Green is king
Wind and solar are leading a renewables revolution, but they'll need some help too along the way
In virtually every global market, renewable energy is now the preferred choice for new power generation. Populist politicians and resources lobby groups can try to stem the tide, but they can't reverse the cost curves.
Climate and sustainability goals are now secondary drivers as renewable energy keeps proving to be the lowest-cost option. When it is cheaper in Saudi Arabia to use solar power than burn oil or gas you realise how far the technology has progressed. We have been so absorbed by the sustained cost reductions in solar it has been easy to overlook what the wind industry has done. The ability to extract higher production from low-wind-speed sites has dramatically increased the number of economically viable sites globally and opened up new markets. In 2017, the fall in the price of offshore wind caught everyone by surprise. Asia-Pacific is the new hotspot for offshore wind and will help countries like Taiwan and Korea become more energy independent.
It is no longer a question of how but when. And that brings us to the question of who allies themselves with the new king.
Wind and solar can't provide all our energy needs without some help. Offshore wind will provide systems with energy from more reliable supply than onshore wind due to the predictability of the resource. But even the North Sea is smooth sometimes. Ørsted's (formerly Dong Energy) move to install battery storage systems on existing offshore-wind projects is a glimpse into the offshore hubs of the future.
The good news is that there are a lot of potential allies for the king and in many cases their future is now inextricably linked to the king's.
In last year's contribution to this book, "Forward March", I stressed the need for renewable energy to become more system-aligned. My catch-cry for a few years has been "No more dumb renewables". By this I mean that renewable-energy producers need to address their impact on the system. In 2018, it seems there will be many more viable and affordable options for integrating renewable-energy resources into existing and new systems.
Options are varied and we will be blending together new and proven technologies. These include battery storage, pumped-storage hydro, desalination, natural gas peakers, concentrated solar power (CSP), power-to-gas, biomass and biofuels, geothermal, interconnectors, demand response, blockchain peer-to-peer trading and electric vehicles.
Green gas looks like it could become one of the king's closest allies. The production of gas from renewable sources has gained considerable support from established energy companies like Shell and Engie (which signed a green-gases partnership with Total in November), as well as vehicle makers and industrial gas firms. The cost curve for green gas hasn't yet been proven, but when you couple industrial-scale production of electrolysers with ever-increasing amounts of cheap wind and solar production we predict it won't be long before green hydrogen gas is competitive with piped and liquefied natural gas.
One of the issues we are already facing in markets with high levels of penetration is curtailment. I believe that business models will be designed around capturing value from curtailed output through "power-to-green gas". It looks to me like a natural hedge for gas-pipeline operators.
There are multiple choices and it is up to consumers, governments and other stakeholders to make the right choices for their own situation.
Access to affordable and reliable energy has been at the heart of industrial development. Without coal and then oil and gas the industrial revolutions would have proceeded at a very different pace. Nuclear energy played its part in driving economies forward in the mid-to-late 20th century.
The new order is different. Renewable-energy resources are diffused around the world. We no longer need to rely on areas that happen to be rich in fossil fuels. This gives us the opportunity to spread the wealth across broader areas and take a different approach to energy security.
If we get this right, the available energy sources are inexhaustible and we won't have ghost towns when the supplies run out and everyone moves on to the next hotspot.
If we are clever, we can regenerate and repurpose existing energy-production sites. A good example is Port Augusta in South Australia. An ageing coal-fired power plant has been shut down and replaced with "new energy"—a hub that includes Australia's first significant CSP project and several large-scale solar-PV installations together with wind, pumped storage-hydro and battery storage. Global companies like Enel, Solar Reserve and Dutch Infrastructure Fund have invested in South Australia for the first time.
I believe the most important factor in the choices facing us is the "J rate". You may have heard about the "C rate". This is a key metric for batteries, measuring the number of charges over megawatt hours. The J rate is our invention and measures jobs over MWh. Very simply, when you have a choice about your future energy mix you should take into account the jobs created for each MWh delivered to the system. Big infrastructure-like projects, such as pumped-storage hydro and interconnectors, may offer more long-term jobs per MWh than other options. I may sound like a Luddite to technology buffs, but understanding these choices must be a good thing. We need a mix of different solutions which deliver us energy when we need it at the same time as providing a wide range of exciting careers for generations to come. My kids worry about climate change. They also worry about what they'll do when they grow up.
And finally, my big predictions for 2018:
- Trusted old brands are just old. Expect more major energy companies to shed their brands and choose new names which have no connection with their roots in the industry.
- Hydro makes a comeback as the preferred energy source for major industry. Once upon a time, large energy users were located close to hydro resources. Industry will move away from its dependence on cheap fossil fuels for power and heat and relocate back where there are abundant untapped hydro resources. Watch for new large hydro projects with associated industry in Canada, Latin America, Southeast Asia and Africa.
- ReAl, ReSteel, Re...everything. Corporates are driving behaviour across supply chains. Buyers are offering a premium for products which meet their supply-chain criteria. Data centres (essentially data wrapped in electricity) and electrified transport help drive growth in renewable-energy uptake.
- Electrification rates soar. In some cases this will be driven by fuel switching but largely this is due to solar PV accelerating electrification in rural and energy-poor communities around the developing world.
Simon Currie is Partner and Global Head of Energy at Norton Rose Fulbright
This article is part of Outlook 2018, our annual book looking at energy market trends for the year ahead. To purchase a copy, click here