Affordable renewable electricity has arrived: what next?

By on 17/07/2018
Accelerating change: with renewables generation going well, civil servants must now look to policy change in fields such as transport and distribution (Image courtesy: Lundberg/Flickr).

Last year, global investment and installation in renewable electricity supplies overtook their fossil fuel predecessors. But as electricity market policy makers celebrate, their colleagues across fields such as planning, transport and economic development must capitalise on their colleagues’ success – shifting new economic sectors from dependence on oil, gas and coal to green electricity supplies. Catherine Early considers the implications for civil servants across government

Renewable energy technology has undergone a rapid transformation, from niche and expensive to mature and reliable – repeatedly surpassing predictions on both cost reductions and growth in deployment. Financial investment in new renewable energy overtook that of fossil fuels in 2017, while more renewable technology is now built than any other form of energy generation.

So is that ‘job done’ for the civil servants who develop and manage energy policy? Far from it. For whilst renewable energy can now be installed and supplied economically, the shift to environmentally sustainable economies demands much more than a like-for-like replacement of fossil fuel electricity with renewable alternatives.

For one thing, renewable energy sources demand changes to the ways in which energy is stored and distributed – addressing the way that generation varies with environmental conditions, for example, and supporting some renewables’ tendency to favour smaller local suppliers. Just as importantly, most of the world’s heating and transport systems are still powered by fossil fuels: if these are to shift to renewable sources, wider policy changes will be required in fields such as construction, planning, transport infrastructure and public transport.

Given success on these fronts, the fossil fuel industry – and thus the local economies that depend on traditional energy businesses – will face major challenges. Should governments be preparing to help companies and communities to reshape themselves, thus minimising political opposition and economic stagnation? And then there’s nuclear: how does that fit into the picture?

A success story

Some years ago, most developed world governments realised the potential for renewable energy to tick multiple policy boxes ­– including mitigating climate change, reducing air pollution, strengthening energy security and system resilience, maximising investment revenues, creating jobs, and increasing access to affordable and reliable energy supplies.

As a result, they introduced policies designed to boost the development and installation of renewables technologies. These policies have included feed-in tariffs and premiums, renewable portfolio standards, regulatory mandates, building codes, and direct financial or fiscal support policies. Nearly all countries now have at least one renewable energy target, and the number of countries promoting renewables through direct policy support has tripled from 48 in 2004 to at least 147 in 2017, according to a report from the International Renewable Energy Agency (IRENA).

Wind turbines and solar panels can now be found in more than 170 countries around the world, with innovation in other technologies such as wave, tidal and even kite power underway. And increasing investment, mass production and government support have produced sharp falls in the cost of renewable energy – making it cost-competitive with nuclear and fossil fuels in many countries.

Data published in March by analysts at Bloomberg New Energy Finance (BNEF) found that the benchmark global cost of onshore wind – taking into account everything from equipment, construction and financing costs to operation and maintenance expenses and average running hours – was US$55 per megawatt-hour, down 18% from the first six months of last year. The equivalent for solar photovoltaics is US$70/MWh, a decline of 18% over the same timeframe. Offshore wind has reduced by 5% to US$118/MWh.

Time to end support?

This trend has led some governments to reign in direct subsidy support in recent years, including the UK, France and Germany. China is the latest to follow suit, with cuts to subsidies for solar and biomass power announced in June. But most commentators agree that some sort of subsidy is still needed for renewable energy.

Lord Deben, former UK environment secretary and now chair of government advisory body the Committee on Climate Change, says: “There will come a point – and it’s not far off – that some renewables will not need subsidies. But at the moment, you need the structure [that subsidies provide], otherwise you don’t have the opportunity for a range of renewable energy coming in, as some technologies still need subsidy.”

Emanuele Bianco, associate programme officer at IRENA, says that, despite the huge growth and falling cost of renewable energy, technologies have not yet reached their full potential, and still need dedicated policies and support to face the competition from fossil fuels.

The auctions model

The form of support offered to renewables providers is changing, however. From direct subsidies, many countries are moving to competitive auctions – particularly for large projects. In an auction, renewable energy operators bid for government contracts to provide energy, allowing prices to reflect the falling cost of technology.

