BIG BETS

Utilities need to plan for a 100% renewable energy future, even if it never happens

Obsession
Energy Shocks
Obsession
Energy Shocks

Utilities are not like most businesses. They place 30-year wagers on the way we will generate and consume electricity to ensure there’s a reliable supply far into the future. Multibillion-dollar investments build long-lived things like transmission lines, coal boilers, and nuclear reactors.

That worked well enough when technological change in the energy industry was measured over decades. Now it’s advancing in years (or quarters if you track solar cell prices). That’s giving utility executives heartburn. “Never in recent history has the deployment of capital been more difficult than it is right now within the energy industry,” one utilities analyst told The Economist earlier this year.

Take Europe, where aggressive incentives have sent renewables soaring—they now account for 27.5% of the grid. Between 2008 and 2011, European utilities lost more than $560 billion (€500 billion) in share value after building too much fossil-fuel capacity as demand for it slowed, in part due to renewables.

The carnage didn’t stop there. European utilities have been forced to write off about $134 billion (€120 billion) in assets between 2010 and 2015 due to falling electricity prices as wind and solar energy saturated the grid, estimates the consultancy EY. Prices may fall farther still—the cost of new renewables is already dipping below that of coal and nuclear, and is almost cheaper than natural gas. But with electricity prices overall in free-fall, and the future uncertain, investment in European renewable energy fell to $49 billion (€44 billion) last year, less than half that of 2011, reports the European Union.

Hence the debate about what could happen in a scenario of 100% renewables. On the surface, it might seem academic. Today, renewables in the US account for only 15% of total electricity consumption (less than 10% when excluding hydropower). In Europe, the world’s renewables leader, it’s only expected to hit 50% by 2030.

But a 100% goal is not fantasy. Germany has committed to an electricity supply that is at least 80% renewable, possibly as high as 100%, by mid-century. Denmark already produces around 100% of its own needs at times from renewable sources, as do Norway and Iceland thanks to hydropower and geothermal heat. Sweden passed its Climate Act on June 15 committing the country to reaching net-zero greenhouse gas emissions by 2045. Some big companies are on board as well. Amazon, Autodesk, Facebook, Google, HP, Salesforce, and Apple have all committed to sourcing only renewable electricity in the RE100 pledge. Google says it could achieve its goal as early as this year.

For scientists, the question is no longer if renewables will dominate the grid: it’s how much, reports Umair Irfan at E&E News.

The latest debate is over a seminal 2015 paper that claimed the US could run on 100% wind, water, and sun energy at a lower cost than fossil fuels by 2055. That conclusion was contested on June 19 by researchers publishing in the Proceedings of the National Academy of Sciences, who claimed the the model contained “errors, inappropriate methods, and implausible assumptions” and argued that a portfolio of energy options including fossil fuels was still more cost-effective. But their own hypothetical grid scenario is not too far off from the most aggressive estimates. They project an 80% reduction in greenhouse-gas emissions for the electric mix by 2050 is cost-effective.

Utilities must now venture into the unknown. Renewables are eroding their business model. Customers are installing their own solar panels and selling the power back to the grid. Renewables have competed away valuable mid-day peaks in places like California, and forced expensive base-load power plants into pricey idleness. It could take just one major breakthrough in battery technology for grid storage or a steeper decline in the price of solar to throw off their financial models for turning today’s investments into liabilities.

Even if a 100% renewable grid is decades away, it would be foolish not to plan for one.

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