As seen in my previous blog, the move towards renewable energy is inevitable and good for the planet. However, the other side to this move is the challenge it poses to network operators today.
Renewable energy is less schedulable and its supply into the electricity grid is more intermittent than traditional forms of energy. So there is an uncertainty in the supply. In addition, when a massive shift occurs from centralized large generation plants to smaller localized renewable units, the grid itself needs to be re-designed and re-built. This adds to grid costs. It is estimated that once there is more than 30-40% of intermittent supply, grid management solutions become very expensive.
This increase in renewable energy in the mix also means instability in the wholesale markets. Since renewable energy is less expensive to run (if you don’t take into account capital costs), plants having significant fuel costs like coal and gas, are lying idle for longer and becoming uncompetitive. As a consequence, these plants are closing down. Combined with decreasing oil prices over 2015 and early 2016, it has meant wholesale prices have been pushed down to very low levels.
With governments subsidizing renewable energy, and shielding large energy consuming industries from taxes that pay for these subsidies, residential consumers and small businesses are bearing the brunt. Retail prices have risen.
With the increase in renewable energy in the electricity mix, and the closure of coal and gas plants, the security of long term energy supply is threatened. Think of high demand winter days when there is little wind and sun to produce renewable energy, and coal and gas are no longer available because of shut plants.
The European Energy Markets Observatory (EEMO), 2016, considers all these aspects of the energy markets, and more. It concludes that there are a number of areas that need to be addressed rapidly. These include:
- Investments in battery storage technologies, that can help store renewable energy in the grid
- Demand Response mechanisms that can match demand to supply (higher prices when supply is low, for example)
- Creating capacity markets to encourage investment in new capacity, so that energy supply is not threatened
- Market reforms to ensure that energy markets have meaningful prices
These are interesting times for the energy markets. If you are interested in knowing more, you should download the copy of EEMO 2016 here: https://www.capgemini.com/experts/thought-leadership/european-energy-markets-observatory-18th-edition