The Baseload Fallacy

Renewables are set to be the new baseload, and if a future based on clean energy solutions is to be a success, the variability of this needs to be managed.

In the last century, a typical electricity system had three types of generators. So-called baseload generators, often pulverised coal or nuclear power plants, cover the minimum demand of a daily profile. These are systems that are basically running all the time – this is because they are expensive to build, require a high-capacity factor to run economically, and most nuclear power plants do not modulate well. The second class of generators, so-called mid-merit generators, are often open cycle or combined cycle gas turbines. They are cheaper to build than baseload generators but have higher fuel costs and do not require the same capacity factor to run economically. Lastly, for a few hundred hours per year, peak generators such as gas motors or turbines cover peak demand.

The meteoric rise of renewables has completely disrupted this traditional model. According to IRENA’s ‘Renewable power generation costs in 2021’ report, almost two-thirds – or 163 GW – of newly installed renewable power in 2021 had lower costs than the world’s cheapest coal-fired options in the G20. The global weighted average levelized cost of electricity (LCOE) of new utility scale solar PV and hydropower was 11% lower than the cheapest new fossil fuel-fired power generation option in 2021, and 39% lower for onshore wind. According to the IEA, the share of renewables in global electricity generation jumped to 29% in 2020, up from 27% in 2019, and this trend is accelerating.

As there are no fuel costs, renewables rank highest in the merit order. All the cost are CAPEX – sunshine, wind, and water are free – hence the marginal production costs are close to zero. This has had a profound impact on fossil fuel generation. According to “End of the Load for Coal and Gas?”, the average capacity factor of coal plants worldwide has decreased from 65% in 2007 to 59% in 2013. The average capacity factors of all gas plants declined 4% from 2007 to 2013 and the authors of the report estimate that the global average capacity of coal and gas plants in 2014 was 57% and 37%, respectively. These values are much lower than capacity factors commonly used in economic models, often resulting in painful write-offs further down the line.

So, more than one third of electricity is now being produced by renewables, the majority of which is variable. And although renewables are cheap, the wind does not always blow, the sun does not always shine, and there are differences over seasons. There are a few ways to manage this and keep the lights on: interconnection with another grid, demand side management, dispatchable supply, and energy storage.

Interconnection with another grid is very cost-effective but not always possible. Demand side management is also very cost-effective, requires novel business models and should be done more. Dispatchable supply is often the first answer of traditional utility thinkers. However, this is often an expensive option because capacity factors are low and very difficult to predict, especially over time. Counterintuitively, with increasing penetration of renewables and good interconnection, the demand for back-up generation is reduced, because there is always some wind somewhere and cloud covers are not universal over larger areas.

Lastly, like renewables, energy storage is growing exponentially. Storage technologies can be deployed extremely fast and are versatile, support the grid where there are constraints, provide a multitude of grid services and are natural extensions of renewable generation. In addition to batteries, that are growing exponentially because of scale economics in electric mobility, there is a range of long duration energy storage (LDES) solutions based on electrochemical, chemical, mechanical, or thermal principles that can cost-effectively store energy overnight, for days and weeks and even over an entire season.

The Long Duration Energy Storage Council is a global non-profit with over 60 members in 20 countries. The LDES Council advances the world’s decarbonisation through the acceleration of long-duration energy storage by providing member-driven, fact-based guidance and research on the deployment of long-duration energy storage for society's benefit.

Renewable energy will soon generate the bulk of electricity demand and because their marginal costs are zero, their status is ‘must-run’, much like the baseload generators of the last century. It is often heard in the industry by pundits, most of whom grew up in the 20th century, that ‘we need baseload generation’, when discussing the variability of renewables in a system that always needs to meet demand. The reality is that renewables are the new baseload, the variability of that needs to be managed. What we need is flexibility, and there is a growing universe of interconnection, demand side management and foremost storage solutions that can do that. The last thing that is needed is old-fashioned baseload, must-run generators on top of renewable electricity that has already been paid for.

This article was written by Frank Wouters, Senior Vice President of New Energy at Reliance Industries Limited and Board of Directors Co-President of the Long Duration Energy Storage Council.

Read the article online at: https://www.energyglobal.com/special-reports/02082023/the-baseload-fallacy/