More flexible, more renewable – our evolving energy systems are changing fast
Catherine Mitchell, IGov Team, 22 February 2016
There are two changes which are fundamentally altering both practice and mind-set within electricity systems around the world. The first is the rapid take-up of variable power renewables within a few countries or states. Denmark, Germany, Portugal, Spain, California, and Hawaii all derive 25 to 43 per cent of their electricity generation from variable renewables sources (primarily wind and solar).
The second change, building on the first, is a greater understanding of the value of flexibility for the secure operation of energy systems. This knowledge has transferred to other countries, even if they do not yet have high proportions of variable power.
As I argued in a recent article for Nature Energy, the next six years through to 2022 will see the continuation of this accelerating trend; the shift worldwide towards renewable, energy-efficient and flexible electricity systems.
Two technology-based changes are key to this transition. The first is falling costs of renewable electricity technologies, particularly offshore wind (30 per cent predicted drop over six years) and solar photovoltaics (over 50 per cent reduction in the last five years in the US and a 70 per cent drop since 2006 in Germany).
Second, better energy system control and integration technologies are enabling new operation of electricity systems via two-way electricity movement; interconnection (from the household through to regional markets and networks); domestic and commercial smart grid applications; and more flexibility options such as demand side response.
These technological changes have altered not only the costs of individual technologies but also the economics of energy systems in certain countries.
Zero marginal cost variable renewable electricity is displacing both fossil fuels and nuclear power within electricity markets and bringing down wholesale peak prices.
Grids respond to more variable renewable electricity technologies by becoming more flexible. Flexibility is a term which wraps up flexible generation (for example, hydro, open-cycle gas turbines, CHP), demand side response, storage and interconnectors. Flexible and integrated system operation delivers benefits by being more effective and economic than inflexible system operation.
In addition, if the cost of storage falls as rapidly as that of solar electricity (as some predict it will) then the fundamental characteristic of renewable electricity – that it cannot be stored cheaply – will disappear, and flexibility of system operation will further increase. At that point, system operation and the economics of energy – whether electricity, heat or transport – would fundamentally alter.
As a result of renewables displacing fossil fuels and reducing peak prices, wholesale electricity prices are coming down in those countries which have supported a high proportion of electricity from renewables. This benefits society, but in particular the vulnerable or fuel poor.
The impact of these changes on conventional utility models is notable. New ways of operating, with an emphasis on integration (of supply and demand) and flexibility, are challenging the conventional, top-down sales model and undermining its profitability. This increases investment uncertainty and risk in non-renewable, non-flexible resources.
This has led to falling utility profits and restructuring of some conventional utilities (for example, in Germany, Italy, Sweden, and Spain amongst others), as well as new electricity system operation, ownership and business models in those countries. Some go so far as to predict the end of conventional utilities as we know them.
Looking ahead, some countries or states will continue with business-as-usual within electricity and the world is still expected to be reliant on fossil fuels for the next few decades; energy systems are long-lived and have long lead times for change. However, these burgeoning electricity changes can be expected to spread across electricity systems around the world.
How fast and with what impacts on other energy sectors (such as heat and transport) or fuels (such as oil), is less certain. However, one possibility is that in the future most heat and transport will be fuelled by renewable electricity or from renewable resources.
Even though the discourse has changed in a welcome manner, it is still not sufficient. Governments need to back their policies and speed up the adoption of flexible, renewable and energy efficient technologies; governance needs to change further to enable this; companies need to alter their business models; and individuals and communities need to be able to take up opportunities for their local areas.
Because change is happening so fast in some countries, it is hard for decision-makers to keep up and enact policy based on best practice and evidence. Enabling this should also be made a priority.
Overall, the dominant global public policy discourse has shifted towards flexible electricity systems, and energy policy appears likely to be characterised over the next few decades as one of increasing momentum towards renewable electricity and energy efficiency across all energy sectors.
By 2022 the energy system will look substantially different to the one we have today. Businesses, investors and policymakers should prepare accordingly.
This article was written for Business Green (17th Feb 2016).