“It is no longer a matter of if the disruption of energy by solar, wind, and batteries will happen, it is only a matter of when.” This statement of the RethinkX report ‘Rethinking Energy 2020-2030’ will likely be viewed skeptically by operators of conventional power plants. The report describes a future of 100% sustainable energy generation that consists mostly of solar and wind farms with the proper battery storage to guarantee energy supply when the sun is not shining and the wind is not blowing sufficiently. Based on various case studies, the report sets out to prove that this system is not only both technically possible and economically feasible, it would also produce vast amounts of excess power (beyond current demand) at near zero marginal cost for a wide range of applications, such as electrification of transport and heating, water desalination and treatment, industrial processing and manufacturing, carbon removal, and last but not least manufacturing of solar panels, wind turbines, and batteries themselves.
But where the report intentionally doesn't go into detail is sketching out the path to reach 100% renewable energy, as this can’t possibly be predicted due to all the complexity stemming from policy changes over innovation in technology to macro-economic factors. In this article we take a look at the utopian goals outlined in the report and compare them with the quite different views of the mainstream energy industry to understand how they could differ so drastically. At the same time we consider a major challenge that stands between now and a 100% sustainable future and why conventional energy systems are still not entirely obsolete - at least not for the time being.
Renewable disruption by decentralization
Until now most of us have not even spared a thought to what would happen if any power outage lasted more than a few hours or a couple of days. But the uncertainty of the Covid crisis taught us to be aware of worst-case scenarios in many regards. When systems are in danger of collapsing, especially when it concerns systems as essential as the health system or the labour market, it surely also has an impact on the way we think about energy security. Not least since a hacker attack on the large US pipeline and other recent electricity blackouts, we now feel that we need energy generation to be in our control. This leads to a strong bias towards decentralized energy systems and a step away from the central power plant that transmits its energy to distant regions at high voltages.
A need for security of supply boosts the popularity of renewable energy sources with which the path from generation to consumption can be shortened, leading to a more decentralized power supply from the local solar or wind park. Renewables have grown exponentially the last couple of years and according to think tank Ember, now make up 38% of Europe's energy supply. Despite the pandemic, IRENA reports that more than 260GW of renewable energy capacity was added globally in 2020, beating the previous record by almost 50%. More than 80% of all new electricity capacity added in 2020 was renewable, and with the USA and China on the forefront of the expansion, solar and wind accounted for 91% of new installations. Is this already the rapid disruption by renewables towards 100% sustainability?
Trouble on the horizon - or just a different perspective?
Not so fast, says the International Energy Agency, which estimates the combined share of coal, gas and nuclear power plants to only shrink to an estimated 55% by 2040. What causes the discrepancy of these industry experts, you might ask? First of all, let’s think about what a 100% renewable energy mix could look like. In their “clean energy U-curve”, RethinkX points out that a variety of mixes of generation and storage could theoretically meet the goal of a fully renewable energy supply. The view from the traditional energy industry (top left in the graph) is that it would require a huge amount of expensive batteries, resulting in a high total capital expenditure. Alternatively, the goal could be achieved with a massive build-out of wind and solar and a relatively small amount of battery power (top right in the graph). This, however, would also be quite expensive in terms of capex. RethinkX has determined that the optimum balance between generation and storage lies somewhere in the middle; the exact point varies from location to location based on weather and other factors. However, it is always considerably less expensive than either of the two extremes.
In the end, it’s largely a matter of perspective. While RethinkX is picturing an ideal world where by pure logic, politics will push for sustainable technologies as soon as they are technically and economically feasible, the International Energy Agency takes a more conservative approach, giving renewables far less clout. In theory, the integration of renewables will cause the grid to be more decentralized and safer against outages and blackouts. But at the same time, a higher share of renewables without battery storage could cause more grid instabilities, which again could lead to inefficiencies, local outages or even widespread blackouts.
Lack of battery storage could disrupt the dream
The RethinkX report states that the SWB (solar, wind and battery) disruption of energy will closely parallel the digital disruption of information technology. It predicts that renewables will sweep away conventional energy sources at a high pace and run them out of business in the upcoming decade. All based on forecasting with lower future costs rather than the current costs combined with capital cost improvements in the areas concerning solar, onshore wind and lithium-ion batteries. Similarly, another report from RethinkX (‘The Great Stranding’), assumes that in the next decades conventional power plants won’t be able to sell the same volume of electricity as they do today. Competitive pressure from SWB will cause electricity prices to drop sharply in the next few years. As they won’t be able to sell their electricity at the high prices that covered their costs in the past, conventional energy sources will have a hard time staying marketable.
But, as always, the devil is in the details. In regards to battery storage, there has been a boost in innovation in terms of service life and recycling. However, the production of the batteries, in addition to lithium, consumes vast quantities of rare earths, the mining of which takes place under ecologically questionable conditions. So if sustainability is the major concern for the energy transition, these factors also need to be taken into account. Should battery storage systems not take off on a large scale, it could (among other things) mean that the integration of renewable energy sources will be saturated at a certain share within the energy system. This is because a lack of battery storage could result in a shortage of crucial flexibility, which needs to be deployed to keep up energy supply during periods of low energy generation from the wind and solar parks.
The degree of flexibility of a power system is defined by how quickly it can adapt generation or usage in response to external forces. As you can imagine, renewables have a low flexibility capacity, as their energy generation heavily depends on fluctuating environmental conditions like the wind and sun, and therefore they cannot simply produce more energy on cue. An energy system that partly consists of renewable energy sources needs to handle this energy fluctuation by balancing it with other flexibilities. So having more renewables also means more demand for precious flexibility.
Due to the unsustainable nature of the resources they consume, conventional thermal power plants get a lot of bad press. But with a share of more than 70% of total capacity generating almost 5000 GW, they still remain the backbone of today’s energy market. With this huge flexibility potential, they will play a role in future energy markets.
Some conventional capacity may remain
The RethinkX report assumes that 100% sustainable energy generation is definitely possible. It seems that in their predictions on the energy transition, decision makers in the energy industry may have been too conservative. Could stronger willpower from policymakers and the industry alike accelerate the timetable, with a shift towards renewables faster than previously thought?
Until the 100% renewables dream becomes reality, conventional power plants could run at a lower capacity and provide crucial flexibility by marketing the majority of their capacity on the intraday market. This way they can offer valuable energy in times when renewable energy sources aren’t able to provide sufficient electricity, and are therefore able to stay competitive without relying on government subsidies. Until battery storage is able to provide sufficient flexibility, conventional power plants are needed to integrate renewable energy sources, so their days may still not be numbered. It is not so clear that conventionals will vanish entirely anytime soon. If it could realistically take decades, then there are still some business models to be upheld with these power assets, which can play a positive role on the way to a 100% sustainable energy generation.
Getting started with intraday trading
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