The Economic and Political Consequences of the Last 10 Years of Renewable Energy Development  

Posted by Big Gav in

Jermoe a Paris has his farewell to The Oil Drum up, concentrating on the impact of renewable energy on utilities - The Economic and Political Consequences of the Last 10 Years of Renewable Energy Development.

The politics of this transition are messy. You can have articles saying (without any real argument) that "Too much green energy is bad for Britain at the very same time that you have record cold weather, with critical weakness in the gas supply infrastructure and wind actually coming to he rescue... (in the UK last March).

People are presenting capacity markets as another subsidy to renewables, whereas system security has always required a significant margin of unused capacity for safety: power demand varies from 1 to 2 or one to 3 every day, peaks can be more or less intense depending on weather, and even large plants can go offline on a scheduled or unscheduled basis. That safety margin was simply paid for in a different way, either by imposing capacity buffers on utilities, or through spot price peaks that were high enough to pay in a few hours for the peaker plants which are otherwise idle most of the time. There's naturally a lot of talk that policies to develop renewable have failed, being costly (only partly true, as shown above, and increasingly less so as time goes by), ineffective at reducing carbon emissions (not true, each MWh of renewable energy has, by and large, replaced a MWh generated previously by fossil fuel plants) and damaging to the system (obviously not the case). But the cat is out of the bag: once renewable energy reaches a critical mass, its impact on power systems is pretty much irreversible and no amount of lobbying by utilities is going to get them their previous business model back: wind turbines and solar panels are there and they will keep on cranking out zero-marginal-cost MWh for a very, very long time...

So utilities would be well advised to focus their lobbying on fixes to the system that actually solve problems (like capacity markets, or maybe new rules on grid access for "must-run plants), and to not cut the tree on which they are sitting (killing the support regime for offshore wind, the only sector in renewables which is "utility-scale" and where they have been able to take a leading share, and the only sector of the power sector where they can actually make money these days...)

The politics of power prices are rather volatile, and people have little sympathy for the big utilities, which are typically seen as profiteers anyway, so the focus on the high retail prices could end up damaging them more than it impacts renewable energy producers. Energy is a rather complex topic, not really suited for soundbites, and it is easy to confuse people or say outright lies without getting caught right away. But, by and large, Germans still support the Energiewende - both the move away from nuclear and the support for renewable energy - and are willing to pay for it. And for areas like Bremerhaven, all the manufacturing activity linked to wind and offshore wind is rather welcome.

In summary:

  • Renewable energy is reaching the scale where it has an impact on the overall system; the effects are irreversible, and highly damaging to incumbents;
  • The net cost to get there has been relatively low, and largely paid for by utilities, which have constantly underestimated the ongoing changes, even as they were both (wrongly) dismissing them and (relatively ineffectively) fighting them;
  • there are legitimate worries about the way to maintain the fleet of flexible plants that was required in the past and will continue to be needed in the new paradigm, but can no longer pay its way under current market arrangements; the solution is not to fight renewables (it won't make the existing fleet go away) but to ensure that the right services (MW on demand) are properly remunerated;
  • the shale gas revolution will have a limited impact in this context (it had almost none in Europe, other than via some cheap coal exports from the US for a short period), and does not change the economics of gas-fired plants to the point that they can be competitive in a system dominated by renewable energy production capacity;
  • more generally, the future for gas suppliers is bleaker than for gas turbine manufacturers - there will be a need for a lot of gas-fired plants but they won't be burning a lot of gas (they will be selling MW rather than MWh);
  • overall, a future with high renewable penetration is not only possible but increasingly likely, and it's a good thing.

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