.21 0.32 0.42 0.26 0.40 0.53 0.16 8,760,000 38.5
0.04 0.06 0.08 0.007 0.015 0.03 0 0
WT
0.21 0.32 0.42 0.26 0.40 0.53 4,259 0.0187
0.04 0.06 0.08 0.007 0.015 0.03 20,842,173 94.7
GRID
0.21 0.32 0.42 0.26 0.40 0.53 8,016,157 35.2
22,010,373 100
Sum
22,759,914 100

TABLE IV. MONTHLY SUMMARY OF PURCHASED AND SOLD ENERGY OF MG

Energy Energy Net Energy Peak Energy Demand
Duration Purchased Sold Purchased Demand Charges Charges
(kWh) (kWh) (kWh) (kW) ($) ($)
January 1,597,944 1,001 1,596,943 5,376 146,581.6 7,526.55
February 1,121,390 2,778 1,118,612 5,365 102,792.4 7,510.79
March 1,591,659 1,239 1,590,420 4,621 144,684.4 6,469.89
April 914,411 12,467 901,943 4,153 41,789.84 5,813.75
May 1,099,613 23,219 1,076,393 3,763 45,090.76 5,268.88
June 1,406,526 2,684 1,403,842 4,898 118,464.7 6,856.78
July 1,216,958 8,239 1,208,719 5,641 138,110.2 7,897.80
August 1,425,106 3,582 1,421,524 5,332 206,701.8 7,464.86
September 1,329,062 7,189 1,321,874 5,264 144,055.2 7,369.74
October 1,329,394 2,359 1,327,035 3,979 76,176.60 5,571.05
November 97,832 1,547 976,285 3,986 86,953.42 5,579.79
December 1,026,988 3,166 1,023,822 4,135 67,870.28 5,788.66
Year 15,036,882 69,469 14,967,413 5,641 1,319,271 79,118.53

Fig. 8 illustrates the total capital cost versus total operating cost
of MG where by applying optimum TOU pricing and increasing
the integration percentage of renewable sources the total
operating cost is reduces. Integration percentage of modeled
power generation sources including energy pricing details for
both buying and selling-back rates are presented in Table III.
The cost analysis of the MG is considered based on energy and
demand charges for different months of the year. Total energy
purchased and sold by MG in response to the peak demand are
reported in Table IV in more details. The results of the proposed
model in HOMER clearly explain the effect of using optimum
price scheme in order to utilize the renewable sources and
reduce the operation cost of the MG.
V. CONCLUSION
This paper presents operation cost minimization of a
domestic hybrid MG based on applying optimal TOU pricing
scheme and increasing the integration rate of energy generating
units specifically renewable energy fraction. Higher RES
integration into the proposed MG facilitate to optimally manage
the energy demand specifically during the peak demand hours
and consequently reducing the cost of energy consumptions.
Besides, it helps to obtain more environmental-friendly energy
system. In this study, Gonbadekavoos industrial park mainly
including industrial loads is proposed as a MG and simulated by
using HOMER software. Based on using current electricity price

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scheme, integration of RES is not possible and RES fraction is
zero. So, applying regional TOU pricing scheme with the aim of
increasing integration of renewable energy sources to achieve
the optimal operation cost for proposed MG is considered.
Configuration of different energy sources was modeled by
HOMER and the best configuration which offers the lowest
TNPC selected as the optimal output. The real load profile of the
Gonbadekavoos industrial park, diesel and natural gas price
among with solar and wind sources data are modelled as input
data for HOMER. The obtained results show the significant
increase of renewable energy fraction and minimized operating
cost for the proposed MG which proves the effect of energy
price management to enhance the renewable energy integration
into the grid.
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