Auctions were held in 34 countries in 2016 – twice as many as the previous year, according to IRENA. Countries running auctions include the UK, Brazil, Chile, Mexico and South Africa. The auction process is widely regarded as driving costs down even further.

“By having an auction, you can ensure that the public purse is spending the least that it need to spend,” says Deben.

Stephen Munro, editor of BNEF, says: “The move away from direct subsidies to auctioning is an evolutionary step that responds to the tendency for subsidies to distort the market.

“Countries where we’ve seen auctions employed have demonstrated that they can be successful in contracting the amount of green energy they sought.”

However, he adds, there is a question mark over whether the contracts signed as a result of the auction will be fulfilled at the record low prices promised by the winning bidders.

“It’s not over until the electrons are flowing. We’ve seen small levels of deployment, but we’re not ready to pronounce the auction prices to be truly market consistent until we see greater build out,” he says.

Reshaping the grid

And it’s not enough to simply get those environmentally-friendly electrons flowing: renewable technologies demand a more flexible grid, and the development of storage systems that allow the scale-up of variable renewable generation from wind turbines or solar PV panels, says Bianco.

“Storage can provide flexibility in integration of renewable energy,” he says. And supporting these necessary changes in our energy infrastructures demands changes to the ways in which grids are regulated and managed.

The cost of battery storage has undergone a similar contraction to that of renewable energy, with lithium-ion batteries 79% cheaper than in 2010, according to BNEF. Battery storage is now starting to compete with more traditional forms of grid balancing such as open-cycle gas plants and pumped hydro, the analysts say.

However, Bianco cautions that battery storage is just one of many solutions for balancing energy distribution. Alternative methods already exist, such as demand side management. And other aspects of the power system can be fixed to assist the integration of renewable energy: ‘grid codes’, for example, which provide technical requirements for power plants when connecting to a country’s grid, should be constantly updated to allow the smooth deployment of solar PV and wind, he says.

“This is something that most countries are trying to face up to, but it’s more difficult in those that have got a longstanding grid that was suitable in the 1920s, such as the UK,” he says.

Deben agrees that distribution methods need to catch up with the evolution of renewable energy. The days of centralised generation from a few large plants driven by coal have been replaced by decentralised energy from many small generators, he points out.

Breaking the grid locks

Antony Froggatt, senior research fellow at international think tank Chatham House, points out that policy makers will have to consider seasonal variability of renewable energy. “Batteries are good for daily or weekly storage, but you start to have problems with seasonal storage,” he says. Solutions could include converting electricity to hydrogen, or even transporting electricity between regions.

“We really don’t know yet what other storage technology will develop – large-scale movement of electricity is possible, but there are intergovernmental issues around how you operate grids,” he adds.

Munro reports that, in the US, transmission regulator the Federal Energy Regulatory Commission (FERC), has indicated that it intends to make grid operators look beyond simple generation issues when it is planning grid operations. However, this focus was largely the result of initiatives by former president Barack Obama, he says. “It remains to be seen how far FERC will continue to emphasis non-generation technology under Trump,” he says.

Energy end users

Beyond these issues around reshaping energy distribution and storage, civil service policymakers across broad swathes of government will need to consider how to realise the benefits of renewable energy generation in sectors currently heavily dependent on fossil fuels. For many experts agree that policy governing the end use of energy has not caught up with the renewables revolution.

Support for the deployment of renewables is focused “overwhelmingly” on power generation, according to IRENA: whilst over 120 countries have renewable power policies, only half that number have renewable transport policies – and only one sixth as many have policies on renewable heat and cooling.

This is despite the fact that heating is the largest end user of energy, accounting for more than 50% of total final energy consumption in 2015 – with more than 70% of that met by fossil fuels. Transport is the second largest end use sector, accounting for 29% of total final energy consumption in 2015, with 96% coming from petroleum products.

“Abundant renewable energy will create opportunities to replace fossil fuels with electrified heating and transport. But these options will raise new questions related to the design of the energy sector and governments will need proper strategies to manage new loads,” says Bianco.

From renewable electricity to renewable energy

A failure by governments to link energy policy with end users causes contradictions, Bianco points out. For example, China is strongly promoting electric vehicles (EVs), but two-thirds of its electricity comes from coal. “Energy systems should evolve in a holistic way, creating linkages between sectors,” he says.

