The electricity sector, it seems, is facing an emerging dichotomy. Although the energy transition promotes the development of distributed generation, based on distributed energy resources (DER) from small renewable energy (RE) plants located near points of load, we notice that utilities appear to prefer the concept of centralised generation, albeit based on RE resources.
This was highlighted by the recent announcement of a planned 30 GW hybrid solar/wind park spread over 70 000 ha at a single site in India. To put that into perspective, this new plant would have the generating capacity equivalent to about three-quarters of Eskom’s entire fleet! This would dwarf the world’s largest solar power project – China’s 2,2 GW PV plant – built in a desert in the northwestern Chinese province of Qinghai.
Further announcements have been made of plans to establish larger wind farms in the Gobi Desert in Mongolia, which has a very sparse population but high wind capacity. The plan here is to wheel the power through China to the whole Indochina/Japan area. There are also other reports of enormous PV farms in countries around the world.
China’s 2,2 GW PV plant (PV Magazine).
Where then is the cost of grid power going? If the cost of RE is falling, then increased RE in the grid should lower the price of grid electricity, should it not? And surely a reduction in the price of centralised grid electricity would impact the viability of the DER concept.
DER started as an idealistic goal which made sense while most of the electricity was generated by large thermal power stations. The argument was that small PV plants would be cheaper and better, certainly if placed at the edge of the grid on or near to consumers’ premises. Since then, another driver for DER is the desire to be green and seen to be green. Over the years DER has developed into a rather complicated version of the smart grid, but with a worrying number of appendages attached. The DER concept was fueled by rapid decreases in the price of solar PV, which made it cheaper to establish DERs at the edge of the grid, than to use grid power at the price supplied to the consumer.
However, utilities are also aware of PV price decreases, and understand that economies of scale make it much cheaper to build large, centralised PV facilities rather than many smaller, distributed units. Price ratios of between 2:1 to 4:1 have been observed. In addition, it is possible to build a centralised PV facility in an area with high solar radiation which yields a higher output in terms of kWh/y installed than separate DERs would. All these factors should lead to a decrease in the cost of grid power, and make the DER concept less attractive.
Typical commercial- or industrial-scale rooftop PV installation.
DER remains attractive now, while the percentage of RE in the network is low, but the situation is likely to change in 15 to 20 years’ time, when many of the current rooftop PV systems will reach end-of-life. At that point, the amount of RE in the grid should be sufficient to make grid power cheaper than own generation, and it might not be economically worthwhile for home owners and business operators to replace their PV panels at all. In addition, the transition to a competitive power market, rather than one dominated by PPAs, could have a huge effect on the market.
Much has changed since the original idea of DER was mooted, and current thinking seems to be influenced as much by ideology as by technical issues, particularly downsizing, decentralisation, degrowth, grid defection and the post-industrial sentiment which prevails at this time.
It seems that the concept is still driven by idealism rather than pragmatism. Current thinking appears to lean towards the “democratisation” of electricity, i.e., the transformation of electricity from centralised, capital-intensive technologies to distributed consumer commodity technologies which decentralises control over power. However, the manufacture of the solar panels necessary to achieve this is a power-hungry centralised function, which is presently dominated by a single country, namely China.
The big change factor which could affect the direction the industry takes is no doubt energy storage. It is hoped that storage of energy will make it possible to establish a centralised, virtual baseload generation facility which would provide power on demand. This would include generation storage, network storage and behind-the-meter consumer storage. A new grid needs to account for large storage capacity, big enough to reach out to far away, utility scale RE generation plants.
One of the appendages attached to DER is the concept of demand response, a technical pursuit which controls consumption to match the availability of energy. This has been expanded to the stage where suppliers have control over consumers’ consumption. In extreme cases, consumers are controlled by suppliers. This leads to a dichotomy between using power only when available and having electricity on demand, which could result in a complicated agreement between consumer and supplier.
Placing machinery and appliances under the control of a power utility costs consumer independence. The alternative is on-site storage and leveraging the utility’s pricing. That is, to store electricity when its available and cheap for use when utility power is in short supply or expensive.
In the end, the direction the industry will take will be determined by developments in the electricity market. The energy sector needs to re-evaluate how electricity is bought, sold, valued, and regulated so as to account for new generation, new technology and efficient renewable energy storage, if we are to effectively move the energy transition forward.
Liberalised markets and power-purchase agreements (PPAs) are incompatible. Current utility prices for renewables are fixed artificially by long term PPAs, whereas the cost of power generation for own-use or local DERs is determined by the market price of solar PV equipment at the time of purchase. A fully liberalised market would do away with long term PPAs and place all generators on a competitive price basis. This would favour centralised, utility-scale generation. With long term PPAs, DER generation could remain cheaper than utility-scale RE, keeping DERs an attractive option.
Should the market change in the future to a free market-based system, prices would change dramatically. This requires RE to achieve dispatchable status. A paradox has been noted by researchers in that the low marginal cost of renewable energy in market-based systems will inhibit the growth of further RE. The paradox arises because power auction prices are generally based on marginal cost of generation, and for solar and wind the marginal price is close to zero, pushing other forms of generation out of the market, and removing the support systems required for the expansion of RE.
Utilities, regulators, and policymakers should not forget Occam’s razor which states that that the simplest solution is often the best and is a good rule to apply here. Many of the ideas associated with the energy transition simply amount the pursuance of solutions for their own sake rather than for any yielded benefit. Much of the development is driven by the propensity of engineers to choose a solution which offers the greatest challenge, rather than the one which yields the most benefit.
The ultimate goal – as far as the consumer is concerned – is affordable electricity when needed. The cheapest and most reliable way of achieving this should determine the way in which the sector develops in the years to come.