Myths of the
energy transition
The intermittency of renewables prevents an energy transition
Analyst Note
November, 2018
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About the Author
Kingsmill Bond – New Energy Strategist
Kingsmill Bond is the New Energy Strategist for Carbon Tracker, and part of the investor outreach team. His role is to communicate to investors the dramatic implications of the energy transition. He believes that this revolution is the most important driver of financial markets and geopolitics in the modern era.
Kingsmill has worked as a sell-side City equity analyst and strategist for over 20 years, including for Deutsche Bank, Troika Dialog and Citibank in London, Hong Kong and Moscow. He has written strategy on emerging markets and global themes, including the wider significance of the shale revolution. He worked for many years in Russia, which is the world’s largest exporter of fossil fuels, and deeply impacted by the transition.
Kingsmill has an MA in history from Cambridge University, trained as an accountant (CIMA), and is a Chartered Financial Analyst (CFA).
Readers are encouraged to reproduce material from Carbon Tracker reports for their own publications, as long as they are not being sold commercially. As copyright holder, Carbon Tracker requests due acknowledgement and a copy of the publication. For online use, we ask readers to link to the original resource on the Carbon Tracker website.
© Carbon Tracker 2018. MYTHS: RENEWABLE INTERMITTENCY 11/08/2018
Table of Contents
Key Findings ...... 1
The myth ...... 2
Why the myth is wrong ...... 2
3.1 The tipping point is much sooner ...... 2
3.2 Engineers can increase solar and wind supply to the tipping point and beyond . 4
3.3 Plenty of countries already have passed the tipping point ...... 8
3.4 The world itself is about to hit a tipping point ...... 9
Reality ...... 11
November 8, 2018
MYTHS: RENEWABLE INTERMITTENCY 11/08/2018
Key Findings
Myth 2: Given that the sun does not shine at night, and the wind does not always blow,
solar and wind will always play a small role in electricity provision, and there can be no energy transition.
Mythbusters
The tipping point is much sooner. You don’t need 100% renewables for there to be an energy transition. The tipping point for the existing electricity providers comes much sooner, when solar and wind provide under 15% of electricity supply.
The technology already exists to get to this tipping point. Electricity grids already handle a lot of variability. The IEA notes that it is possible to get to 15% solar and wind ‘quite easily’ by ‘upgrading some operational practices’. Better grid codes, better forecasting, better scheduling and so on are not capital intensive.
Plenty of countries have already passed the tipping point. From the US to Chile, Italy to Romania, the tipping point has been passed and the electricity transition has started.
Some nations are already in the next phase. Countries like Germany and the UK are
taking the solar and wind share to 25% and beyond. Solutions include: making existing power plants more flexible; enhancing the grid; demand side management; and selective use of new storage technologies.
Maximum integration levels keep increasing. Denmark has already gone beyond 50%, and aspires to 75%. New developments continue to expand the realms of what is possible. Examples include: lower battery costs and wider deployment; system integration with
transport and heat; the use of electricity to make hydrogen through electroysis.
The global tipping point will come in the 2020s. Solar and wind in 2017 supplied 6% of global electricity and are still growing at 20% a year. Assuming they remain on S curves of growth, global fossil fuel demand for electricity will peak in the early 2020s when solar and wind are 14% of global electricity supply.
Reality
The technology already exists to enable variable renewable sources to become large enough to kick off an energy transition in the electricity sector, in country after country.
Variability is simply an issue to be managed, not an insoluble impediment.
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MYTHS: RENEWABLE INTERMITTENCY 11/08/2018
The myth
It is no myth that the sun does not shine at night and the wind does not always blow. The myth is to use these undeniable facts to argue that solar and wind will always remain a small part of the mix and there will be no energy transition.
Examples
“Renewable energies such as sun, hydro or wind cannot cover more than 4% of our electricity consumption – even in the long run.” German power utilities joint statement Die Zeit, 1993.
“2% of wind generation does, however, pose an increased risk to the security and stability of the power system which the transmission system operator feels exceeds the level normally likely to be accepted by a prudent system operator.” ESB National Grid in a letter to the Irish Prime Minister’s office. The Irish Times, 2003.
Why the myth is wrong
We set out below why intermittency is no impediment to an energy transition. We review how transitions work, show how engineers keep raising the limits of the possible, give some examples of countries that have incorporated large amount of solar and wind, and calculate when the world itself will reach a tipping point.
