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THE ULTIMATE POWER COUPLE The energy model of the future couples renewables with free electricity markets

Photo © Ananda Shila, Jharkhand State, India

64 | IFC.ORG/HANDSHAKE By Aleksandar Katančević, Stratega East

The free is much younger than But it’s no secret that they are high polluting and any of the well-known fossil fuel markets; in fact, relatively expensive to transport. it is the baby of the energy commodity family. It was born in Latin America in the 1980s and LOOKING AHEAD it reached the U.K. in 1990 with the privatiza- tion of the U.K.’s power industry. But despite its Because of this, the energy model of the future relative youth, the free electricity market is more must combine free electricity markets with sophisticated than the fossil fuels market. This renewables. To compete with fossil fuels, these is thanks in part to the advanced technology of markets must be brought together to get the systems used to generate electrical electrical energy produced from renewables to energy, but also due in part to difficulties with market—reliably—at a lower market price. storage.

COMPARING FORMS OF Renewable electrical energy is ENERGY environmentally-friendly and The transportation time for electrical energy is non-polluting. almost equal to the speed of light, making this product unlike any other on Earth. It is also cheap to transport: long distance distribution costs close to nothing. Together, these factors Technological energy sources (batteries and solar make this product incredibly easy to move. panels) placed locally (), And to top it off, renewable electrical energy is alongside additional information technology, can environmentally-friendly and non-polluting. answer the call, connecting production with the real-time electricity market (grid). But there is Fossil fuels, the world’s go-to solution, are also no commercial marketplace to sell energy that easy to store—they are like packets of ready the consumer generates and does not require; energy that need only be ignited when needed.

IFC | 65 today’s electricity market environment is not ery, and be valid for at least one minute. Price yet sophisticated enough to support real-time information should be available electronically trading of energy produced or purchased by and fed directly into a device that controls the distributed generation and households. operational mode of the household. What’s the bottom line? Even if we had a In a successful scenario, the household would completely compatible energy source that could work in three modes: produce energy locally, the electricity market 1 Taking energy from the grid. would have no trading mechanism for such a source. 2 Feeding energy into the grid. 3 Neutral against the grid, but • feeding the energy into local batteries, or • taking the energy from batteries and the At the intraday electricity on the roof of the house (i.e., market, electrical energy being self-sustaining). is traded one hour ahead, working within the ARE WE THERE YET? electricity exchange. Several hurdles must be overcome before this model can operate. For example, the electric- ity market would need to develop to the point where it can generate real-time market pricing. Power systems stability would need to improve, ENTER INTRADAY TRADING and suitable energy management technology would need to be developed. The intraday electricity market, which grew from the need for real-time price information from Currently, spikes in demand are satisfied with the electricity market, is the closest relative to a fossil fuel energy. Thermal power plants are real-time market. In today’s intraday electricity stable, they respond quickly, and they are readily markets, electrical energy is traded one hour available. In a future where fossil fuels have been ahead, working within the electricity exchange. phased out, this will cease to be a back-up plan. For a new energy model to work, stakeholders In the future, the transmission system operator and consumers alike will need confidence in a or market operator responsible for the market real-time solution that will see us into the next area (either the country or a coordinated region) century. should ideally provide the price, which should be calculated about one minute ahead of deliv-

66 | IFC.ORG/HANDSHAKE COMPARING SOURCES OF ENERGY

Fossil energy (oil, Electrical energy , ) (hydro, solar, wind)

No need, Transportation time Days to months 0.7 x speed of light available locally

Transportation Medium to high Extremely low Zero costs

Very limited to Stable in its natural Limited due to the the size of the form or easily stored Storage availability size and cost of reservoir, battery using industrial storage. or compressor and storage solutions. stored locally.

Primary energy Derivative energy Primary energy Energy type source source source

Commodity Energy transporta- Energy release Energy container application tion medium (infinite source)

Environmental Pollution produced Extremely low Extremely low impact when burned

Not really, always Absolutely Usage by the end comes with side (clean, no smell, Yes in some consumer in its effects (smell, no pollution, no applications original form pollution, CO 2 hazardous gases) hazardous gases)

IFC | 67