The impact of new technologies on the power sector in 2030 is difficult to overestimate. Indeed, the impact is already evident: electricity generated from solar and wind is beginning to have significant effects.Rethinking the power market
Once built, variable renewable (VRES) production bids into the power market at low cost, reducing the operating hours and earning potential of dispatchable generation. At the same time, the system operators in countries with high VRES need to intervene several times per day in the current market to secure stable grid operations.
Congestion management is becoming the norm and novel capacity mechanisms are being introduced to guarantee security of supply. Meanwhile, massive investments in the grid infrastructure are being planned.
With increased renewable generation capacity and subsidy-free regimes, the earning potential of VRES is being called into question.
On the other hand, many technology strands are converging to boost flexibility, and when solving surplus situations will strengthen the commercial case for VRES in helping to ensure higher demand for renewably generated power. Co-located storage will enable renewables generators to choose when to supply to the market, at times when prices are favourable.
Towards 2030, the impact of new technology like EVs, electrochemical storage, high-efficiency heat pumps, hydrogen production through electrolysis, synthetic fuels and consequent introduction of IT controlled demand will only increase. Today, we are at the brink of needing new market rules, which should have evolved sufficiently by 2030 to ensure a smooth transition to an electricity supply increasingly powered by wind and solar.
Sustainable growth of VRES needs to be financed and supported by increasing system flexibility and boosting the role of important new players in the energy landscape: aggregators (see below).
Since electrification can be both energy efficient and low carbon, many sectors will continue to electrify, leading to sector integration, sector coupling and integrated and complex system dynamics.
Creating quantitative estimates – e.g. on volume, growth and timing – of new technologies entering the power and renewable sector is a daily activity for a company like DNV GL. However, estimating the return on investment (ROI) for new technologies is not straightforward.
Firstly, returns can be financial, but also environmental, political and social. Secondly, in the competing energy landscape of the next decade and beyond, it is becoming increasingly clear that ROIs are determined largely by the interactions of new technology with other parts of the value chain.
New technologies do not operate in a vacuum but are becoming increasingly intertwined. This holds true across the energy mix – for example, with the production costs of alternative transportation fuels, where gas-to-liquid and coal-to-liquid hold the potential to place a cap on the earning potential of oil. Our focus here, however, is on electricity, which is emerging as the main energy carrier, integrating different sectors and coupling commodity prices.
Two examples of power technologies coupling value chains and commodity prices are:
- Electric boilers and heat pumps. With current gas prices, boilers and heat pumps can break even, depending on circumstances. Given the technology advancements, in 2030 the gas price may need to reduce 10–20% to be competitive with power solutions.
- Electric vehicles (EVs) couple the oil and electricity value chain. After solving range anxiety with larger batteries and initial purchase price with lower battery cost, the marginal cost per km is the final competing factor. The gasoline price in 2030 may need to reduce by 40–60% compared to 2019 to be competitive with power solutions.
In some circumstances it may be cost effective for an energy user to invest in two solutions (conventional and electric technology) and operate them alternately. We can illustrate this (see chart below) with reference to hydrogen production for use in the chemical industry through electrolysis (also called ‘green’ hydrogen) – a new technology that couples the electricity and gas value chain.
Hydrogen production through electrolysis will mainly occur at times when the cost of electricity is low. With enough running hours, the cost of green hydrogen can start to compete with hydrogen made more conventionally by steam methane reforming (SMR). But there are also times when the electricity price is not low, and production of hydrogen from electrolysis is more costly compared to SMR. The combination of these two regimes results in a minimum levelized product cost at a certain number of operating hours.
Plants that produce exactly this number of hours are the most competitive, outcompeting other plants that run shorter or longer hours. In the chemical industry, a steady supply of hydrogen is required, so operation will hybridize, alternating between producing hydrogen from gas and electricity, depending on the difference in gas and volatile electricity price. The electrolyser will complement the steam reformer in creating a steady supply of hydrogen for further processing into, for example, ammonia and fertilizer. This hybridization also introduces time-dependant hydrogen prices, possibly changing the pricing strategies for natural gas sales.
When this will happen depends on many factors, such as:
- the price of natural gas, which in turn is influenced by the cost of CO2 emissions;
- the duration of oversupply of variable renewable energy, which is influenced by the energy mix as well as by the development of electricity demand and by interconnector export to other countries;
- cost developments for electrolysers.
Taking all the uncertainties into account, our prediction is that electrolysis will become a common part of hydrogen supply somewhere between 2030 and 2035.
Electric vehicles (EVs) are a prime example of sector integration and market disruption.