3.1 The tipping point is much sooner You do not need 100% renewable energy in order to have an energy transition. An energy transition begins when demand for incumbent energy starts to fall. And as we pointed out in ‘Myths of the energy transition: renewables are too small to matter’1, this tends to happen when challenging technologies are still small but fast growing.
3.1.1 The theory As we laid out in the report ‘2020 Vision’2, there are four stages in an energy transition: innovation; peaking; rapid change; and endgame. The tipping point comes during the peaking phase, early in the process, when the market share of the challenger is well under 15%. The precise timing of the tipping point depends on the growth rate of electricity demand and of solar and wind supply, and so far has ranged from 2% in the case of the UK to 8% in the case of Ireland.
We illustrate this with regard to demand in a slow growing market.
1 ‘Myths of the energy transition: renewables too small to matter’. Carbon Tracker, 2018. Available at https://www.carbontracker.org/myths-of-the-transition-renewables-are-too-small/ 2 ‘2020 Vision: why you should see fossil fuel peak coming’. Carbon Tracker, 2018. Available at https://www.carbontracker.org/reports/2020-vision-why-you-should-see-the-fossil-fuel-peak-coming/
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MYTHS: RENEWABLE INTERMITTENCY 11/08/2018
FIGURE 1 - THE FINANCIAL MARKET PHASES OF CHANGE
Incumbent Challenger
Innovation Peaking Rapid change Endgame Unit sales
Time
Source: Carbon Tracker
3.1.2 The example of Denmark A good example of this process in action is Denmark. Demand for fossil fuels for electricity generation peaked in 1996 when solar and wind were 2% of electricity supply. Solar and wind supply is now higher than fossil fuel supply, meaning Denmark has entered into the endgame.
FIGURE 2 - DENMARK ELECTRICITY SUPPLY TWH
Solar and wind Fossil fuels
60
50
40
30
20
10
-
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: BP
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MYTHS: RENEWABLE INTERMITTENCY 11/08/2018
3.1.3 The example of Europe It would come as a surprise to any European utility company to be told that solar and wind did not have a major impact on their operations. European demand for fossil fuels peaked in 2007 when solar and wind had a market share of just 3%.
FIGURE 3 - EUROPEAN ELECTRICITY SUPPLY TWH
Fossil fuels Solar and wind
2,500
2,000
1,500
1,000
500
-
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: BP
3.1.4 The example of the US US demand for fossil fuels in electricity provision peaked when solar and wind had a market share of just 1%, in 2007.
FIGURE 4 - US ELECTRICITY SUPPLY TWH
Fossil fuels Solar and wind
3500 3000 2500 2000 1500 1000 500 0 200020012002200320042005200620072008200920102011201220132014201520162017
Source: BP
3.2 Engineers can increase solar and wind supply to the tipping point and beyond Engineers have come up with sufficient solutions to enable many countries to reach a tipping point where solar and wind supply is large enough to drive down fossil fuel supply. We set out below the framework of how this is done and provide some detail for each phase.
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MYTHS: RENEWABLE INTERMITTENCY 11/08/2018
3.2.1 The framework The IEA has written an excellent note for policymakers on the integration of solar and wind into the grid, and we summarise this below.3 They focus on the first four phases, but note there are two final ones which are also feasible.
• Phase 1. Under 3% solar and wind. There is no noticeable impact. • Phase 2. Up to 15% solar and wind. There is noticeable impact, but this can be managed ‘quite easily’ by ‘upgrading operational practices’. • Phase 3. Up to 25% solar and wind. This is where the first significant integration challenges are felt. It is key to focus on flexibility. The two main tools today are dispatchable power plants and the transmission grid, and increasing attention is being paid to demand side options and new storage technologies. • Phase 4. Up to 50% solar and wind. The challenges emerging at this stage are highly technical and focus on the stability of the power system. Nevertheless, they can be solved, and counties like Lithuania and Ireland are doing so. • Phase 5. Up to around 75% solar and wind. There is a structural surplus of solar and wind. It is necessary to electrify other end-use sectors to absorb it. Denmark is in this phase. • Phase 6. Getting to 100% solar and wind. This may require the conversion of electricity into chemical forms in order to offer inter-seasonal flexibility.
FIGURE 5 - THE IEA TRANSITION FRAMEWORK
Market share Solar and wind
100%
90%
80%
70%
60% Denmark 50%
40%
30% Ireland Germany 20% China 10% Russia 0% 0 1 2 3 4 5 6
Source: IEA, BP
The IEA helpfully summarises the challenges of the first four phases in the table on the next page.
3 The integration of solar and wind into the grid. IEA 2017. This note also serves to debunk a series of additional myths on the cost of integration of solar and wind.
