Decarbonizing the grid: Stabilizing the future of renewables

Renewable electricity generation is on the rise and expected to continue to grow—buoyed by government policies, a growing investment pool, consumer preferences, and lowered costs. Intermittent resources such as wind and solar now account for the majority of new electricity generation capacity being built. In fact, renewables accounted for about 21 percent of all electric-generating capacity in the U.S. last month. The EU is even further ahead, with approximately 30 percent renewable electricity in 2017. 

Policy is playing a role: The EU is committed to cutting greenhouse gas emissions by 40 percent compared to 1990 levels by 2030, and in California, New Jersey, and New York, utilities are required to have 50 percent electricity from renewables by 2030. On the investment front, a growing pool of capital is backing “clean” or “green” electricity options. Finally, the price of renewable electricity continues to fall: In several geographies, wind and solar are already competitive and are expected to be the cheapest source of electricity within the next decade.

Operational challenges

There are also challenges that come with the growth of renewable energy generation: It gives rise to grid integration costs and new grid planning requirements. It is also intermittent and frequently unpredictable. When intermittent resources are at a low point, the market responds with conventional substitute resources, but in a decarbonized future, those options are increasingly misaligned with overarching policy goals. For example, when renewable generation falls, the response is to ramp up gas-fired generators. That decision, however, comes with a cost to both customers and to decarbonizing policy goals.

There is no one-size-fits-all solution to ensuring a consistent supply of renewable energy or integrating ever-greater amounts of renewable generation into the grid. But we can employ holistic solutions that encompass supply, demand, regulation and market structure.

Alternative solutions

Two principles are required to manage clean-generation technologies: flexibility and resiliency. Some electricity markets, particularly in parts of the U.S., Germany, and the UK, have already started to recognize, to varying degrees, flexible and resilient electric resources. Battery energy storage and distributed resources are two possible categories of competitive options.

  • Battery storage

Energy storage is currently quite a bit more expensive than curtailing renewables, at $320 to $410 per installed kilowatt-hour for a five-hour lithium-ion battery. However, with projected cost declines nearly in the 70 percent range by 2030, lithium-ion battery storage has the potential to become a competitive option. The role of storage is already being recognized by policymakers. California, Massachusetts, New Jersey, and New York all have storage targets and/or roadmaps to storage goals.

There are also new value-creation opportunities attached to battery storage. Storage, for example, is being used to defer investments in transmission and distribution systems of some utilities. Storage can also be used to overcome system setbacks: Battery-storage projects kept the lights on in Southern California when the Aliso Canyon gas storage facility was closed. A new class of services will emerge for energy assets that can respond at the right time and the right location in the grid, especially as customer charges evolve to include the cost of flexibility.

  • Distributed energy resources

Distributed energy resources (DERs) and distributed resource aggregators (DRAs) are also beginning to make their mark. Aggregation pilots are taking place across the country, with companies like Stem and Advanced Microgrid Solutions working on DER aggregation projects. Management systems for DERs are being adopted from leading utilities across the world as tools to monitor, oversee, and even help control DERs offering services to the grid. Though DRAs are still in the adoption cycle, regulators are starting to realize the value this resource category could bring as the electricity business decentralizes. Distributed resources have great potential to support the grid—indeed, enabling DRAs to fully participate in markets could unlock about 95 gigawatts of new potential flexible capacity in the U.S. by 2030.

Actions to consider in four critical areas

  • Explore “virtual power plants,” which are at the forefront of the flexibility landscape. These are a response to energy-imbalance issues in European markets — e.g., Germany and the United Kingdom — with high renewables penetration. Independent market actors are able to submit aggregated energy schedules and balancing services from a set of aggregated resources under their control. For example, providers such as Next Kraftwerke, which has over four GW in managed load, have been able to balance the intermittency of large-scale renewables with the flexibility of distributed energy assets, such as onsite generation, and load resources, such as large commercial and industrial facilities.
  • Improve transmission and distribution integration through policy framework updates. This would include refining the definition for metering, telemetry and control standards for distributed resources participating in wholesale markets.
  • Update legacy market-participation models and dispatch rules. Participation rules in wholesale markets have not matured to allow market participants outside of traditional generating plants. For example, markets models and rules are not currently accounting for the physical characteristics of energy storage.
  • Recognize separate roles for flexibility services and resiliency. Storage and demand-side resources are changing the rules to allow for fuller participation in markets, but they also provide security and backup services. These resources could support, rather than fight, conventional players, which may have resiliency and backup services that these new resources don’t offer.

The framework that will emerge from today’s discussions on renewable energy generation will shape the industry’s future in dramatic ways. In another decade, market participants will look back and see the current turbulent but exciting times as having formed the critical foundation for a lower-carbon, more efficient and highly decentralized electricity business.

Stay current on your favorite topics