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Renewables looks to find the right balance

The adoption of wind and solar is growing rapidly. But can the technology overcome its current limitations?

Wind and solar renewables are booming. As technologies improve, costs are falling and governments, to varying degrees of financial assistance and orderly planning, are helping to support capacity expansions.

But two fundamental challenges remain. Wind and solar generation are inherently intermittent, requiring either storage or back-up thermal generation, or realistically both. And, even with ever improving economics and stellar power demand prospects, the entry of yet more renewables capacity into existing markets requires a coherent policy framework—whether in a centrally planned, monopolistic market structure or a liberalised environment.

Battery storage is improving, but scale is still limited. UK independent energy firm Statera's Pelham site is one of the country's largest facilities; but its capacity is just below 50 megawatts, compared to the 400MW standard for a modern combined cycle gas turbine (CCGT) unit. In the short-to-medium term, thermal capacity will be the main back-up to intermittent renewables.

In a study of the Dutch market, consultancy McKinsey estimates that if the Netherlands hit its 49% emissions reduction target in 2030, 14 terawatt hours of flexible carbon-neutral thermal generation would be required to meet 20% of annual demand, backing up 90TWh, or 60% of demand, from wind and solar, with the other 20% from legacy gas-fired capacity.

Nuclear faces challenges

Nuclear and biomass, mainly wood pellets, provide existing carbon-neutral thermal options, but both are controversial. Nuclear has challenges around waste storage, decommissioning liabilities and uranium proliferation. Delays and cost overruns have dogged high-profile projects in France and Finland. Biomass faces question marks around sustainable sourcing, crucial for an industry whose carbon-neutral boasts rest on at least matching CO2 volumes released by combustion through absorption from additional planting.

CCGTs, which can switch on and off and raise or lower their output quickly, are the consensus view best short-term partner for renewables. But the gas industry recognises that, if it's not simply to be a "bridge fuel", it must pivot from lower carbon than coal or oil to carbon-neutral, which means carbon capture and storage (CCS).

Other than in Norway, where the first large scale CCS project was built at the Sleipner gas field in 1996, progress on CCS has been limited in Europe, with the UK, for example, nixing an investment competition in 2015. Policymakers in countries such as the UK and the Netherlands are, though, currently revisiting potential CCS support.

Alternative option

The main alternative at scale to gas plus CCS is hydrogen, which can replace gas in CCGTs and is carbon-neutral if produced from surplus renewables. Electrolysis costs are falling, but the process is energy-intensive and it will take time before there's enough surplus renewable output available to make significant volumes of this "green" hydrogen. The alternative is "blue" hydrogen—hydrogen produced from natural gas, where the waste CO2 must be captured and sequestrated.

Hydrogen is also an option in the heating market, where it may be more cost-effective to explore a hybrid hydrogen-electrification model rather than full electrification. The UK is just one country looking to set a long-term strategy for space heating as part of a wider Clean Growth programme.

Government involvement, in this case the UK's department for business, energy and industrial strategy, emphasises that policy, as well as market mechanisms, must play a role in the move towards zero-carbon generation. Power demand will rise through increasing electrification of the transport and space heating sectors in developed countries, and from economic growth in the developed world; ageing thermal (and earliest generation renewable) capacity will retire; and legislation can be enacted that allows only transition and zero-carbon solutions to fill the gap.

In theory, the market price would rise to incentivise the required capacity replacement and expansion process in liberalised markets, while central planning would play the same role in countries where state-controlled monopolies provide the power.

Politics and economics

Capital is sunk into existing and potentially obsolete assets with the promise and, in some cases the guarantee, of a return. And while all energy supply infrastructure necessarily suffers from the paradox that its very arrival erodes the economics of both its own existence and future investments, zero fuel input cost generating capacity is particularly destructive. A web of legislation, regulation, carbon cap-and-trade and wholesale electricity trading schemes and investment incentives on regional, national and supra-national levels also encourage different, and sometimes contradictory, outcomes.

Politics as well as economics are at play. Bluntly, no politician is going to be forgiven for letting the lights go out or the internet go down, a culpability that will only increase as and when electricity's role in heating and mobility grows.

Neither the market nor the best formulated central plan can be guaranteed to provide the right capacity increments at the right time in the most efficient manner. And incumbent lobbies—now mainly thermal capacity owners but in the future also established renewables operators as technology progresses and existing assets age—will push their interests.

Thus, overcapacity and inefficiency may be the most likely result, although, at the very least localised supply crunches and black-outs shouldn't also be ruled out. What's certain is that the road will be bumpy, but the direction of travel is inexorable.

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