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TABLE 1- THE IEA PHASES OF CHANGE
Phase One Phase Two Phase Three Phase Four
Characterisation Variable VRE capacity Flexibility becomes Stability becomes from a system Renewable becomes relevant with greater relevant. VRE perspective Energy (VRE) noticeable to the swings in the capacity covers capacity is not system operator supply/demand balance nearly 100% of relevant at the demand at certain all-system level times
Impacts on the No noticeable No significant rise Greater variability of net No power plants existing generator difference in uncertainty and load. Major differences in are running fleet between load variability of net operating patterns; around the clock; and net load load, but there are reduction of power all plants adjust small changes to plants running output to operating patterns continuously accommodate VRE of existing generators to accommodate VRE
Impacts on the Local grid Very likely to Significant changes in Requirement for grid condition near affect local grid power flow patterns grid-wide points of conditions; across the grid, driven reinforcement, connection, if transmission by weather condition at and improved any congestion is different locations; ability of the grid possible, driven by increased two-way to recover from shifting power flows between high and disturbances flows across the low voltage parts of the grid grid
Challenges depend Local Match between Availability of flexible Strength of mainly on conditions in demand and VRE resources system to the grid output withstand disturbances
Source: IEA. Getting wind and sun onto the grid. 2017
3.2.2 Variable renewables are not quite what you think It is worth pointing out that variable renewables are not the random energy source their detractors would have us believe.
• You can forecast renewable energy supply (insolation and wind speeds) with very considerable accuracy. • Over large areas, the variability of solar and wind often balances. Clouds come and go. • Solar and wind are naturally quite complementary. Windy days are rarely sunny. • Solar often shows strong correlation with energy demand. Many countries have peak energy demand in the middle of the day, when it is sunniest. • Typical capacity utilisation for solar is 10% to 20% and wind is 20% to 40%. Offshore wind can be as high as 60%. The coal sector has capacity utilisation of 50%-60%.
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MYTHS: RENEWABLE INTERMITTENCY 11/08/2018
3.2.3 How to get to phase 1 Electricity systems are built for fluctuations in supply and demand. For solar and wind to have a market share of around 3% requires very little change. Their variability is insignificant compared to that of overall electricity demand.
It is simply necessary to improve technical standards for the connection of solar and wind plants and to upgrade the grid code.
3.2.4 How to get to phase 2 For the share of solar and wind to rise to around 15% requires more changes, but they are more technical than capital. Amendments required include:
• Major improvements to the grid code • Management of grid congestion • Schedule and dispatch of non-VRE plants needs to take into account VRE generation • Improve the renewable energy forecasting system • Choose the right portfolio of VRE technologies • Site VRE technologies strategically in terms of geography, grid capacity, and demand centres • Expand the grid selectively • Make better use of grid infrastructure
3.2.5 How to get to phase 3 For solar and wind to move to 25% of total supply is more challenging, but feasible. It requires:
• More dynamic operation of existing power plants • More accurate VRE forecasts • Better handling of reverse flows from the low voltage grid up to transmission level • Increase links between adjacent power systems • More grid and more interconnections • Some additional local use of batteries. The IEA does however note that extensive use of batteries is not necessary in the first phases of the energy transition because there are cheaper options.
3.2.6 How to get to phase 4 and beyond For solar and wind to get to 50% of the system requires many technical changes to do with the handling of inertia.
There is then some debate about how important it is to identify the technologies that enable the world to move to 100% solar and wind supply. Renewable detractors make the argument that if it is not possible today to work out in detail exactly how solar and wind will make up all electricity supply, then they are not a credible alternative. We believe this is a not a relevant argument for the following reasons:
• The world will change long before we get to 100%. As set out above. • Lower costs. Think back 10 years. Few people forecast how cheap solar, wind and batteries would become. These low prices have unlocked a range of options for many countries. Ten years from now there may be a whole new range of transformative technologies, and it is clear that solar wind and batteries will be significantly cheaper. • The boundaries keep expanding. Engineers keep expanding the limits of what is possible in terms of the integration of solar and wind.
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MYTHS: RENEWABLE INTERMITTENCY 11/08/2018
• We have time. Only 6% of global electricity came from solar and wind in 2017. We know for sure how to get to 25%. And to get to 25% will take at least a decade. By the time we get there, technology will have moved on. • Leading countries are solving the problem. Countries such as Denmark and Ireland, and regions such as Northern Germany, South Australia and California, are already solving the issues resulting from higher solar and wind penetration. • The market will work it out. We note a number of potential solutions below, and expect that solutions will emerge by learning through doing.