Picture the following 2030 scenario for the Netherlands: an EV fleet size of 3 million, higher than DNV GL’s forecast indicates, but not beyond the bounds of possibility given air quality pressure, climate change responses and political willingness for incentives. With an average daily driving distance of 60 km, energy consumption is 10 kWh per vehicle, or 30 GWh in aggregate. If the drivers of these EVs allow their vehicles to be charged intelligently – i.e. via algorithms – this is potentially 30 GW of active demand than can be almost freely shifted during a day. For an aggregator, the ICT cost of creating this active demand is low (e.g. with automated, distributed ledger technology). Owners will set preferences for charging timing and constraints, and an aggregator can use the flexibility that each car offers – and the fleet in aggregate – to participate in the electricity market.
The first market the aggregator wants to capture is the Frequency Containment Reserve (FCR) market. An aggregator can stop charging a number of cars (system-wise this has the same effect as supplying the similar amount) when asked by the system operator. Three million EVs, charging on average 400 W, provide 1200 MW of potential (symmetric) FCR, by reducing and increasing their speed of charging. This is more than 10 times the current FCR requirement for the Netherlands and already around 1/3 of the whole EU FCR market (3000 MW).
The implications for the industry are large: dedicated batteries for the FCR market have higher capex cost than the IT-unleashed EV’s batteries. System operators who realize this potential will change the rules well before 2030 to tap into this low cost FCR solution. There are already several pilot projects where EVs are used in this way.
With other boundary conditions and a bit more IT, the industry implications are much more radical. In 2030, EVs are likely to have 100 kWh battery size – oversized relative to average daily driving of 60 km in order to cope with driving distances of 600 km or more once or twice a month. With the right incentives, the owner can be persuaded to make the surplus capacity available to an aggregator. Even with a 50% margin on the 60 km driving distance, this results in 240 GWh of battery capacity. While the speed of charging remains the same, this surplus capacity is overwhelmingly larger than the Frequenc Restoration Reserve (FRR) market and significantly influences the day-ahead market.
The market implications of this are profound and go further than those directly involved (EV owners, aggregators, system operators). Electricity prices become stable, day-night price differences disappear, and the income of central generation is reduced. The business opportunity for other potential users of the volumes and times of surplus electricity decreases dramatically.
Synthetic fuel ushers in the next level in sector coupling, as it allows sectors that are difficult to electrify to become connected to the integrated system. These sectors include aviation, long road and sea transport, and remote islands that want or need to reduce their fossil CO2 emissions.
"Two novel, cost effective synthetic fuels that could reach commercial attractiveness in 2030 are ammonia and hydrogen-enhanced biogas production."
The synthetic fuel value chain can be seen as an extension of the hydrogen value chain, converting hydrogen into more energy-dense and easy-to-store liquids, such as ammonia, low carbon molecules like methane, methanol and formic acid, or higher-order hydrocarbons like kerosene, gasoline and diesel.
Synthetic fuel production is partly based on low-cost power. With the extra step of converting hydrogen to a synthetic fuel comes a whole series of technologies that increase the investment cost and decrease the chain efficiency. This extra cost must be compensated for by new properties like high energy density, easier storage and transport over long variable distances.
Two novel, cost effective synthetic fuels that could reach commercial attractiveness in 2030 are ammonia and hydrogen-enhanced biogas production. The impact on the Power and Renewable industry is twofold:
- Another application that uses surplus power from renewables (at low cost);
- An alternative way of transporting electricity over long distance and to changing destinations.
In the figure below we see a comparison of production and transport cost for hydrogen and two synthetic fuels.
The three left options are fuels produced far from demand (PV with high irradiation). The three fuels shown at the right are produced locally. In this comparison we can clearly see that cryogenic hydrogen transport over long distance using ships is expensive; in this instance creating ammonia or methane is favorable. At the same time, we see that locally-produced synthetic fuel can compete with dedicated synthetic fuel plans since they make use of low-cost surplus electricity (with price-taking conditions).
Synthetic fuel produced at locations with low-cost electricity or produced from surplus electricity needs to compete with direct electricity use, direct hydrogen use and carbon taxed fossil fuels. Through storage and flexibility, synthetic fuels link low cost production locations with higher end use price locations. In 2030, some energy costs come very close, suggesting that the first niche markets for synthetic fuels will appear.
Despite dramatic advances in renewable energy technology, the most widely available, least expensive, and lowest-risk pathway for the transition away from fossil fuels is by increasing the energy efficiency of buildings, transportation, and industry.
As DNV GL’s Energy Transition Outlook 2019 makes clear, new business models will have to be explored to accelerate the uptake of energy efficiency technologies to deliver the improvements needed to reach the ambitions of the Paris Agreement1.
Digital technologies figure prominently in current efforts to increase the scale, reduce transaction costs, and lower the performance risk in deploying energy-efficient products and services. In practice, this involves new business models to help consumers and suppliers access and combine or ‘stack’ value streams to increase return on investment. Examples include:
- Stacking customer value: smart thermostats that result in 10% to 15% savings of home heating and cooling energy demand, and the coupling of voice commands through digital services such as Google
- Stacking grid value: capacity and peak load management2.