The impact of worldwide growth of EVs on energy systems is often given as an example of where policymakers need to think across systems. A study by think tank the Green Alliance found that as few as six closely located vehicles charging together at peak time could lead to local brownouts. Strategies need to be developed to manage the demand on the grid.

The study gives an example of how not to do this. In Norway, which has the highest per capita penetration of all-electric cars globally – at more than 100,000 for its population of 5.2 million – the network owner threatened to charge customers to pay for network reinforcement costs if they used fast charging units for their cars.

In contrast, Texas dealt with volatility in the grid caused by a rise in small-scale renewables by pioneering a mechanism to increase the stability of the system. Known as Fast Frequency Response, this rewards electricity sources – including battery storage and EVs – that can respond immediately to a signal sent by the grid and provide energy for at least ten minutes. This was successful in reducing frequency changes if there was a sudden loss of power to the grid.

Transition for the fossil fuel burners

The impact of the energy transition on the fossil fuel sector is “chilling”, BNEF says. Existing coal and gas power stations will continue to have a role in generation and balancing for many years, but the economic case for building new capacity is crumbling, it says.

There is a question for governments over whether they should support fossil fuel companies to help them prepare for declining demand. “Government should engage all actors in the energy transition, including the fossil fuel industry,” Bianco believes. Retraining the workforce is important, he says: for example, workers constructing structures for offshore oil and gas could work in the construction of offshore wind turbines. “Governments need to minimise social economic disruption and promote programmes to maximise the benefits of the transition,” he believes. There are obvious implications for the civil servants working in fields such as skills and training, economic development and urban regeneration.

Deben, however, believes the fossil fuel companies have the resources to deal with the issue themselves. “They have to wake up to the new position – some of them have, and some of them haven’t. It’s up to these very large and very rich companies to recognise when their markets are changing – that’s what they’re supposed to do in a capitalist society,” he says.

There may be instances where government could partner with the sector on particular projects, such as carbon capture and storage technology, but in general “the boot is on its foot”, he adds.

Nuclear decay?

As for nuclear, analysts are sceptical as to what extent countries that have committed to building more nuclear plants will follow through, reports BNEF’s Munro – primarily due to the falling cost of renewable energy. This includes China, but also Saudi Arabia, which has missed a number of deadlines it set itself for contracting.

“Nuclear is very expensive to build in comparison to natural gas and renewable energy. It just really is not an economical option,” says Munro.

Froggatt says that some countries will continue to build nuclear plants; but unless there is a significant number, production costs will not fall. Delays to nuclear projects have seen solar become much more attractive, he says.

“Hinkley Point nuclear power station in the UK was first discussed 20 years ago. Now it’s significantly more expensive than renewable energy, because its price has gone up while that of renewable energy has fallen. Ten years ago, not many people would have thought that would happen,” he says.

Widening the discussion

Deben says that nuclear still has a part to play to provide baseload in the medium term until other technologies such as interconnectors between countries and marine technologies could take over.

“But it’s an industry that hasn’t starred in producing electricity on time and to budget. The enormous cost of nuclear energy compared with wind is really serious. I’m not sure if small modular reactors have a strong case, but we’ll watch that space. It will come to a point where governments need to make a decision on that,” he says.

This will be one of many decisions faced by policy makers as civil servants look beyond the first step in cleaning up the world’s energy supplies: that of replacing existing electricity generation capacity with renewable alternatives. For our energy systems, built up around fossil fuels over hundreds of years, require much more change than simply ditching old power stations and plugging in new renewables suppliers. Governments have succeeded in fostering the technological developments, investments and market changes required to bring down the cost of green electricity. Now they must begin the task of reshaping grids and replacing fossil fuels in other economic sectors.

As so often, the consequence of policy success for the world’s civil servants is a new set of challenges. But their success in getting this far should give us confidence in their ability to take the next steps – protecting our environment and improving the lives of citizens around the globe.

About Catherine Early

Catherine Early is a journalist and editor specialising in government policy and regulation. She writes predominantly about environmental issues and has worked for the Environmentalist, the ENDS Report, Planning magazine and Windpower Monthly, and also written for the Guardian, the Ecologist and China Dialogue.

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