Potential solutions include:
• Integration between electricity, heat and transport. • More battery capacity in the network. Lazard for examples calculates that solar plus storage solutions are likely to be cheaper than flexible fossil fuels plants by 2020. • Converting spare electricity into hydrogen and then other chemicals through the electrolysis of water. These can then act as a store of energy. • The expansion of other renewable sources to make up the balance. For example, hydro, biomass or tidal.
3.3 Plenty of countries already have passed the tipping point It is undeniable that many countries have already reached high shares of solar and wind,
FIGURE 6 - MARKET SHARE IN ELECTRICITY PROVISION 2017
Wind Solar
60%
50%
40%
30%
20%
10%
0%
Italy Spain Chile Austria Ireland Greece Belgium Sweden Croatia DenmarkLithuania GermanyPortugal Romania Morocco Luxembourg Netherlands United Kingdom
Source: BP
And in every case in the OECD, demand for fossil fuels for electricity generation has as a result been falling.
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MYTHS: RENEWABLE INTERMITTENCY 11/08/2018
3.4 The world itself is about to hit a tipping point 3.4.1 Where Europe has led, other areas can follow In 2017, solar and wind made up 15% of electricity supply in Europe, but only 7% in North America, 6% in China, and still less elsewhere. There is plenty of scope for others to follow the lead of Europe.
FIGURE 7 - MARKET SHARE IN ELECTRICITY PROVISION
Wind Solar
16%
14%
12%
10%
8%
6%
4%
2%
0% EU North Global China Latin India Africa Middle CIS America America East
Source: BP
3.4.2 When is peak fossil fuels in electricity In 2017, solar and wind supplied 6% of global electricity, grew at 22%, and made up 45% of the growth of electricity supply. Assuming they continue to grow on S curves (growth rates remain high, but percentage growth falls over time) and that global electricity demand continues to grow at 2-3%, then global demand for fossil fuels in electricity generation will peak in 2023. In the example below, we assume annual electricity demand growth of 2.5% and annual solar and wind supply growth of 20% in 2018, falling to 16% in 2022.
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MYTHS: RENEWABLE INTERMITTENCY 11/08/2018
FIGURE 8 - GLOBAL INCREMENTAL ELECTRICITY SUPPLY TWH
Fossil fuels Nuclear, hydro, biomass Wind and solar
800
700
600
500
400
300
200
100
- 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 (100)
Source: BP, CTI forecasts
Using the same methodology as we set out in ‘2020 Vision’4, we can also calculate the date of peak global fossil fuel supply for electricity if we flex the two key variables of global electricity demand growth, and solar and wind supply growth.
For example, if the global growth rate of electricity demand is 2.5% and the growth rate of solar and wind supply is 15%, then the year of peak demand for fossil fuels in electricity generation will be 2025.
FIGURE 9 - YEAR OF PEAK FOSSIL FUELS IN ELECTRICITY GENERATION
GROWTH RATE OF GLOBAL ELECTRICTY DEMAND
GROWTH RATE OF SOLAR AND WIND SUPPLY 2% 2.50% 3%
10% 2029 2034 2039
15% 2021 2025 2027
20% 2018 2020 2022
Source: CTI
4 ‘2020 Vision: why you should see fossil fuel peak coming’. Carbon Tracker, 2018. Available at https://www.carbontracker.org/reports/2020-vision-why-you-should-see-the-fossil-fuel-peak-coming/
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MYTHS: RENEWABLE INTERMITTENCY 11/08/2018
3.4.3 How big will solar and wind be at the tipping point Based on this framework, it is easy to project the size of solar and wind at the tipping point. In the example above, they will be 14% of global electricity supply in 2023, at the tipping point. This is quite high because of the relatively fast growth in electricity demand.
The important point to be stressed in this calculation is that the global tipping point comes before the end of the IEA’s phase 2 of renewable integration. That is to say, it is possible for solar and wind to drive a tipping point when we are still in the ‘relatively easy’ stage of the transition.
FIGURE 10 - MARKET SHARE IN GLOBAL ELECTRICITY PROVISION
Wind and solar Fossil fuels
80%
70%
60%
50%
40%
30%
20%
10%
0%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Source: BP, CTI forecasts
Reality
The integration of solar and wind into electricity systems is an engineering and financial challenge, not an impediment to an energy transition. Existing technologies are more than enough to create a tipping point in demand for incumbent fossil fuels and then to continue to drive down demand for the foreseeable future.
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