- Stacking social value: public transport/ride share development potential3.
We’ll highlight the example of the smart thermostat to show how a combination of technologies is able to stack values for the consumer to create a significant business success.
Independent evaluations have shown that installation of smart thermostats, such as those manufactured by Nest and EcoBee, results in 10–15% savings of home heating and cooling energy, or about 3–5% of total home energy use4. Smart thermostats have been selling briskly despite their relatively high cost (USD 250/unit in the US). As of early 2019, over 20 million such devices had been sold. If all of them were installed, these sales would represent a saturation of 15% of all housing units in the United States for a product category that was first introduced in 2011.
Sales of smart thermostats were propelled by customer values beyond potential energy savings. These were evident through evaluation interviews where customers identified non-energy benefits such as improved comfort, convenience in managing temperature setbacks using occupancy sensors, and alerts of malfunctioning equipment as more valuable to them than the energy savings they achieved. Industry observers anticipate that the explosive growth of smart speakers such as the Amazon Echo and Google Home Hub will further accelerate smart thermostat sales through use of voice commands, as well as more functional links between the sensors in the thermostat and other services such as home security. Smart speakers are already installed in up to 30% of homes in North America and Europe, and sales in all global regions, including China, are growing rapidly.
This example illustrates the capability of digital technologies to create, deliver, and monetize value through increasing energy efficiency in key end-uses. Many of these innovations are made feasible through the rapid reduction of transaction costs enabled through information technology. As the cost of digital technology continues to fall, we anticipate that these examples will multiply, and their market share will grow. The 2030 implications of these developments for the major energy delivery systems include:
- Increased volume and scope of activity for aggregators
- Acceleration of switching from fossil fuels to electricity.
DNV GL sought the insight from a wide range of experts whilst compiling the Technology Outlook 2030. Dr Klaus Kleinekorte, a member of the management board of German transmission system operator Amprion GmbH, gives his views on the technologies that will influence the power market in the coming decade.Which technologies do you see emerging towards 2030 (and having an impact on your business)?
For transmission system operators (TSOs), technologies in 4 areas towards 2030 are important from today's point of view:
1. Technologies to ensure voltage maintenance and load flow control even in a changed system with increasing renewable feed-in. This includes important elements such as, FACTS (flexible alternating current transmission system), phase shifter and HVDC. But also control mechanisms for the Europe-wide coordination of the transmission system operators.
2. In the coming years, more and more rotating masses will leave the system, which will result in a loss of inertia / short-circuit power. In this context, the grid must be equipped with new system elements with regard to dynamic safety that allow inverters to be controlled in such a way that they can provide the necessary system services for today's synchronous machines.
3. There are also new material safety requirements for the expansion of cable-guided high-voltage systems - the cable sleeves of HVDC lines are an important example - this is new technological territory that must be mastered in order to be able to operate such lines safely and economically.
4. The systemic integration of large quantities of offshore wind energy - these can only be mastered by using electrolysers as volatile buffers. Here, we see the cross-sector coupling of electricity and gas grids as a key technology, as in our Hybridge project planned jointly with OGE (a 100 MW electrolysis plant at a strategic grid point where electricity and gas can be ideally coupled).Which opportunities and risks do you see from emerging technologies towards 2030?
The chances are to convert the energy system into a CO2-free system. There are inevitably risks in mastering this system, which behaves very differently from the system we have been running for the last 100 years. The above technologies must therefore be tested, understood and implemented in order to manage the risks.What do you expect from DNV GL to support you towards 2030?
For DNV GL I see the possibility to support us in the implementation of the electrotechnical challenges. For this I expect leading knowledge in the field of electrical engineering and the evaluation of network dynamics.About Dr Klaus Kleinekorte
Dr Klaus Kleinekorte has been a member of the management board of Amprion GmbH since 2009 and is responsible for the following areas: Asset Management, Operations & Project Planning, System Operation & Control Grids and Industrial Safety. He also bears joint responsibility for European Affairs with Dr Hans-Jürgen Brick. Prior to his appointment to the board at Amprion, Kleinekorte had from 2003 to 2009 been a board member of RWE Transportnetz Strom GmbH, out of which today’s Amprion GmbH arose.
- Alvik, S. (2018) ‘Energy efficiency: the defining feature of the energy transition.’ DNV GL feature article.
- See for example, ISO-New England. Historical Forward Capacity Auction Results.
- See, for example, Yuksel et al. (2016) ‘Effect of regional grid mix, driving patterns, and climate on comparative carbon footprint to gasoline and plug-in electric vehicles in the United States’ Environmental Research Letters: Volume 11, Number 4.
- Herter Energy Solutions (2014) SMUD’s Smart Thermostat Pilot: Load Impact Evaluation. Apex Analytics (2016) Energy Trust of Oregon – Smart Thermostat Pilot Evaluation. Navigant (2018) Commonwealth Edison Advanced Thermostat Evaluation Report.