A pragmatic approach to decarbonisation: Front loading renewables

The evidence is clear. To limit many of the climate impacts the world is experiencing daily, countries need to take significant action on emissions in the next five to 10 years.  In response to growing pressure to decarbonise, many powerhouse economies around the world have set goals to become net zero near or around mid-century. The industry expects to see these goals become more aggressive at this year’s COP26 conference in Glasgow, Scotland. The hope is that at a minimum, all participating countries adopt a net zero goal by 2050.

Despite these important commitments, implementation can be challenging. While some countries such as Norway, Iceland, and New Zealand lead the way for renewables penetration, others are still overly reliant on legacy oil, gas, and coal generation.

Fortunately, the solutions are already available to help every country, no matter where they currently are along their decarbonisation journey, reach a carbon-free future.

The International Energy Agency (IEA) has called for US$1.6 trillion in clean electricity to reach net zero by 2050. An investment of this scale would not only mitigate the worst impacts of the climate crisis, but also generate revenue and create jobs in the local economies where clean energy projects are deployed. This trend has already been seen in small island communities where large scale renewable energy projects have created grid stability, while advancing economic development. The list of benefits does not stop there, though. Investing in clean energy today will help alleviate price risks for consumers in the future.

Furthermore, technology and operational costs associated with renewables have fallen substantially in recent years. A recent report from the International Renewable Energy Agency (IRENA) outlined that the levelised cost of electricity (LCOE) for utility scale solar has fallen 82%, onshore wind by 39%, and offshore wind by 29%.

How do utilities and consumers alike start to realise these widespread advantages?

Storage is the integral piece of the puzzle. Large scale energy storage is necessary to unlock the world’s renewable future and help us meet our climate associated goals. Today, in markets where high penetration of renewables exists, large scale energy storage projects have already proven their efficacy for meeting energy demand when intermittent renewable resources fluctuate.

Storage is being seen to take hold in countries such as the UK, where the government aims to reduce emissions by 78% by 2035. There, energy storage projects such as the 100 MW Pivot Power systems are serving as flexible assets, illuminating the pathway to renewable energy integration at scale, while supporting next generation technologies such as electric vehicle charging infrastructure.

Utilities can reduce operating expenses for fuel and ongoing maintenance to keep legacy oil and gas plants running, and shift to a new financial model where capital expenditure is made up-front into predictable, low maintenance, renewable energy assets. By eliminating fuel costs, there is an element of price certainty insulated from the ever-present price swings of legacy fuel costs subject to market conditions.

For example, Enel announced a €160 billion 10-year CAPEX budget, almost half of which is allocated for renewables, up from an annual average of €8 billion - €10 billion in the previous five years. Similarly, investment hurdle rates – a measure of risk akin to weighted average cost of capital – for today’s fossil fuel projects are calculated approximately 10 - 20% whereas renewables are in a much safer range of 3 - 5%. Investing in renewable assets is like purchasing ‘unlimited’ power up-front, as opposed to betting against fluctuating oil prices and narrowing environmental regulation.

Furthermore, in places such as Australia, where legacy fuel sources remain dominant, storage is helping to jumpstart the country’s investments in renewable energy. Just recently, Wärtsilä, along with independent power producer Zenith Energy, announced a 9.2 MW energy storage project to help power some of the world’s mining operations in Tanami, Australia. Even further, other utilities in Australia have also signalled their commitment to storage, including AGL Energy Ltd, who recently announced a 250 MW/250 MWh battery facility on Torren’s Island. These projects demonstrate storage as a flexible solution for all types of utilities and customers, even in remote, islanded grid situations.

Making these investments today will cost significantly less than waiting for more forceful, abrupt, and disorderly policy responses. Analysts predict the inevitable policy landscape where most, if not all major economies institute carbon pricing for the power and industrial sectors by 2030. Factor that on top of the cost of climate adaptation where 100-year floods become the seasonal norm.

Given the benefits that renewables present to grid owners and operators paired with the significant costs associated with continuing down the path of legacy generation, it is no longer a matter of if a decarbonised future needs to be invested in, but when. It is now up to utilities and industry alike to usher in this new era of decarbonisation, as will be outlined this autumn in Glasgow, Scotland. Forward-thinking, ambitious leaders are needed to embrace a strategy of front-loading renewable adoption to deploy as quickly as possible.

Let the world move from a decade of deliberation into a decade of action. Widespread deployment of renewables and energy storage projects will drive the world into a future less impacted by the climate crisis and full of economic opportunities for communities everywhere.

Utilities can reduce operating expenses for fuel and ongoing maintenance to keep legacy oil and gas plants running, and shift to a new financial model where capital expenditure is made up-front into predictable, low maintenance, renewable energy assets. By eliminating fuel costs, there is an element of price certainty insulated from the ever-present price swings of legacy fuel costs subject to market conditions. For example, Enel announced a €160 billion 10-year CAPEX budget, almost half of which is allocated for renewables, up from an annual average of €8 billion - €10 billion in the previous five years. Similarly, investment hurdle rates – a measure of risk akin to weighted average cost of capital – for today’s fossil fuel projects are calculated approximately 10 - 20% whereas renewables are in a much safer range of 3 - 5%. Investing in renewable assets is like purchasing ‘unlimited’ power up-front, as opposed to betting against fluctuating oil prices and narrowing environmental regulation.

Article written by Jeff Damron, Wärtsilä Energy.

Read the article online at: https://www.energyglobal.com/special-reports/20102021/a-pragmatic-approach-to-decarbonisation-front-loading-renewables/