April 1, 2017

Wind and Solar are disrupting utility business models

The Economist lays out the problems and solutions of integrating renewables with the grid. Their assessment of the problem.

ALMOST 150 years after photovoltaic cells and wind turbines were invented, they still generate only 7% of the world's electricity. Yet something remarkable is happening. From being peripheral to the energy system just over a decade ago, they are now growing faster than any other energy source and their falling costs are making them competitive with fossil fuels. It is no longer far-fetched to think that the world is entering an era of clean, unlimited and cheap power. About time, too. 

There is a $20 trillion hitch, though. To get from here to there requires huge amounts of investment over the next few decades, to replace old smog-belching power plants and to upgrade the pylons and wires that bring electricity to consumers. Normally investors like putting their money into electricity because it offers reliable returns. Yet green energy has a dirty secret. The more it is deployed, the more it lowers the price of power from any source. That makes it hard to manage the transition to a carbon-free future, during which many generating technologies, clean and dirty, need to remain profitable if the lights are to stay on. Unless the market is fixed, subsidies to the industry will only grow.

[Some see] ...this inconvenient truth as a reason to put the brakes on renewable energy. 
However, the solution is not less wind and solar. It is to rethink how the world prices clean energy in order to make better use of it. 

Their conclusion,

The bigger task is to redesign power markets to reflect the new need for flexible supply and demand. They should adjust prices more frequently, to reflect the fluctuations of the weather. At times of extreme scarcity, a high fixed price could kick in to prevent blackouts. Markets should reward those willing to use less electricity to balance the grid, just as they reward those who generate more of it. Bills could be structured to be higher or lower depending how strongly a customer wanted guaranteed power all the time—a bit like an insurance policy. 

In short, policymakers should be clear they have a problem and that the cause is not renewable energy, but the out-of-date system of electricity pricing. Then they should fix it.

[Economist]

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