100% renewables

Two or three years ago European think tanks were asking if an electricity mix with a 50%, 60% or even 90% share of renewables was workable. What is threshold above which the electricity grids of Europe would no longer be able to absorb intermittent renewable energies?

Electricity grids have strict ramping constraints, which means the flow of electricity cannot change dramatically from one moment to the next. Solar and wind power introduce intermittency into the grid. We know when the sun will go down, so solar panels’ contribution can be gradually phased out every evening. Different sources of power will have to compensate during the night. Wind speed and direction is less predictable. For countries with a high penetration of wind generation, like Germany or Denmark, what source of power can be called upon to compensate for a sudden drop in wind? Nuclear power plants cannot increase or decrease their output in a timely manner – this takes hours. Efficient Combined Cycle Gas Turbines (CCGT) and other modern thermal generators are fit for the task, but would playing back-up be profitable for these units?

European thermal generators’ annual revenues have suffered over the past few years. The economic downturn since 2008 has had a role to play in this, but competition from renewables is the main source of the discomfort. Renewables generators produce electricity cheaply as they do not have the fuel costs that gas and coal power plants do. Renewables also have priority access to the grid in countries such as France and Germany that are looking to increase renewables’ share in their national electricity mix. This means renewable generators have the right to sell electricity before other producers.

Nevertheless, reliable generation is still required. Thermal generators could charge a heavy premium for electricity during periods of supply scarcity to make up for lost generating hours cannibalised by renewable generators. In this way an increased share of renewables was expected to cause frequent price spikes, as well as negative price events when renewables oversupply the market. Electricity prices would become highly volatile.

Paying thermal generators a ‘capacity’ fee to remain online and ready to increase output at short-notice has been proposed as a solution to their financial troubles.  And if more thermal generators remain in the market then competition between them will help to avoid price spikes.  However, these so-called capacity markets have not found many advocates. France intended to launch an organised market for capacity certificates this year – an initiative that has been put on hold by a European Commission investigation into the competitiveness of the measure.

Yet, more recent research has started to show it is feasible to have an energy-only market with a high penetration of renewables in Europe.[1] The concerns about grid instability and price volatility have not come to pass. Perhaps even 100% of electricity generation could be derived from renewable resources if other conditions are met. What are these conditions?

Firstly, diversity of supply is a tonic. A great number of interconnections crisscross the European continent allowing countries to import or export electricity from their neighbours. This allows surges in renewable supply to be sent elsewhere when needed. In periods of local supply scarcity one country can import from a neighbour. Where supply bottlenecks exist the European Commission incentivises investments in new interconnectors. This can be a slow process but the examples of supply bottlenecks are isolated. For most of the year French and German spot electricity prices converge. This shows that arbitrage is effectively taking place between the continent’s two biggest electricity markets.

Wind and solar capacity has a lower utilisation rate than thermal capacity that only technically need to be offline during maintenance. To ensure reliable electricity production in a system dominated by renewables a greater proportion of capacity needs to be installed – and in diverse locations – in order to increase the diversity of supply.

Disruptive technologies like batteries will eventually be integrated into wind and solar farms to improve control over their electricity output. Battery technology may even compete with thermal generators as back-up for renewable supply disruptions. Other technologies, such as tidal or wave energy, and smart grid management will eventually become commercial as well.

Further, liberalised electricity markets provide utilities and investors with trading opportunities to balance their production portfolios and hedge financial risk. Weather forecasts help to predict the output of a solar farm for the next day. If a producer expects  production to be much higher than initially contracted they can sell excess electricity in an organised, day-ahead auction at a European power exchange. On delivery day, if the producer’s actual output is lower than the contracts sold on the previous day, then they still have the opportunity to buy back the electricity on the intraday market.

European power exchanges are also innovating. New products on these platforms are being tailored to renewable generators’ needs. Previously electricity had to be delivered in one-hour blocks, which does not map onto solar farms’ ramping constraints. The ability to trade with a 15-minute or 30-minute resolution is a relief for traders balancing renewable portfolios. Certificates which guarantee the origin of electricity as renewable will soon be offered on the market too.

Today, a European electricity mix dominated by renewables seems feasible. Renewables’ intermittency has not lead to blackouts or high price volatility. If there’s no new investment in gas and coal-fired generation we may yet witness supply inadequacy in the future. Yet, European cooperation, diversity of supply, new technology and dynamic spot markets may be enough to avoid this fate.


 

[1] Such as the International Energy Agency’s 2014 report: The Power of Transformation

Another good resource for this topic: Dispelling the nuclear ‘baseload’ myth: nothing renewables can’t do better

 

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