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The power revolution

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Summary

Distributed generation (DG) means electricity that is produced at or near the point at which it is used.

4 min read

Distributed generation (DG) means electricity that is produced at or near the point at which it is used. DG often uses small-scale technologies and consists of modular (and often renewable-energy) generators offering a number of potential benefits - lower-cost electricity, higher power reliability and security with fewer environmental consequences than traditional power generators.


LEVELISED COST OF ELECTRICITY

“The levelised cost of electricity (LCOE) is a measure of a power source which attempts to compare different methods of electricity generation on a comparable basis”
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GRID PARITY

Grid parity occurs when an alternative energy source can generate electricity at a LCOE that is less than or equal to the end consumer’s retail price. Reaching grid parity is considered to be the point at which an energy source becomes a contender for widespread development without subsidies or government support. Since the 2010s, grid parity for solar and wind has become a reality in a growing number of markets, including Australia, several European countries and some states in the US.


ARE WE CLOSE TO A GAME CHANGER?

Despite the already phenomenal growth in renewable energy capacity (see chart) the game changer is likely to be advancements in storage technology. While much of the present renewables capacity has been installed as the result of environmental policy and targeted reductions in CO2 emissions, an obvious weakness of renewables is their intermittency and consequential unreliability for base load, or for when the power is actually needed – what happens when the wind doesn’t blow (or blows too much) or when it is night time? Storage not only allows renewable power to be used when the demand is there, but it can also be used to charge electric vehicles overnight. A virtuous circle has already developed whereby improvements in the efficiency of, and cost reductions in, renewable energy generation make battery storage more attractive, and vice versa.

The two most popular forms of renewable power generation, wind and PV Solar (Photo Voltaic solar panels which convert sunlight into electricity), are experiencing cost reductions which are already making grid parity a reality when electricity is being generated. The cost of onshore wind energy declined by 65% between 1988 and 2014 owing to economies of scale, technology innovations and operational and maintenance improvements. Onshore wind now generates energy at a price where it can compete with fossil fuels – the levelised cost of onshore wind is estimated to be below €0.05/ KWh versus coal at €0.049/ KWh and gas at €0.041/KWh2. The likelihood is that this trend will only continue due to technological improvements and productivity gains. Roof top solar, much like onshore wind, has continued to see significant cost declines. The average photovoltaic panel (PV) price has more than halved since 2008.

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“Despite the already phenomenal growth in renewable energy capacity the game changer is likely to be advancements in storage technology.”
solar-photovoltaic-lower-costs-higher-capacity

But the real tipping point comes when the cost of distributed (non-grid) renewable generation plus the costs of storage is equal to or below grid prices (grid parity). And the good news is that similar to renewables, the level of investment into lithium ion storage has seen prices decline almost 65% from 2010. Tesla’s Gigafactory is currently producing batteries at $190/Kwh with an expectation of a 30% reduction coming from economies of scale, reduction of waste, a closer supply chain, vertical integration and optimising processes. This reduction firmly places the cost of batteries within the range of 100 150/kwh which is the level at which batteries become truly viable.


WHERE DO THE OPPORTUNITIES LIE?

Tesla is taking a joined up approach being both a leader in EV (Electric Vehicles) and battery storage technology. But it is not just companies such as Tesla that may win out. Johnson Matthey is well positioned in this space as such a business fits with its core competencies. Providing battery materials to manufacturers is a high technology business and requires a company to deliver a consistent high quality product that it effectively guarantees. Recall risks are very important (just look what happened with the Samsung Galaxy Note 7), and so the barriers to entry to be involved in the space are high.

Investment opportunities will undoubtedly occur in a variety of areas such as auto manufacturing, power generation, electronics, software, advanced materials, contract manufacturing, and project development and finance. Existing companies will be forced to adapt their business strategies to accommodate this new technology. New companies will emerge that make, finance, apply and operate storage assets to help electricity grids, vehicles and buildings work far more reliably and cost-effectively while greatly reducing unwanted environmental impact.


WILL SMART GRIDS AVOID GRIDLOCK?

Renewables will play a dual role in our energy generation in the future – larger scale projects feeding into the grid and smaller distributed generation, both with or without associated storage. Both large and small scale generation may require fundamental changes in the management of the grid, owing to both the volatility in supply from larger schemes and to allow surplus power generation from distributed smaller scale installations to be fed back into the wider grid.

“Onshore wind now generates energy at a price where it can compete with fossile fuel”
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Already some Californian solar plants have to be switched off during the sunniest hours to prevent them overloading the electrical grid. Because of this, the sunshine state is looking at modernising its grid, combining it with more flexible generation sources such as natural gas plants (versatile and one of the cleanest types of fossil fuel generation) and more energy storage options such as the world’s largest lithium ion batteries which are planned for Los Angeles, in order to balance the grid through the day. California, the US’s most populous state, is being seen by many as leading the way in its use of renewables and has recently announced that its last remaining nuclear plant is to close.

“We want to prove a couple of things - one is that you don’t have to choose between the economy and the environment, that we can do both,” explains Fran Pavley, a state senator who wrote the legislation that sets the 2030 emissions target for California. “If we can model that this can work, other states will adopt it,” she added.

The US election may have changed things – Trump has a stated intention for the US to become energy independent. This does signal more enthusiasm for ‘dirtier’ forms of energy, such as coal and oil, however, that’s not to say that these issues will mean that this energy revolution will stall – it is more likely that it will just mean it will take longer to get to a satisfactory balance.

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