Making a swift transition in the energy sector
The rapid uptake of renewables, energy storage and electric vehicles is changing demand patterns for consumers, infrastructure needs and risk, says DNV GL Energy CEO Ditlev Engel
What surprises many in the energy industry is the speed at which change is taking place. In terms of rapid transition, no sector has been as surprising as renewables, where the pace of reduction in costs has seen wind and solar dominate new capacity additions in the power generation landscape over the last year. "Probably the biggest change that has occurred is that we have now moved into auctions, which has reduced the cost of energy," says Ditlev Engel, CEO of DNV GL's energy division. "Most people have been surprised by the speed of reduction in the cost of electricity from renewables—there seems to have been a number of times in 2017 where we have broken the world record for the cost of solar, onshore or offshore wind."
Improving economics, coupled with favourable low carbon policies, resulted in 161 GW of new renewable capacity (including wind, solar, hydro and biomass) being added in 2016, according to the International Renewable Energy Agency. This accounted for more than half of total global net capacity additions. Solar photovoltaic (PV) represented around 47% of the capacity added globally, followed by wind power at 34% and hydropower at 15.5%. The popularity of wind and solar power especially is understandable when considering the pace at which costs have plummeted, and Engel believes there is more to come. "If you look at the cost of produced energy, it's fair to say that neither solar nor wind—on or offshore—will ever be as expensive as it is right now." The rise of wind and solar can also be attributed to two other important factors. Firstly, wind and solar capacity can be added quickly if more is needed. Secondly, decommissioning costs are quite low and predictable. This means the technologies are attractive from both a generation and lifecycle point of view.
Engel further notes that the changing attitude of consumers to energy has a part to play. "The consumers and the business-to-consumer [sectors] are sometimes overlooked. We tend to believe that their preference is always [driven by] cost. If that were the case, Apple would not sell a single iPhone," he said, "This shows that there are other things that interest the consumer… what we are seeing in the electricity agenda is that the consumer's expectation and interest in how energy is being generated and consumed is changing. And this is also driving different behaviour."
A new approach
Yet the uptake of renewables is only part of the changing energy picture. At the same time the cost of batteries, essential for storing energy from intermittent renewable sources such as wind and solar, is also falling faster than expected. This, says, Engel is starting to drive a new approach. "The recent announcements we saw from Volvo and from France on electric vehicles puts pressure on the type of infrastructure that needs to be built in order to service that," says Engel. While an entirely different energy infrastructure is needed, Engel is careful to point out that the development of technology does not happen on an "entirely linear" basis. "Technology is moving at a speed that is sometimes a bit hard for us to comprehend as individuals. If you look at how fast things are digitalising, such as the smart meter rollout and storage, we are in the process of shaping a new system. Nobody is 100% sure of how it will pan out. "There are a number of races going on: a digital race, a battery race, a renewables race and a centralised versus decentralised race. The only certainty is that the wish to decarbonise is a common goal for most."
An eye on security
As all of these technologies become more widespread, Engel say it is crucial not to forget that energy security is all-important. "We have to remember that power is absolutely critical to society and therefore reliability, verification, testing and technical competence in building these new energy systems are still very important," he said. "As the way we generate energy changes, we have to remember that it is pivotal that society has to function well. The predictability and performance of an energy system is as important as it ever was." The energy industry, among others, was reminded of this with the global cyber-attacks seen just a few months ago. "As we make all these integrations and transform in the energy transition, it hasn't changed the fundamental DNA of a well-functioning energy system," adds Engel. "Energy security is now also about making sure someone is not disrupting it."
This article appears in the annual issue of World Energy Focus, the magazine of the World Energy Council, with content produced by Petroleum Economist. For more information and to read the annual in full, visit worldenergy.org.